By Rich Belzer

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To begin with, I could always count on the Republican Party to be supportive of free trade, and this is no longer the case. As an executive who spent many years developing international distribution for U.S. products, my channels always produced between 35 percent and 50 percent of company revenue. Clearly, foreign revenue is not just important for many U.S. companies but absolutely essential; this revenue translates directly into American jobs. Without free trade, many U.S. companies will suffer dramatically.

But before discussing tariffs, we need to look at the big picture — economic growth. In December, the GOP passed tax cuts for individuals and corporations that will reduce government income by $1.3 trillion over a 10-year period. Republicans, however, made the case that increased economic growth would result in higher tax revenue, which would end up reducing the shortfall significantly. Is this happening?

It is not and, in fact, it can’t. You may have noticed that unemployment has been going down — a good thing. Last month’s labor statistics not only indicated that unemployment had dipped below 4 percent but that the number of available positions was higher than the number of unemployed. In some ways this is a good thing, especially for those who are job hunting. In addition, it is beginning to cause wages to increase as companies work to fulfill their hiring needs. Why is this happening?

We are seeing the confluence of three factors: 1) Steady economic growth at roughly 2 percent per year, which began in mid-2009 as we pulled out of the Great Recession; 2) Retirement of the baby boomers, our largest generation; and 3) Current immigration policy, which is removing people from the workplace and seeking to prevent new workers from entering the U.S.

The cumulative effect of these factors is to stunt the economic growth that was projected when the tax cuts were passed at the end of 2017. Companies have more cash on hand, but they are unable to expand due to a lack of available employees. Thus, most of the benefits of the tax cuts are finding their way into the pockets of investors through stock buybacks and higher dividends. As an investor, this works well for me, but there are side-effects to this condition.

The downside for the U.S. is that the $1.3 trillion in reduced federal income will have to largely be borrowed; in addition, the budget that was passed early this year increased spending by a similar amount and this will have to be covered by borrowing as well.

All of this government borrowing will inevitably cause interest rates to go up, further stifling growth. Corporations will have to pay higher rates when they borrow and so will consumers looking to purchase homes and cars.

Into this dangerous mix comes the GOP’s current opposition to free trade and a potential trade war with Canada, China, Mexico and the E.U. Prices in the U.S. for any goods with steel or aluminum content will go up, causing inflationary pressures. At the same time, tariffs will be imposed on selected U.S. goods, which will leave many U.S. companies and farmers in uncertain circumstances.

We may be heading toward a perfect GOP-created storm: Combine inflationary pressures from rising prices with increased interest rates due to a high level of government borrowing and you have a prescription for a self-inflicted recession. From an investment perspective, I am beginning to sell and move into cash. Under the circumstances, can the stock market keep going up?

Making business decisions is tougher. Perhaps the right formula is to just manufacture overseas for products that will flow into foreign markets. Products made in Canada or Mexico will be accepted around the world (except perhaps here); we can then manufacture locally for the U.S. market. Yes, this means fewer U.S. jobs but, after all, isn’t it up to businesses to evaluate U.S. economic policy and act accordingly? Message received.

— Rich Belzer lives in Bend.

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