Have you noticed how suddenly everyone’s an expert in the Smoot-Hawley Trade Act of the 1930s? It’s fascinating to watch. Let me cut through the noise and get to what actually matters for us as investors.

First, two critical points:

  1. The world today is infinitely more complex than in the 1930s
  2. Never make investment decisions solely on economists’ predictions

Not that I’m not a student of history, but I must resist the urge to extrapolate—sometimes torturously—from past patterns to present circumstances. This whole exercise reminds me of how COVID-19 spread models were embraced as gospel (what, don’t you believe in “science”?) yet turned out to be terrible predictors of reality. Look, as a closet contrarian, my first instinct is almost always to take the other side of whatever everyone else is saying.

The Tariff Debate: Pros vs. Cons

I don’t have a horse in the race when it comes to tariffs—but let’s break down what’s at stake:

Pros

The Global Reset. Let’s be honest—we’re way overdue for a fundamental realignment of global economic relationships in a post-cold war world. According to geopolitical strategist Peter Zeihan (if you haven’t read him, you should), America’s global security umbrella has siphoned off 1-2 percentage points per year of US GDP growth and essentially “gifted” it primarily to China and Europe for generations. The result? Most of Europe has become complacent, entitled, and just a tad too impressed by their own progressive enlightenment. Meanwhile, China has lied, cheated, and stolen their way to global economic runner-up—though yes, with some legitimate hard work and innovation mixed in. In today’s more competitive, AI-fueled world (and for basic national security), it makes sense to reclaim some of that advantage, doesn’t it?

The Economic Detox. The country is overdue for a cleansing from years of profligate fiscal stimulus, mostly tied to smoothing the impact of the COVID crisis. Come on—in almost every way, we’ve adjusted, adapted, and moved on. It’s time to address the bloating and wean the economy off the federal teat. Whether or not DOGE is the best approach (and I have my doubts), a bold strategy is clearly needed to break through the complacency.

The Long Game. This is just the first step of a larger plan—wait until we get to the tax cuts and loosened regulatory burdens! At least until the inauguration, markets were convinced the country was entering a new “golden age” for the US economy.

The Hidden Agendas. A significant portion of the negative commentary is, at best, politically motivated and, at worst, fueled by large—perhaps coordinated—actors who are short US equity markets and intent on overthrowing the US Dollar as the world’s reserve currency.

Cons

That said, it’s been a messy road so far—many fits and starts. Why start with all the bad news first—isn’t Trump a marketing genius? Crazy like a fox, or just straight-up crazy? Jeffrey Sonnenfeld of Yale’s School of Management told Barron’s: “The objectives are sensible and strategic, but the targeting is imprecise and dysfunctional. He’s his own worst enemy.”

The Inflation Problem. Tariffs add inflationary pressure at a time when inflation remains stubbornly high—the last mile to 2% is proving elusive. Warren Buffett is more blunt, calling tariffs “an act of war” and contending that common sense dictates prices will inevitably be higher in the future. There’s certainly historical evidence supporting this conclusion, and besides, who wants to argue with Warren Buffett?

The Consumer Breaking Point. Despite their unexpected resilience, higher prices and economic uncertainty from here could have consumers finally throwing in the towel. Effectively, the last straw. Unless unemployment spikes and/or consumers run out of ammunition, I’m skeptical they’ll substantially alter their behavior.

The Earnings Squeeze. Over the last several years, many companies have taken advantage of supply chain concerns to raise prices. That said, many have reached the end of their pricing power and likely have achieved peak margins for this cycle.

The Diplomatic Cost. Why would we treat our friends and enemies the same? The US risks alienating everyone simultaneously, which even the durable US economy cannot withstand. Perhaps we’re seeing the initial impacts of this loss of global leadership in the weakening USD.

Would the world be better off without tariffs?

 Probably. But here’s the reality check—on a relative basis, the US has—er, had—some of the lowest tariffs of any developed country. Without using some economic levers as “sticks,” what incentives do countries benefiting from the current system have to change it? Zero. Zilch. Nada.

Reciprocity (if that’s the real game) seems fair to me. Want an easy way to avoid tariffs? Everyone removes them—creating an even playing field.

Kevin Warsh (some say the next Fed Chair) said it pretty well in a 2024 essay: “Put plainly, if a country acts as a trusted security partner of the U.S. and treats American businesses and citizens as it treats its own, the U.S. will act reciprocally. If, however, foreign countries disfavor U.S. interests, they won’t gain the precious benefit of American protection or ready access to U.S. technology or markets.” I must admit, this sounds good to me—even elegant in its simplicity.

Some Trump criticism is obviously legitimate, but let’s face it—a lot of it is just blatant sour grapes. Remember which former president said that “elections have consequences?” Oh yeah, that was Obama. And he wasn’t wrong. Business as usual in Washington has generally been a raw deal for the American taxpayer.

Focus on the micro instead of the macro

There was a sign in my high school football weight room—”no pain, no gain.” Remember that? You can’t always take the easy way out. At the same time, you don’t have to choose the most complicated path either. This is why I focus on the micro instead of the macro—it’s hard enough to understand the fundamentals and prospects of a company and how the markets will interpret them. Trying to do that at the global macro level? That’s above most of our pay grades, especially mine.

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