Upsetting The Apple Cart
- Bob O'Brien
- Apr 26
- 3 min read
If you have recently read the editorial page of the Wall Street, or checked any of the major news media outlets, you will have seen and heard a “wailing and gnashing of teeth.” There has been an enormous amount of criticism of President Trump coming from the elite investment class, and the criticism has focused on the huge increase in tariffs that President Trump has placed on friends and foes alike.
Starting from the close of business on February 28, 2025, a little over one month after President Trump took office, the US dollar has lost approximately 7.4% of its value, and the S&P Index has declined approximately 8.5%. In contrast, gold prices have made new all-time record highs.
Why? The prevailing theory is that the high tariffs are stopping foreign citizens, businesses and governments from selling their goods to the United States. As a result, they don’t have the cash to buy US Stocks and bonds; and in fact, they are selling them and buying gold instead. This could be a huge problem for the U.S. Treasury market, because foreigners own approximately 24% of the total federal debt. If foreigners stop buying, longer-term yields will most likely move higher, increasing the borrowing costs of the US government, while at the same time increasing the cost of consumer loans for homes and cars.
Interestingly, the latest data (as of February 28, 2025) of foreign purchases of US federal debt shows that foreigners actually increased their ownership by $817.9 billion over one year ago. While we don’t doubt the media reports that indicate foreigners have been major sellers in the past two months, we do note that the ten-year treasury yield is basically the same as it was on November 6 when President Trump was proclaimed the winner of the 2024 election, so it’s not a big problem yet.
However, before investors become too critical of the tariffs, it is important to understand what the President is trying to accomplish. To quote Peter Navarro, “For decades, our trading partners have used high tariffs and non-tariff barriers to strangle American exports, unfairly boost their shipments to the US, and wall off their own markets. These tools include currency manipulation, value added tax distortions, dumping, export subsidies, state-owned enterprises, IP theft, discriminatory product standards, quotas, bans, opaque licensing regimes, burdensome customs procedures, data localization mandates and, increasingly, the use of “lawfare” in places like the EU to target America’s largest tech firms.”
According to Stephen Miran, the Chairman of the Council of Economic Advisors, this “has placed undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage, and forcing a decline of our manufacturing workforce by over a third since its peak and a reduction in our share of world manufacturing production of 40%.”
Here’s the problem. These unfair trade practices have been in existence for decades, and the President is trying to reverse them all at once in just a few months. At the same time, he is suddenly cutting off all the cheap labor that has been illegally crossing our southern border and using DOGE to highlight and stop the massive amount of spending that has flooded our economy – spending which pushed the general price level significantly higher and elevated housing and equity prices to extremely high levels. President Trump is definitely “upsetting the apple cart,” and his popularity is starting to ebb.
Some of my friends have argued that the President is trying to do too much, too fast. I understand their reasoning, but I mostly disagree. President Trump will be a lame duck in just two years, and it is highly likely that the huge volatility and dislocation will hurt Republicans in the 2026 elections. We think he has to act decisively now, and hope that by the time the November elections occur, the voting public will start to see that higher paying manufacturing jobs are coming back to the United States.
In the meantime, we do not believe the tariffs will have a lasting inflationary effect, for lower energy prices and reduced regulation should dampen inflationary pressures. In addition, we believe the reduction of illegal immigration will cause a sharp reduction in demand for housing. Already, existing home sales have plummeted, and the number of condos for sale has skyrocketed. Asking prices are declining, and a defensive stock market is causing potential purchasers of homes to be extra cautious.
Whatever happens, it’s going to be a wild, volatile ride. Hold on to your hats!
For an intelligent defense of the President’s tariff policies, we recommend you read the following:
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