HOW THE CHINA TARIFF WAR AFFECTS THE STAMP MARKET
The current tariff war between the USA and China has its roots in the fact that for decades we have allowed China unrestricted access to our markets. They took full advantage of this to develop themselves into the second most important economy in the world. The present administration has decided this has been too costly to us and is now seeking to balance the trade as well as also end the abuses by China which resulted. Needless to say, China recognizes that this would be a severe setback to its drive for global domination and so, they will resist in hopes that American resolve will wain or that the Trump administration will lose the election and a new administration will be less demanding. Hence, the Chinese strategy will be one of minimizing the impact of the 10% tariffs on their domestic economy in the short term and putting pressure on US exports in hopes of undermining support of the administrations trade policies. Russia is not the only one who wants to influence US elections!
As a way to mitigate the impact of the tariffs on the volume of Chinese exports, their government has chosen to devalue its currency by over 10% so that local manufacturers can sell to their US buyers at a dollar price which is 10% lower and still deliver the same number of Yuans to the Chinese seller. This, in effect, negates the economic effect of the tariffs on US demand and frustrates our attempts to force China to adhere to our trade demands. It ignores the fact that 10% tariffs can quickly be raised to 25% tariffs, a level which cannot be negated with currency devaluations without severe disruption of the Chinese economy. It also does not offset manufacturers fleeing China for other Asian countries not subject to US tariffs.
The above scenario is background to the subject of this article, how will this tariff war impact the stamp market, specifically, the market for Chinese stamps. The Chinese stamp market has been the biggest growth market in philately for the past 20 years. As China has grown wealthy, its citizens have sought places to invest their wealth in a country which limits investment options and has a banking system which is restrictive on foreign remittances and totally transparent to its autocratic government. Hence, stamps have become an attractive way to create portable wealth not subject to government surveillance and control. It is also a convenient underground currency in a country where doing business means greasing the palms of all levels of government officials in a covert manner. This is not an easy thing to do when serious amounts of money are involved.
The currency devaluations which result from the tariff war will have a direct impact on the Chinese stamp market both inside and outside China. Inside the country the demand for stamps will jump since people know that price inflation is the normal result of the current and possible future tariffs. Also, the securities markets will be less attractive as an investment outlet and the real estate market likewise, but for other reasons. There will also be added demand for stamps for purposes of smuggling money out of the country, hence the more expensive a stamp, the better.
Demand for Chinese stamps outside the country will also be strong, driven by demand inside China. Dealers should not be surprised by increased eBay activity and competitive bidding at auction. US collectors and investors interested in Chinese stamps should focus on the higher priced items since they will be the first things to disappear. Stamp usage as an investment and as an underground currency will continue to grow rapidly as websites such as eBay provide a visible exchange where buyers and sellers can do their covert banking at reasonable costs. Dealers are failing to take full advantage of such sites to exploit the opportunities presented by the situation with China. I noted relatively few on-line items over $100 being offered and many such need certification of authenticity with the offer. Since the China situation is not unique, it won’t be long before digital currencies streamline this sales process even further.