Two Questions On Tariffs

A listener to my show asked me two questions regarding Trump’s tariffs.

First, why should he care about the stock market dropping? He added that, like the majority of the middle and lower class, he had no stocks whatsoever.

Second, I previously stated that if President Trump laid out exactly what his goals were with the tariffs, his strategy might work. The listener asked how that could be true since Trump would be telling everyone he was basically bluffing, thereby losing all leverage.

To begin with, 62% of Americans own stocks in some way, shape, or form. You may not be in the stock market or own stocks at all. The truth is, however, that there has never been a time in American history where there was a massive drop in the stock market that did not have a spillover effect on Main Street.

Why?

Because one of the ways that capital markets work is the issuing of new stock. If you can’t issue new stock because nobody is buying it, then no additional capital. The market is both a way to make money — because you can own a piece of a company — and also a good symptomatic examination of what’s happening.

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The stock market is a bleeding edge indicator of what comes next in the economy. The stock market is a giant pool of capital that is deciding whether to invest or disinvest in business.

The stock market is like a scale. It’s like saying, “Well, you know, I don’t use scales, so whether I’m fat or whether I’m skinny doesn’t really matter because I don’t use scales.”

The scale is just a measurement technique.

As far as the second point, I don’t understand why. It doesn’t have to be a bluff. He could say, “Listen, I’m going to 25% tariffs on you unless you go to zero,” and then do it. Why does he have to bluff? We have the cards. Why do we have to bluff? You bluff when you don’t have the cards?

So why don’t you just say it? You can say to the Vietnamese, “Listen, we’re going to put a 15% tariff on your goods because we don’t like what you’re doing. Come to the table and deal or we’re doing it.” What’s Vietnam going to do? They’re trying to deal now. Why are you bluffing when you have four aces?

It makes no sense at all. Don’t bluff when you have four aces. Just say, “I have four aces. Let’s negotiate.” President Trump did this with Zelensky.

I don’t understand why we’re not doing it with everybody.