Trump’s tariff policy has caused much controversy. His critics have been claiming it will lead to retaliation, increase inflation, cause the financial markets to “crash,” and lead to a recession. In the short run that appears to be a distinct possibility, but I, for one, am not concerned.
Whereas some countries have rolled back their tariffs and/or signaled they will move some manufacturing facilities to the US, others, notably China, have signaled they would retaliate by raising their tariffs on US exports. I am not perturbed by the possibility of a trade war with China or any other country for that matter. The US is the largest and most lucrative market, and they all need access to it to support their economies. In short, they need us more we need them. Deals will be made. There will be no trade wars.
The prices of some goods, such as foreign-made automobiles, have increased; and the financial markets have declined precipitously. On April 2, the day that Trump’s tariff policy commenced, the Dow was valued at $41,736. As I write this it stands at $37,734, a decrease of $4,000 or 9.5 %. We are about halfway to a bear market, which is defined by Wall Street as a 20% or more decrease from a recent high for a sustained period of time. Moreover, Fed Chairman Jerome Powell has reiterated that the Fed is not inclined to lower benchmark interest rates at this time. Furthermore, JP Morgan announced that it believes there is a 60% chance that the US will enter into a recession.
On the other hand, in fairness, it is inappropriate and misleading to judge Trump’s tariff policy by these short-term results. Even he has acknowledged that his tariff policy would result in “short-term pain but long-term gain.” Also, much of the inflation is a holdover from the Biden Administration’s excessive spending. I’m preaching patience. Give it a chance.
On the plus side (1) according to Freddie Mac mortgage interest rates have declined from 7% in January to 6.64% currently; (2) the Bureau of Labor Statistics announced that 228,000 jobs were added in, March, which was a stronger result than anticipated; (3) automakers GM and Nissan announced plans to boost production in the US which, according to UAW chairman Rich Le Tourneau will create “225-250 new jobs.”; and (4) Ford and Stellantis announced that they will be offering discounts to boost sales.
Treasury Secretary Scott Bessent has cautioned countries not to overreact. He told reporters “my advice is not to retaliate. If you do there will be [‘further] escalation. If you don’t retaliate this is the high-water mark.”
In my opinion, Trump is right, and America will benefit in the long run, perhaps substantially, for the following reasons:
- Our trading partners, both allies and enemies, have been taking advantage of us for decades. Their tariffs on our exports have been substantially higher than ours on theirs. Some tariffs have exceeded 100%. They have been flooding our markets with their cheap goods while we have been inhibited from selling our goods in their markets.
- Our manufacturing industries have been hollowed out. Currently, we manufacture virtually nothing; we have to import even the most basic goods, such as steel, aluminum, computer chips, and rare metals. This is an existential threat, because in the event of war or another pandemic or unforeseen disaster we would be vulnerable to supply chain disruptions, quotas or boycotts.
- Over the years we have lost tens of thousands of good paying jobs. Our middle class has been impacted especially hard. This policy is yet another instance of Trump’s staunch advocacy for the middle and working classes.
- Trump’s goal is to have “reciprocal tariffs” so we can compete on a level playing field.
- These tariffs that have been portrayed in the media are not final. They are the basis for further negotiation. The objective is to warn our trading partners that the days of being their “suckers” are over. As we have seen Trump is a master negotiator.
- In just one week many countries have negotiated lower tariffs, and many companies have committed to investing money in the US and/or manufacturing their products in the US to avoid tariffs. Fox News has reported that as many as 70 countries are seeking to make agreements to equalize tariffs.
- Do not focus on the declines in the financial markets. Remember, investors hate two things most of all – inflation and uncertainty. At the moment we have both. Big investors who engage in short-term trading tend to overreact to conditions, both bad and good. Long-term investors should not panic as some tend to do. I expect that at some point the markets will settle down. If Trump’s policy works, they will come roaring back as they have many times in the past. If you doubt me, you could, as Casey Stengel was fond of saying, “look it up.” Trust in America and trust your history.
- Ignore all these demonstrators we all see in the media. These people have been gaslighted by professional agitators. They are ignorant and uninformed. For example, many of them have claimed in interviews that Trump and Musk want to cut social security, Medicare and Medicaid benefits. That is patently false. In fact, the opposite is true. Those programs are teetering on bankruptcy due to rampant waste, fraud and abuse. In point of fact, they want to save them.
According to the BBC various countries such as Saudi Arabia, the United Kingdom, Singapore, Brazil, Australia, New Zealand, Turkey, and the United Arab Emirates will be assessed the “base rate” of 10%. The most egregious offenders, such as Taiwan (32%), the European Union (20%), China (54%) (which includes earlier tariffs), Vietnam (46%), Thailand (36%), Japan (24%), Cambodia (49%), and South Africa (30%) will be assessed “customized” tariffs (unless they negotiate). Some of the tariffs these countries impose on the US are egregious. My favorite is the 778% tariff Japan imposes on rice imported from the US, which obviates us from selling any rice there. Other countries, most notably China protect their industries from competition from abroad. They impose such stringent restrictions that it is virtually impossible to sell products there.
Conclusion
In my view, it all boils down to whether or not you have faith in Trump. I say, we elected him to institute reforms to put the country on the right track. The purpose of the tariffs is to reverse the trade imbalance that has existed for decades that has wreaked havoc on our manufacturing, farming, electronics and beef industries, among others. It has left us vulnerable in the event of another war, pandemic, or other catastrophe.
Trump is taking the long view. He has acknowledged there will be short-term pain but long-term gain. Trump has been successful in all his endeavors, such as immigration, dealing with terrorists, and crime. Furthermore, he has a well-deserved reputation as a superb negotiator. He has earned the right to the benefit of the doubt. Let’s give his tariff policy a chance.
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We Built It Blog by Larry Jacob 