President Trump’s April 2 “Liberation Day” was far worse – more “tariffying” – than what I and most others expected. His subsequent pauses and flip-flops have launched veritable vertigo in stocks and bonds. So maybe you’re thinking of bailing before yet another shoe drops?
Don’t. This dopey tariff-palooza likely ends far better than feared, and trying to sidestep volatility is a losing game. Let me explain.
Yes, Trump’s tariffs are bad — even bigger, broader and more foolishly fashioned than previously touted. Stocks dropped to reflect the negative surprise super fast. April 9’s partial pause for deal negotiations brought some relief, but unease lingers.
That’s because on-and-off, back-and-forth is seriously stupid policy. (Disclosure: I’ve been a Republican since I started studying economics and international trade in college and am a recidivist mega-donor to GOP congressional campaigns. But I also have to call ’em like I see ’em.)
Sustained levies that big and broad would crucify the global economy – and ours, too. Tariffs are bad for broad-based economies. Always! The imposer (actually just a poser) suffers more than the imposed. Tariffs may protect a struggling industry or three but hurt us overall. Always!
As Frederic Bastiat wrote in 1850, “What is seen and not seen” matters. In the case of tariffs, the “not seen” includes the hidden costs of a poor optimization of resources that results from top-down, command-and-control economic policy. It gets scattered broadly, invisibly – like a virus.
The non-US world – 75% of global GDP – trading amongst themselves can mitigate some of that pain. We can’t. That’s partly why it hurts them less, and partly why their stocks are beating ours this year. Moreover, efficiency and comparative advantage always win over time.
“Evil” countries deploying currency manipulation, import barriers, subsidies, etc., hurt themselves most and for similar reasons. They just don’t see it via Bastiat’s Law, which is why America has always bested almost all economies. There is no magical free lunch beyond capitalism, skill and free markets to innovate and irregularly evolve.
Trump’s “reciprocal” tariffs are not tit-for-tats – instead, simply add any country’s US trade surplus to its total US exports and divide by two. But trade balances never cause or predict anything themselves and never have. Trump wrongly claims trade deficits are a “loss” – that’s mercantilist thinking, which dominated 300-plus years ago alongside witch-burning, blood leeching and chamber pots.
Consider: Germany and France are neighbors and are each other’s largest trading partners, like Mexico and Canada are ours. Germany has long run huge trade surpluses. France runs trade deficits. Over the many years, however, French and German economic metrics largely paralleled. (France did slightly better overall—one of ‘em must have.)
Still, reality likely evolves better than feared. First, few tariffs will ever be fully collected. The CBP that collects tariffs is easily sidestepped many ways. Example: re-routing and re-packaging through nations with lower duties.
“Reciprocal” tariffs or no, expect the biggest black market in US history. Expect, for example, small, expensive products stuffed inside giant children’s stuffies, sparking an otherwise inexplicable boom in the latter category.
Trump’s 10% universal tariffs appear unconstitutional, requiring prior congressional action. Legal challenges, already filed, should reach the Supreme Court quickly.
Happily, Trump often uses tariffs for leverage. Many may evaporate if deals emerge. Trump said he wouldn’t bargain. Now he is doing just that, and widely. Flip, flop.
Yet don’t try inning-and-outing stocks on Trumpian on-and-offing. Stocks’ biggest up days cluster unpredictably around the biggest down days. Trying to out-dance wild volatility is futilely dangerous. To succeed, it requires knowing something big that others don’t. Do you?
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 21 countries globally.
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