The Trade Wars Begin

I don’t think tariffs are a good idea. But I also do not think they will be as immediately bad as many free traders claim. I liken them to a sugar high. At first, the United States will probably see a bump in revenue that makes everyone think the tariff policy works. But over time, prices will go up, profits will decline, stock growth will slow, and the sugar high turns to a crash.

The free-market claim is that if a tariff goes up 25%, prices go up 25%. Prices are going to go up, but probably not by 25% as companies let the increase eat into profits first. But eating into profits, over time, will have spill over effects on shareholders, retirement accounts, business investments, etc.

Donald Trump, philosophically, believes tariffs work. He also is really convinced the country on which tariffs are placed will pay the tariff, which is factually not true. Notably, however, over the weekend Donald Trump admitted Americans will “feel pain,” which I think Americans did not expect when they chose him over Biden.

With tariffs, the American importer pays the price, from Home Depot to Walmart to Kroger. Trump and his populist politburo advising him on these things also believe the tariffs will spark a renewed interest in American manufacturing.

That might actually be true, but it will come with higher costs to consumers as much of what we import cannot be manufactured domestically as cheaply. Americans just threw Joe Biden out of the White House because, macroeconomically, we have the strongest economy in the world, but microeconomically, Americans were feeling the sting of high prices for groceries, gas, etc. Trump’s tariffs extend to energy imported from Canada and Mexico, though at reduced rates. Trump’s tariffs extend to agricultural products imported into the United States from avocados to cherry tomatoes at the full 25% tariff. Considering microeconomic pain led Americans to vote for Trump, he probably should not have said tariffs will cause “short term some pain, a little pain.”

Food prices, with tariffs, go up first and highest because food companies already have the lowest profit margins. They cannot eat into profits as well as other companies. So while most tariffs might not be fully felt by consumers quickly, tariffs on food imports probably will.

It is ironic that many people championing Robert F. Kennedy and his approach to eating whole foods—the meats, vegetables, and dairy on the outer perimeter of the grocery store—and not highly processed foods will also cheer tariffs that will most quickly impact the whole foods over the highly processed foods. Americans will shift from avocados to other foods. That will impact Mexican profits and American diets.

This policy will also help Justin Trudeau’s party in Canada as he steps aside soon for a new leader. It will allow that person to look tough and probably boost the Canadian progressives at the expense of a more natural partner for Trump in Pierre Poilievre, the leader of the current opposition.

My suspicion is that the tariffs will go away. Trump and his supporters will declare it all a roaring success. And life will go on.

But Americans just voted out Biden over the economy. It belongs to Trump and the GOP now. You can claim any downturn will not be Trump’s fault. But Biden did the same. The American public remains in an unforgiving mood when it comes to high prices.

On the upside for Republicans, Democrats just went hard left in their elections and are rudderless with no message right now. They elected David Hogg to a Vice Chair position, and they seem intent on doubling down on alienating men with any testosterone at all in favor of women injecting testosterone. Democrats also appear to be doubling down on culture war progressivism. On the upside for Democrats, Republicans just gave them an opening on the economy.

Voters give parties license to do much in the culture so long as they are economically secure. Republicans can advance on culture so long as they make consumers comfortable. Tariffs risk that and provide an opening for the left.

Good luck combatting the narrative blaming Trump if the markets open down today. One can ignore the networks, but even the podcasters have retirement accounts and they still listen to CNBC.