What a mess! To protect your sanity, and in the interest of keeping a cool head, I recommend you just don’t look at your portfolio this week… or maybe this month… heck maybe this year. The point is, don’t panic, don’t lose your cool, and if you have an investment strategy that plans for downturns trust in your strategy. Easier said than done the last few days, huh. Trump, unbuoyed by having to run for re-election and having the experience of previously being president, is finally taking the opportunity to play around with tariffs in a yooj way. This is something he’s been talking about for decades.
The supposed goal is fairness for U.S. workers and industries but his execution leaves much to be desired. Trump’s blanket protectionism may stifle the innovation free markets thrive on and significantly raise prices to consumers. Don’t get this confused with inflation though. Inflation is driven by government spending and money printing, not tariffs, and our national debt remains the largest threat to our economy. In my view the smarter path lies in “smart tariffs”. Smart tariffs are targeted. A tool to level the playing field with allies, forward the goal of decoupling from communist nations, and secure our hemisphere against rising powers like China.
Trump’s tariffs aim to fix a world where U.S. goods and services hit steep barriers abroad while foreign products flood our markets nearly unchecked. Take the European Union for example, its regulators have hammered American tech giants like Google with billions in fines, around $5 billion in 2018 for antitrust alone, and unleashed the Digital Markets Act (DMA) to bury them in red tape. Meanwhile, EU luxury goods like French wine and German cars have free and easy access to our market. This isn’t free trade. Tariffs could even the score. Let’s say, a 15% levy on EU exports unless they ease the overzealous taxation and censorship laws targeting our tech sector. If they back off, we reciprocate, which could have the positive result of pushing the EU away from totalitarian speech controls, which smothers dissent under the pretense of moderation.
India’s another culprit, its 60% tariffs on U.S. motorcycles throttle Harley-Davidson while Indian software services flourish here. A targeted tariff on their exports could force India to balance the scales. Trump’s flat 10% tariff on all imports doesn’t seem like a crazy baseline, but it’s only smart if we waive it for nations that play fair.
Critics cry Trump’s tariffs will jack up prices and call it inflation. This is the height of fake news. Inflation comes from the money supply and government spending, not input costs like tariffs, taxes, or regulations. When the government racks up trillion-dollar deficits, it borrows or prints the cash to cover. That’s inflation, it’s the classic one of too many dollars chasing the same basket of goods. Tariffs might hike prices, a $500 TV could hit $550, but that’s a hiccup that can be resolved when tariffs drop. When the money supply is increased it’s systemic. Legacy media likes to conflate the two and they depend on keeping the population ignorant to keep people afraid. This keeps people watching and keeps the ad dollars flowing.
On principle, I’m not a fan of tariffs. I believe they interfere with a free market, and a free market fuels progress. Japan’s car exports in the ‘80s forced Detroit to adapt or collapse. Japanese giants like Toyota and Honda then built factories in Kentucky and Ohio to be closer to their customers which resulted in thousands of jobs. Those manufacturing plants feed state and local tax rolls and spark growth in nearby towns. This is proof free markets can bring jobs home without tariffs. I’m of a slightly different mind when it comes to communist nations like China though. Even so, Trump’s huge tariffs on China might be a bit too big a shock given they’re the manufacturing hub of the world right now. The eventual goal with regard to China should be to cut trade entirely until they drop communism. I fully understand this is just a fantasy of mine. But I feel it’s one worthy of free nations.
Smart tariffs can work without all the drama. They can ween us off communist nations like China, not in four years, it may take a decade or two. China is a huge supplier of pharmaceuticals. Bring some of that home and/or shift that to Canada or India with 5% tariffs. Phasing out China over time. We should be trading and investing more with South America. Brazil is a tech hub, Chile has a solid economy and can replace some of the manufacturing we get from China. Offer free trade if they ditch socialism which can boost both sides while freezing out China. This all has national security implications too. Closer ties to Panama or Colombia shield trade routes from China’s Belt and Road Initiative. We can lean on the mutual strengths of allies like Japan, South Korea, and Taiwan which are an important hedge against China.
Trump’s tariff sledgehammer keeps whatever MAGA is fired up. That doesn’t do anything for most of the people in the middle that helped get him elected. The U.S. will never build factories within two years, let alone four. Getting all the government approvals to build anything in this nation takes years, not months. Unless there is a regulatory and tax revolution I don’t see any way we bring in huge numbers of manufacturing jobs within Trump’s term that are not already in the pipeline. It’s not physically possible to get that done.
Smart tariffs combined with removing regulations is the way forward. It’s too boring though to get any traction with anyone.
Leave a Reply