Tariffs & The Economy: time will tell

President Trump has firmly believed for many years that tariffs are the way to Make America Great Again. This is not a new position. What is somewhat new today is the advisors surrounding him are not talking him out of tariffs but rather supporting him and his gut decisions. The question now before our country is whether tariffs will indeed bring back manufacturing and a new industrial revolution. The problem with that theory is that our lower and middle income citizens have gorged recently on consumer debt and low cost imports to fuel their lifestyle. Any manufacturing we bring back to the USA will require higher cost labor, parts and supplies that are either made more expensively here in the USA or imported, with high tariffs attached. Plus what manufacturing does come back will be mostly automated and not driven by human power. Higher costs will cause even more automation to try and keep a lid on costs and the resulting higher prices.

Another factor that may backfire is whether productivity increases or decreases. Manufacturers here in USA will be protected from international competition and thus have limited incentives to keep costs down. This has historically meant diminished productivity, higher costs and limited innovation. Will that repeat with this new round of tariffs and reciprocal actions?

We are at the start of President Trump’s term. We have roughly four more years. And then what? Will the next administration remove the tariffs? Will they reduce them and lean back into globalization? Or keep things going? President Biden removed some of the tariffs, but left in place many of the original ones set up by President Trump during his first term. A lot will depend on Congress, but it is quite clear even Congress can’t get their act together for even the most basic of actions, let alone something as complex as taking back control over commerce. What this means is the US economy is going to go through a new phase, with companies trying to navigate President Trump and the daily decisions and changes he makes. Will international companies fight back? Look for new markets? Cut costs, innovate, trade more with non-USA countries? All this chaos and these unknowns lend credence to the concept that a well diversified portfolio, including many types of assets, is the best way to navigate not only this situation but all of them. Hold tight and hang on. Things are not going to get any easier.