I’m trying to get these posts to you more often, but have an incredible amount of work I’m doing, which makes it hard. However, I’ll still aim for at least once a week and the goal is three times so keep checking back.
I want to give you a very brief, but crucial view, of what is going on with tariffs from a high level macro perspective. Yes the Trump regime’s goal is to remake the globalist model and pull it back to an earlier real-politique time when the US did not so much participate in international post-national organizations, but instead, in a nationalistic manner, promoted ,as far as possible, American hegemony and economic might. His perspective as a billionaire, who took big risks for big rewards and leveraged to the hilt, and that of many around him, some of who are also that super-rare billionaires, is why aren’t we using all power available for maximum national success. Tariffs are that maximal leverage, and they seek to restore economic and political dominance that, in Trump’s mind, was given away by foolish politicians who don’t understand power to cunning other countries that do. Now, there are a few good reasons to go more sub-maximal in politics and even business for that matter, but we’ll leave that discussion for another day.
He also seeks to capitalize literally on the mobility of modern corporate wealth that lacks national loyalty in most cases and get those capital flows, which for quite a while, have moved out of the US flowing back in a torrent to the US. Consider how quickly American corporations and capital in the last 4 decades were willing to abandon America and move to places with cheaper labor and higher profits. Now, that is to all be reversed, with except in the case of a few countries where corporations are government controlled like China, which does not operate on a free capital system, the money flowing back fast to the US. It didn’t take long to drop the American standard of living with the outflows, and it may not take that much time to bring it back.
If you build in the US you get 100 percent depreciation the first year and no tariffs and going forward a friendly-for-business tax framework and less regulation. But there is, at the present moment, a deeper issue immediately in play at a macro level you need to understand, which I call the swimming pool problem. Under the more left leaning socialist model government regulation expands and takes over the capital flows in a country. Fiscal flows become central. More and more jobs become tied to the expanding government sector and public sector jobs. Those fiscal flows juice the economy for a while, but they also crowd out private capital deployment. There is, if you will, only so much capital that can fill the pool with water. Trump, Bessent, Lutnick, and Navarro, among others in the regime, all want to replace the water in the pool with private capital flows. Hence, you use DOGE to shrink those government flows, and you cut regulation and government institutions. To continue the metaphor, you open the drain in the pool, and all that fiscal flow spending starts to go away down that drain. The problem is as the water or available flows of capital from the fiscal side start to go away, the water level in the pool starts to go down a lot, and after all that Covid and Democratic spending, the pool is filled to the very top with water and the water level may go down pretty fast. Drain the swamp, a favorite current regime phrase, becomes literally drain the swamp of fiscal flows or in this case the pool.
Tariffs are the water they need to go in at the other end of the pool to keep the level of water high while it’s simultaneously being drained. It drops too low, the economy also starts to sink.The goal is to replace public spending water with private spending water. Such spending has a much higher level of velocity and can juice the economy tremendously if it works because a lot of fiscal spending, and some of it is still very important and needs to remain, has a much lower multiplier–it does not often increase production but simply is a transfer of wealth. If it all works, you get a bigger pool with a lot more water in it. However, it needs to work. Private capital incentivized needs to flow into the pool from all around the world, and tariff negotiations need to add much more new water in suddenly opened up foreign markets for American capital to sell products into. Will it work? It’s too soon to tell but it just might.
I know there are lots of critics of billionaires in government, and I’m neutral here politically and powerful arguments can be made on both sides. Many years ago, Ralph Nader thought that might be the only way to get real change because such billionaires were not beholden to the economic power of special interest groups that often control regular politicians. Was he right, it’s way too soon to know. But here’s a key point seldom mentioned: Who understands better how capital will react to various costs and incentives than billionaires. That suggests this Tariff regime, whatever you ultimately politically think of it, might just succeed. Watch the pool though. Each new announcement of a pulling back of government or DOGE cut is water leaving. Each new announcement of a factory to be built in the US is water coming in to refill the pool. Most of all each new tariff deal that opens up a hitherto closed market to American products is a major flow back in. Now you understand, if you did not before, the higher level macro principle at work, which is the goal of this site.
One more point, though. The very tariff enterprise is also premised on the principle that globalism is not really the case. That actually as the real-politique crowd believes the international system is more or less defined by the law of the jungle. If there really was a globalist international organization that was more than simply window dressing the world would put up a united front and everyone would not make a tariff deal. But if it’s ultimately every country for itself, then all the incentives are for each individual country to make a deal, so they are not at a disadvantage to their neighbors in what is a rough world. Now, again, don’t get me wrong, this is not a political site, and international organizations have done some amazing things. At the other end of the tariff regime, such structures would even return in a reconstituted form. But if the Trump regime is right, at least instrumentally, the deals will be made, and the pool will soon be not emptying but overflowing. Time will tell, but understand what you’re looking for here to discover how markets will ultimately be effected.
Disclaimer– the information discussed is simply one person’s opinion nothing more or less. It is only for entertainment purposes. By using this blog you assume all risks associated with using this advice, suggestions, information, conclusions and everything else contained here-in and that you completely and fully understand that you and you alone are 100 per cent responsible for anything that occurs from using this information and material in anyway whatsoever–regardless of how you interpret any discussion, conclusions or advice contained here-in. Any discussion of actual stocks or investments is in no way a recommendation and is only for educational purposes. You should listen to many competing opinions, consider all the counterfactuals to what is argued, seek out always if necessary professional advice, and of course ultimately make your own decisions about the markets.