Explain This To Me

When I had a day job I was a Certified Financial Planner™ practitioner.  In the financial advisory world a CFP^® would be the equivalent of a CPA in public accounting.  I held a half-dozen securities licenses, four insurance licenses and was associated with an SEC registered investment advisory firm; a fee-based fiduciary.  I am not an economist; yet I know my way around the subject and took some measure of pride in making difficult content matter easy for a client to understand.  Economic themes and investment markets continue to interest me.  

As I look across the economic landscape and the on-again, off-again, inconsistent tariff 'deals' personally and individually negotiated by the President no one has adequately explained why the import tax policy is even minimally beneficial or necessary in replacing the proven track record of free trade over the last 75 years. I am mystified as to how raising taxes on business and consumers creates wealth, advances commerce and contributes to the betterment of our financial lot in life. 

Recently a federal appeals court ruled that most of Donald Trump's tariffs are an overreach of his use of emergency powers as president.  The so-called reciprocal tariffs - imposed on nearly every country the US trades with - are being illegally imposed.  This case will come before the Supreme Court so we should know more before too long.

Most weeks the President says, does or provokes something like this that flies in the face of the most basic and incontrovertible economic fundamentals.

Tariff policy likely played a role in the July jobs report.  And because the report did not conform to the President's world view he killed the messenger.  Ironically the July numbers were revised upwards a couple of weeks ago.  August added a weaker than expected 22,000 jobs but shed jobs in June for the first time since the pandemic.  Yes, there will be further revisions as more data is collected.

The President's seeming failure to understand that tariffs are a tax is further complicated by his belief that a trade deficit is consistent with being taken advantage-of.  Consequently, our largest manufacturer of agricultural machinery, John Deere, is grappling with ever higher steel and aluminum tariffs adding more than $600 million this year alone to manufacturing costs.  And because China retaliated for Trump's tariffs with tariffs on soybeans, US exports of the crop are already down 51% and $3.4 billion from 2024.  The president's capriciousness as it pertains to import taxes means that unless something changes really quickly a host American soybean growers will have less money to purchase more expensive John Deere machinery.  

Canada supplies up to 85% of US fertilizer and a 35% import tax on Canadian imports has further burdened American farmers with unnecessary volatility.  I have a trade deficit with my local butcher.  He's never purchased anything from me.  Can anybody explain this madness to me?  

The President's mercurial personal style doesn't inspire much confidence either.  Trade negotiations result in different countries getting different terms and terms can change overnight on a whim or Trumpian fit of pique.  What corporation would undertake a 3 to 5 year plan to move an assembly plant to the US with the knowledge that:  (1) The president could change his mind or back out of the deal without advance notice, (2) The president is out of office long before the project is close to completion and, (3) Your shareholders may revolt as a consequence of both.  Look no further than the billions of dollars of losses suffered by domestic auto manufacturers as a consequence of import duties.  

Then there is the business of Federal Reserve Chair Jerome Powell and interest rates.  One of the reasons our economy hasn't tipped into recession is its ginormous size, diversification and complicated resiliency.  Someone needs to maybe explain to the President that you micromanage the US economy at your own peril. Nothing new under the sun in that regard.  Naturally, with the economy flashing warning signs The Fed cut rates 25 basis points just the other day; and hinted at more of the same.

Speaking of interest rates, the Big Beautiful Bill that was recently signed into law is going to blow-up our mounting debt by an estimated figure north of $3.4 trillion. Government borrowing crowds out commercial borrowing; always.  Will this drive interest rates north further down the road?  Time will tell.

I'll close with the President's manic understanding of supply/demand economics and his conflicting and incomprehensible messaging on energy.  On one hand the President calls for cheaper prices at the pump all the while falling back on the refrain Drill Baby Drill.  Someone needs to take the President aside and explain that lower prices discourage drilling.  Which explains why business drills for oil or gas; not the government.

Lest you get the mistaken impression that much of this lunacy is discouraging to me; perish the thought. Every day is another opportunity to observe the President wave his cape like a matador and produce another bright shiny object with which to distract.  The singularly madcap economic stuff is priceless. 

As long as the training wheels don't fall off it's a never-ending source of new material.