The Secret Winner in the Tariff War
What I learned during my worst summer job... Trump: Tariffs are a good thing... The secret winner in the tariff war... The coming tech boom – and how to profit...
I'll never forget my worst summer job...
For me (C. Scott Garliss), it was construction work. Starting when I was 12 years old, my mom would send me off to work with my dad every day. Dad had his own construction company that built new homes and additions and remodeled existing homes.
As young and inexperienced as I was, my dad quickly put me to work digging ditches and hauling lumber in the blazing hot sun. Carrying a pile of soaking wet lumber up three flights of stairs as fast as possible taught me the value of a hard-earned dollar.
More important, those experiences teach us exactly what we don't want to do. Those miserable summer jobs – which I'm sure most Digest readers experienced – can become a motivator for the rest of your life.
Such is the plight of the American workforce...
For decades, American manufacturing workers were more interested in making money rather than the type of work they were doing.
As education improved and the U.S. grew wealthier, the workforce changed its tune. Like 12-year-old me learning I didn't want to work in construction for the rest of my life, the same was true for average American workers. They sought out higher-paying jobs and started ignoring lower-skilled, more labor-intensive jobs.
But the manufacturing industry didn't simply go away... Instead, these companies gave those jobs to other parts of the world where costs were much cheaper. That's still the case to this day.
As you can see in the following chart, the relative income differences between the U.S. versus China, India, and Mexico are staggering. The average annual income of the three countries combined is less than one-third of that in the U.S.
In other words, nine employees from these three countries equals the cost of one U.S. employee.
President Donald Trump says tariffs are a win for the American worker because they drive business back home...
This conjures fuzzy feelings of good-paying, stable factory jobs returning to the country's "Rust Belt." But the reality is, if Trump's efforts prove successful, a totally different part of the economy and the country stands to reap the lion's share of the benefits: the tech sector.
Trump's argument makes sense...
Want to avoid becoming subject to the ups and downs of tariffs and restrictions being placed on foreign countries and goods produced in those places? Want to do business with the world's largest consumer base? Then you're better off manufacturing here in the U.S.
That seems like a relatively easy concept. Unfortunately, it's not that simple...
Some time ago, U.S. workers decided they didn't want to participate in the wage race to zero. They still don't, and it has only gotten worse. (Don't believe me? Try to hire a teenager to pull your weeds.)
However... China, Mexico, and India (among others) felt differently. Given their relative economic standing at the time, these countries saw an opportunity to gain wealth. They were able to build manufacturing plants, producing goods for global consumption because they had an incredible advantage – cheap labor.
Given the current labor situation in America – with a multitude of jobs available and historically low unemployment – that wage advantage is unlikely to disappear any time soon... especially considering that China and India alone account for 36% of the world's population. That's a ton of cheap labor at the ready.
If Trump is going to bring manufacturing back home, it won't be because American workers cost less...
Sure, Americans are more highly skilled than the average factory worker in those developing countries. But take a look at the previous graphic... They cost a lot more, too.
The average U.S. worker is one of the highest-paid wage earners in the world. China, Mexico, and India barely even crack the top 50. For now, most companies will favor cost savings over higher-skilled workers.
If the U.S. is going to regain some (or all) of that lost manufacturing, it's going to happen because the U.S. is a better place to do business. Factories will relocate because companies will have access to more developed networks, data storage, artificial intelligence, and robotic workers to increase output and profit margins.
(Also, let's not forget that for all the nostalgia about factories providing good steady jobs for thousands of blue-collar workers, any factory built today will include automation and robotics, which employ a different type of worker... and far fewer of them.)
If businesses want to relocate stateside to avoid the on-again, off-again trade threats, who will be the big winners?
Software and robotics companies will surge. Semiconductor companies will see an immediate boost in demand as more chips are needed to make networks smarter. Cybersecurity companies will, too, as more and more businesses look to protect Big Data from hackers and criminals. The world will become more connected and Internet-dependent.
The robotics industry depends upon this connectivity and data to operate. Robotic labor requires fewer human employees, which lowers costs and boosts profits. As you can see in the chart below, the robotics industry has already entered hypergrowth mode...
My colleague and Stansberry Innovations Report editor Christian Olsen has been keeping a close eye on this...
He believes the growing need for data storage is inevitable. As Christian explained in the most recent Stansberry Super-Tech Portfolio quarterly update...
As of April 2019, 57% of people on Earth have access to the Internet. That's more than 4 billion people. According to industry researcher Cybersecurity Ventures, that number will likely jump to 6 billion by 2022 (75% of the population) and more than 7.5 billion by 2030 (90% of the population at that time).
As Internet traffic increases across the globe, we'll get hit by a data deluge that is hard to even comprehend... Networking company Cisco estimates that by 2022, global Internet traffic will reach 4.8 zettabytes per year – that's like sending every movie ever made across the world in 53 seconds.
To accommodate the massive amounts of data flying around, we'll need faster connectivity speeds and more advanced data-storage capabilities... Some predict demand will double what supply can handle. That will drive advancement in data-storage technologies for physical devices and the cloud.
Larger amounts of data being sent across the Internet also means more network vulnerability... and more opportunities for hackers to steal information and hold companies (and the government) hostage through things like ransomware. The chart below shows the rapid increase in data breaches over the past several years...
To build out these smarter, more efficient manufacturing plants, data – and easy access to it – will be essential...
Fiber-optic equipment, routers, and storage space will become critical. Semiconductor chips will facilitate the communication. And cybersecurity software will be paramount to protecting the infrastructure.
This trend isn't going away any time soon. And investors can profit by buying American tech companies...
Names that are worth a look include semiconductor maker Intel (INTC), communications-equipment maker Cisco (CSCO), cybersecurity firm Palo Alto Networks (PANW), and telecom-equipment maker Corning (GLW), among others. These companies dominate their respective fields, and should thrive as the tariff war continues.
So as much as ever, we want to pay attention to what's happening in trade negotiations with China. If Trump's goal is to truly drive business home, technology companies and their investors will be the real winners.
Of course, earlier this week, news broke that this situation could be inching closer to a resolution...
On Tuesday, Trump posted on Twitter that he and Chinese President Xi Jinping would have an "extended meeting next week at the G-20 in Japan."
You often have to take Trump's tweets with a grain of salt, but Chinese state media soon confirmed the plans... The two leaders will meet at the G-20 summit in Osaka, Japan, which is scheduled to begin June 28. The two sides will also re-engage in talks ahead of the meeting.
For now, it's unclear if these discussions will lead to any type of agreement...
But if it does, U.S. technology companies should still benefit.
That's because many of these firms also depend on China for the manufacturing of their parts – and more important, revenue. As the following table highlights, several U.S.-based tech giants get a huge portion of their sales from the country...
These companies would be immediate winners if the situation gets resolved. It would keep prices steady and allow these tech companies' sales into China to continue.
In other words, it's a win-win situation for many American tech companies.
Again, we encourage you to consider some of the names we mentioned earlier. Because of the details we discussed today, these companies should do well in the coming years, no matter how the trade war ultimately ends.
But if you really want to follow these trends and maximize your profit potential, you only have one choice...
You need to read Stansberry Innovations Report.
No one in this business spends as much time and money traveling, identifying, and recommending the best technology investments as Christian and the Stansberry Innovations Report team.
And right now, you can take advantage of the best deal we've ever offered for this research... For a limited time, you can get a full year of Stansberry Innovations Report for 80% off the regular price. And as always, it comes with our 30-day, 100% risk-free guarantee. Click here to get started now.
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In today's mailbag, a longtime subscriber shares his experience with Doc Eifrig's newest trading strategy. If you missed last night's trading "master class," you can learn more about this strategy right here. As always, send your comments and questions to feedback@stansberryresearch.com.
"Doc, I wanted to share my latest experience with your recommendations. I bought BX with about 4% of my portfolio based on your Income Intelligence recommendation last December and am already up close to 60%. That alone is awesome.
"Then, I tried following your Advanced Options recommendation for BX... I recently sold 1/3 of the calls at around $5 (a triple) to recoup my original option investment and am now letting the rest take the wild ride higher.
"The bulk of my investment portfolio is split between Eifrig and Sjuggerud recommendations, and I could not be happier nor could I have advanced my education and portfolio as far without you guys.
"Keep up the great work and thanks for the training videos, webinars, and (relatively) easy to understand research and analysis." – Paid-up Stansberry Alliance member Dan L.
Regards,
C. Scott Garliss
Baltimore, Maryland
June 20, 2019