“An economic stupidity.”
– Henry Ford to Herbert Hoover,
before the passage of the Smoot-Hawley Tariffs
March 24, 2025 — Were you aware that Canada places a 250% tariff on eggs it imports from the United States?
Yes, eggs.
Nothing like a trade war to shine a light on the fungus growing beneath the rock of globalization.
But the headline isn’t “Tariffs are rising.”
The real story is from where.
We’re coming off 80-year lows, historically speaking. Tariffs haven’t been this low since Eisenhower was mowing his own lawn, and nobody knew what “globalization” meant.
The consequences?
Oh, they’re coming.
You’ll see the market separate like oil and water: winners and losers. And, like always, the winners will have lobbyists. The losers will get no airtime. Forget what social media may say to the contrary.
Let’s not pretend tariffs are anything but bad economics. You don’t goose GDP by taxing your own imports. That’s been seen time and again. Our friends over at U.S. Funds even put together an interactive timeline on tariffs to show their impact.
But Trump’s playing a different game. He calls April 2nd Liberation Day – the day reciprocal tariffs are said to be going into effect.
“Liberation Day?” asks the intrepid Bill Bonner below, “Liberation from what? Tariffs have been coming down all over the world since the end of WWII. Rarely do they pose a significant impediment to US exporters.”
The Trump tariff strategy isn’t about macroeconomic theory. It’s about leverage. A blunt instrument.
If Apple pulls out of Foxconn in China, “reinvests in America” or Japan writes a check with a lot of zeros, that’s mission accomplished. And if Arab sheiks buy the new resident “gold card” (with a scant $5 million price tag) and promise further investment in the U.S., even better.
The market? Your 401(k) is just collateral damage. And, frankly, to be expected during the opening gambit of Trump’s master playbook. The market swings on “will we, won’t me” tariff headlines are just the beginning.
As Bill Bonner — my co-conspirator in economic heresy — likes to say, this is shaping up like a classic showdown, an epic clash between economic sense and political theater. Enjoy. ~~ Addison
Food For Thought
Bill Bonner, Bonner Private Research & Grey Swan
Once again, we are witness to an epic battle. Like David Stockman’s historic showdown in the early ‘80s. Economics vs. Politics. Economics wants stable money, honest interest rates, balanced budgets, and a smaller federal government. Politics wants what it always wants — more money and more power.
The Triumph of Politics, is the title Stockman gave to his memoir on the subject. It tells you all you need to know.
Politicians find ways to explain away their mistakes…and new theories to justify more. In the early ‘80s they claimed the need to fight communism. Today, the fight is against drugs, Russia, Iran, terrorists, immigrants… and unfair trade policies.
In the early days of the Soviet Union, collectivization of agriculture was an inevitable bust.
People just didn’t work as hard for the workers’ paradise as they did for themselves. And the lessons, learned by bitter experience over generations of peasants — about what to plant, when to plant, and how to cultivate crops — were often lost on the bureaucrats and central planners in Moscow.
The result: millions of people went hungry.
It was into this challenging situation that a young, persuasive agronomist came forward with a solution. Timofil Lysenko claimed he could create a whole new genre of agriculture based on the Soviet model. Instead of competing with each other for water, nutrients and light, seeds would cooperate… and even produce bountiful yields — even in the wintertime.
The theory had crackpot written all over it. But in the early ’30s Stalin was grasping at straws and Lysenko had one. And who was going to tell Stalin he was wrong? Nikolai Vavilov — a traditional botanist — dared to speak the truth. For his trouble, he was sent to the Gulag… and then executed.
‘Lysenkoism’ was triumphant and declared official policy in the Soviet Union. The collective farms dutifully put it into practice. Crop yields collapsed even further. And an estimated ten million people starved to death.
Soviet policy had a profound effect on other communist regimes. It wasn’t long before Mao, in China, picked up Lysenkoism and gave it the go-ahead. Later acknowledged as one of Mao’s big errors, the death toll between 1959 and 1961 was as many as 45 million.
Not all the deaths were directly caused by Lysenkoism, but by a combination of political mismanagement, political science, and political chaos.
Big Man leaders are often subject to Big Man delusions. Their yes-monkeys laugh when they say something meant to be funny. They cheer when the Big Man makes an outlandish promise. And after a while, the Big Man falls victim to his own sycophantic entourage.
They listen to him so intently; he must know what he is talking about!
The problem is well known. In Ancient Rome, a triumphant general would be assigned a slave whose job was to whisper in the great man’s ear — Memento Homo (you are human) — to warn him.
Donald Trump has no such luck. Instead, he has another crackpot policy. And it’s coming to you on April 2.
We’re talking about his reciprocal tariffs. Trump says that when they are implemented, it will be ‘liberation day.’
Liberation Day? Liberation from what? Tariffs have been coming down all over the world since the end of WWII. Rarely do they pose a significant impediment to US exporters.
America imports about $3.4 trillion worth of goods each year. These imports are subject to a weighted average tariff of 1.6%. It also exports to the rest of the world, on which our exporters pay an average of about 1.85%. The difference — a quarter of one percent — is caused largely by India’s protectionist policies.
And who will tell Donald Trump the truth…that the ‘reciprocal’ concept is unworkable and that US tariffs are actually higher than many of our major trading partners? Japan’s tariffs average only 1.45%. Taiwan’s tariffs don’t even rise to a single percentage point. What about US tariffs on Chinese electric cars, at 100%? And what about the 140 foreign companies subject to US ‘export controls?’
If the ‘reciprocity’ were based only on the tariffs, the US would have to lower its barriers in many instances — just to make them ‘fair.’ This is not at all what the White House intends to do.
Because tariffs are a feature of politics, not economics. There is nothing about them that suggests they would lead to a healthier economy. And there’s nothing about them that is ‘fair’…unless fairness means that if you whack Peter with a stick you must also whack Paul. And if they whack each other…you have to whack yourself just to stay even.
But wait…there’s more to the story, isn’t there? Treasury Secretary Bessent is also supposed to consider Non-Tariff Barriers as he attempts to find reciprocity.
Regards,
Bill Bonner, Bonner Private Research & Grey Swan
P.S. from Addison: Before we begin this week on tariffs in anticipation of “Liberation Day” it’s worth pointing out as braggadocious as the man is, Trump didn’t invent tariffs any more than DOGE is the first government commission to try to wring waste, fraud and abuse from the government balance sheet and tame the “deep state”.
Tariffs are to trade like war is to diplomacy — loud, costly, and usually a sign someone ran out of better ideas.
Our friend Frank Holmes, a frequent contributor to Grey Swan, has assembled a trove of resources on the U.S. Global Investors website. Including this interactive chart of tariff schemes from the earliest days of the nation to our present era:
Click on the image to access Frank’s interactive guide to US tariffs through the decades. (Source: U.S. Global Investors)
With resources like this at our backs, we’d be remiss if we tried to ignore Trump’s epic political showdown with the globalists.
Fact: It’s happening. Ignore his tariff feints at your peril. And position yourself with the market winners. Because while we know the trade war will be volatile, that’s where big fortunes can be made.
We’ve shown you a few safe havens, from gold to America’s energy abundance. What awaits are, frankly, the kind of opportunities that only come around once or twice in a lifetime of investing.
P.P.S. All that said, it’s possible the Trump promise of a new Golden Age isn’t his usual puffery. Winning this trade war could mean a “postwar” boom…
Trillions of dollars in investment in the United States, the rollout of technologies such as AI, and a right-sized government that takes a major debt crisis off the table could make the latter half of the decades look like a new Roaring 20’s.
Question for the day: “Tariffs are about making America rich again,” the president promised in his joint address to Congress on March 4, 2025. “It’s happening, and it will happen rather quickly. There will be a little disturbance. But we’re okay with that.”
