The Tariff Game

Lots of Disinformation

Every Democrat took to X and said, Trump campaigned on ending inflation but tariffs are going to increase inflation. I knew Democrats couldn’t grasp economic concepts before, but now they are full-throated in their ignorance.

Everyone was doom-and-gloom. The stock market opened 100 points lower and then bounced 24 points. It was boring, actually. The real action was in FOREX markets, as the Canadian Dollar and Mexican Peso continued their slide against the King Dollar.

This is just a point of information for those panicking about tariffs. If the US charges a 25% tariff on Canadian goods, and the Canadian dollar drops by 25% in value compared to the US Dollar, Americans will still pay the same price.

First, let’s see if we can agree on some concepts without all the doom and gloom.

1. Presidents do not have a Constitutional right to unilaterally put tariffs on goods. A friend pointed out, Article 1 Section 8 is pretty clear.

   “Congress shall have the power to lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”

2. Presidents for generations have ignored the Constitution and Congress has let them get away with it.

3. Economists deride tariffs. They think of them in economic terms. The truth is, that tariffs have nothing to do with economics and are political. They have political effects, but they are politics. They are special favors. They can be protectionist. They can be lots of things. They aren’t economic.

4. No one knows Trump’s true goal here. He says he wants to end the IRS and have tariffs pay for it. Essentially, because in some fashion tariffs are passed onto consumers, Trump might secretly be gunning for establishing a straight consumption tax. A consumption tax would be so crazily pro-growth in the US no one would know what hit them.

If I were a benevolent dictator, here is what I would do.

1. End all regulatory burdens on American industry. We are way overregulated, and the Trump administration is undertaking the painstaking task of getting rid of much of it.

2. Establish a consumption tax. See above. That takes away all federal taxes that you can think of.

3. I’d end all subsidies. Let the market speak.

4. I’d tell both Canada and Mexico to close their borders, and I’d enforce it. The ICE round-up going on now should continue ad infinitum until all of the illegals are gone. If an illegal has been here 30 years, I don’t care. Send em back.

See what happens. If at that point, American industry and indigenous manufacturing do not increase exponentially with a lot of things being on shored then I’d look at tariffs.

But, the goal of the tariffs would be to end tariffs on both sides.

It would be cool if someone developed a web crawler that illustrated plainly all the tariffs and duties US manufacturers are confronted with when they try to export goods. Canada charges the US on all kinds of goods. So does Mexico.

I think that tariffs are dumb. But, I also don’t like being a patsy. Yet, I am empathetic to Cliff Asness when he says we should let other countries go broke subsidizing cheap stuff for the US.

I get it. At the same time, international debt markets seem to have patience with all the profligate spending by all countries, including the US. Hence, other countries can continue with their bad practices toward the US ad in perpetuity.

This is not going to be nearly as devastating as the pundits make all this out to be it won’t be.

At our present rate of spending combined with deficits, our debt to GDP ratio was unsustainable. We would become Ancient Greece. A great civilization that fell.

Here is what I think will happen.

1. Tariffs are a disincentive to growth. Slower growth means lower inflation.

2. The way $DOGE is working, they are uncovering billions and billions of government largesse and waste. We will see budget cuts in the 20% of the budget that is discretionary. Interestingly, if we spent at 2019 levels and took in taxes as we did in 2023, the US Budget would be in surplus and we’d be paying debt down. Ending 100% of all payments to NGOs is a fantastic idea. We will save trillions.

3. Real estate is going to drop in value. Especially in DC, and areas in Maryland, in Virginia adjacent to DC. CRE leases by the government won’t be renewed. Homes are going on the market as government employees retire, quit, or get fired. In some areas of the country, speculators bought up buildings and homes. They filled them with illegal aliens and collected government checks. Game over on that game. More real estate on the market.

4. Everyone thinks that we will see higher rates of interest on FinX. They are wrong. We are going to see interest rate decreases.

Additionally, I feel a bit of empathy for government employees who will lose their jobs and don’t have other skills. Say you worked for the government and you are 45 and above. You are credentialed. But, what skill do you have for private industry? How can you be productive? Economic research shows that after age 45, it is incredibly hard to restart a career in a different direction.

At the same time, I don’t have empathy for them. I was a floor trader. At the age of 45, I had the rug pulled out from under me. No more trading floor and I couldn’t make money on the screen. My asset values plummeted in 2008. I had two kids going to college and a mortgage. No one gave me a government handout. No one gave me severance. I was alone.

I had to reinvent myself. I did reinvent myself but no one in the world that I reinvented myself in helped. No one in that world thought I had the qualifications, or what it takes to be successful. But, I did.

Trump is getting a lot of stuff done that people in the US have wanted en masse for years. Who hasn’t heard a liberal or a conservative say they want good government? Who hasn’t heard someone say they want to eliminate waste?

All the crying you hear today is from people actually seeing waste get eliminated.