Post New

How do people see the tariffs impacting Berkshire? I believe they aren’t some temporary game being played to bully trade partners and create a putative tax basis for Trump tax cuts. Rather I think this is the first step in implementing the economic plan of American Compass. As such, I think the tariffs will be in place for a long time, and that they will be amped up if our partners retaliate. Assuming the will be in place, how goes Berkshire?

Berkshire is a very unusual firm, in that its business is so strongly concentrated within the US compared to most medium-to-big firms. So they aren't exposed to some of the more obvious risks, like a retailer who sells mostly imported goods and therefore either has to immediately raise prices or cut profits.*

The utilities and rails will be fine, depending to a certain extent on the future cost of fuel for both of them. A cyclical economic slowdown always hurts, but cyclical ones come and go. If any part of the hit to the US economy is permanent, that of course is a permanent hit to the companies within it.

But bear in mind that even an insular US firm is affected in a lot of ways. Have a gander at the US dollar index.
https://stockcharts.com/h-sc/ui?s=%24USD&p=D&st=20... (the level of the USD against a weighted average of trading partners).
If you have a US $100 bill in your drawer, it has only 92.8% of the general purchasing power that it did at the start of the year, and 97.4% of what it had two days ago, no matter where you live. Even if the S&P 500 index value were to be flat today and all of their future reported earnings unchanged as reported in US dollars, everybody holding it is now a few percent poorer in terms of general purpose purchasing power. Which may last, or not.

As previously mentioned, I converted the vast majority of my cash holdings out of US dollars a little while back. At the moment that appears to have been a good move financially speaking.

Jim

* I doubt the market will be flat for this type of firm, Dollar Tree stock is down -12.8% in pre-market trading...

Jim

* I doubt the market will be flat for this type of firm, Dollar Tree stock is down -12.8% in pre-market trading...

I expected my DG shares to be down too but no, they seem to follow a different drummer, for once, up a smidgeon instead of plunging 10% – que pasa, do you suppose?

If this is part of Stephen Miran's published plan (now chair, Council of Economic Advisors) to use tariffs, then as I understand it, one stated goal is to devalue the dollar.
Some discussion of the plan here
https://www.shrewdm.com/MB?pid=638518736
https://www.shrewdm.com/MB?pid=373148673

Everyone wants there to be a grand scheme behind all of this but the terrible truth is that extremely stupid people are in charge in the US and they have a fanatical devotion to wrong, childlike concepts of society and economics cooked up by right wing radio hosts in order to sell tainted dietary supplements

I expected my DG shares to be down too but no, they seem to follow a different drummer, for once, up a smidgeon instead of plunging 10% – que pasa, do you suppose?

DG is more of a grocery store where as DLTR is selling (previously) cheap imported nic-nacks. They are actually quite different.

tecmo
...

Ha! The Dow is down -1550. Dow & S&P down -4% in the first 1 1/2 hour.
Shades of Black Monday 1987.

Smells like panic. Toss everything out the window in case the world comes to an end. Spoiler: The world never comes to an end.
Lots of people are going to be rich from buying right about now.

Half the country is insane. Problem is, everybody thinks it is the other half that's the insane ones, "we on this side are the only rational ones".


Bright side today: AJG is up 1%, BRO is flat.
{My hat is off to whoever here said that he'd been pounding the table for AJG for 30 years. I finally bit a while back. Too bad I didn't listen to Jim when he was touting WMT.}

Half the country is insane. Problem is, everybody thinks it is the other half that's the insane ones...


https://www.smbc-comics.com/comics/1526914324-soon...
The artist noted several years ago "I promise this comic will never stop being topical".

Bright side today: AJG is up 1%, BRO is flat.

Except for some Brownian motion, Berkshire has been flat for over a week, still is. At least measured in US dollars.
Certainly doing better than a lot of things: beating the average large cap (RSP as proxy) by 22% since end January.

Jim

Ray, how do you see the tariff “war” playing out? What is the endgame here? Do you think there is a deeper strategy than just “tariffs are beautiful”?

Anyone buying RSP?

Not buying yet. Panics usually take more than a day if past US market crashes are any indication.
It's day one of the bear market. There will be violent rallies briefly, but as of now, tariffs seem genuinely bad for US economic growth, and for global trade in general.

BTW the tariff percentage calculation was a remarkable sleight of hand. Hats off to whomever in the White House who took this alleged Hollywood director quote to heart: "you can never underestimate the intelligence of the audience".

Mixed bag on the sell-off with BRK equity holdings. Consumer stuff, insurance, i.e., KO, KFC, CB all holding up with financials and tech getting hammered. The flight to defensive stocks is somewhat understandable in this environment, amidst the uncertain consequence of the tariffs. I think though that these tariffs won’t be in place for very long. There’s a lot of emotionally charged reciprocal threats, but the reality of damage to the world economy will set into the mindset and calculus of rational actors sooner, rather than later. Those who have the most to lose will respond and concede (is cave too harsh?), meaning I don’t think the US will blink first. It’s a very high stakes game of Poker. We’ll see what happens and check back in a few months.

What was the price when Buffett sold last tranche of Apple? $220 or so? Others shares were sold in the 180s I believe. Yeah, he left some on the table but it may look like a good decision overall.

UGH! I’m hungry and must have been thinking about chicken.

Correct KFC to KHC!🤦🏻‍♂️😩

AAPL AXP BAC are each down 7+% and CVX isn’t far behind. KO is green but not as much. Not as much of a mixed bag when you control for weight. I have the portfolio doing worse than SPY on the day, at least as I type.

We are definitely experiencing the curse of "living in interesting times". It will be interesting to see how the BRK fortress responds. As Jim pointed out, BRK is quite American centered, so it ought to do better than average. I've long expected BRK to do better than average in a downturn. Despite many predictions, we have not had a downturn for sometime. It will be interesting to see if these aggressive tariffs trigger one.

As I type we are now 25% ahead of the S&P year to date. With 50% of my investment portfolio and 90% of my stock portfolio in BRK, we are staring to talk about some real money. I'm glad to be on the upside, though I wish the times were less "interesting".

Long term use of tariffs IMO can only result in:
1. Higher inflation
2. Devaluation of the dollar
3. Lower standard of living for most Americans (I think this has been happening for a few years now).

Also with Trump's "interesting" decisions, I believe it has caused a lot of money to flow to non-US markets which will continue a downward trend of the market. People want stable, consistent, and sensible policies. That we don't see now.

Rich

We’ll see what happens and check back in a few months.

This may in fact be the biggest economic factor. You're not alone in deciding to sit on your hands for a while and see what happens, but that means a lot of potential economic activity is on hold for a while. In terms of impact on things like hiring or capex, enough uncertainty looks a lot like a recession.

Jim

Jim,
Hats off to you for citing Brownian Motion, a favorite personal comment. For those who do not know the reference:

https://byjus.com/chemistry/brownian-motion-zig-za....

Uwharrie

Ray, how do you see the tariff “war” playing out? What is the endgame here?

For as long as I remember, ever since at least 50 years, US sugar prices have been hovering at around twice the level of world prices. (That's why so many products have the abominable HFCS instead of real sugar.) Somehow nobody seems to care about that. What is going on here is the abrupt change. Change upsets the balance that everybody is accustomed to.

Quite quickly things will settle down, now that the US has the attention of the rest of the world. It's the story about how you get the attention of a mule. If the tariffs announced this morning stay as published, in a few weeks or a couple of months everybody will have adjusted and accommodated to them. Things will shake up then settle down.
My best guess is that we will settle down with have lower tariffs in most cases.


IMHO the endgame is just what has been stated: stopping the asymmetric tariffs where other countries put a grossly high tariffs on US goods but the US has a low or no tariff on goods from them.

The insane circumstance where we import damn near everything from China. They are an adversary; why in the world are we dependent on them for products and necessary raw materials?
Britain learned in WW2 what happens when you are dependent on critical goods from another country across the ocean.


I read a couple of articles early this morning before I headed to the store, let's see if I can find them a few hours later.

Here's a sampling:

1) Look at the table*. Every single country that got hit with "reciprocal" tariffs still taxes us as much or more than we tax them, sometimes a lot more. The new tariffs will make our products more competitive at home and thereby increase domestic production while lowering the balance of payments deficit. Manufacturing (ie, jobs) outsourced overseas will return to the homeland.

* The offcial gov't site must be getting hammered, it won't load. Here is a news link, scroll down to the table. https://www.newsweek.com/trump-reciprocal-tariff-c...
edit: maybe this: https://voxday.net/wp-content/uploads/2025/04/imag...

Seeing as the US tariff is just HALF of what a country places on us, I don't see why people are going nuts.


2) The response from the EU is exactly what we would expect to see from the end of the 80-year-old Marshal Plan.
EU Commission President Ursula von der Leyden has three big concerns with the new trade/tariff reset.
•The EU will not be able to compete for U.S. market share with 20% general tariffs and 25% auto tariffs.
•The EU must deploy countermeasures against the risk of losing industrial capacity and manufacturing to the United States.
•The EU must defend itself against China dumping cheap products into the EU now rejected by the USA.

Von der Leyen is concerned mostly about the extremely valuable U.S. consumer being leveraged by President Trump, essentially blocking exploitation from EU and Asia. The EU will not tolerate losing access to the most valuable customers in the world, Americans.

3) US is the largest international market. If the rest of the world wants to sell to this major market (they do!) they will do whatever they need to. The US is the elephant in the room, everybody else has to work around that fact. After all, there is no reason that other countries MUST sell to the US. They can always decline to export goods the the USA.

You're not alone in deciding to sit on your hands for a while and see what happens, but that means a lot of potential economic activity is on hold for a while.

Are cargo ships that were headed for the US now turning around in mid-ocean?

If the tariffs announced this morning stay as published, in a few weeks or a couple of months everybody will have adjusted and accommodated to them. Things will shake up then settle down.

It should be noted that according to the textbooks, big tariffs should (rather obviously) be bad for the US economy because it hurts purchasing power like any big new sales tax, but actually bullish for the dollar. Today's remarkable weakness might not last.

Jim

China. They are an adversary

Ahhh, stone age, middle age, internet age, it´s always the same human animal.

You're not alone in deciding to sit on your hands for a while and see what happens, but that means a lot of potential economic activity is on hold for a while.
...
Are cargo ships that were headed for the US now turning around in mid-ocean?

Think more about investment decisions, M&A, hiring plans, that sort of thing. Buyer interest in very expensive houses has apparently fallen off a cliff, according to a friend in that business. If I were thinking about starting a business, I'd certainly be holding off to see how the cards land. When the big money sits on its hands, the regular folks feel it.

Jim

Rayvt:

"US is the largest international market. If the rest of the world wants to sell to this major market (they do!) they will do whatever they need to. The US is the elephant in the room, everybody else has to work around that fact. After all, there is no reason that other countries MUST sell to the US. They can always decline to export goods the the USA."

OK, no argument from me. That said, the American consumer will have to understand that goods, whether from abroad (including tariffs) or made domesticly, will now cost considerably more.

While the many (most?) members of this board will not be financially damaged by this (pragmaticly if not emotionally), maintaining their current standard of living for a major portion of the poipulation will not be possible without either going into debt or geetting higher wages (for a textbook definition of inflation).

From a selfish personal standpoint, whether the lamb chops I buy a Costco come from New Zealand or Minnisotta has not mattered as much as the value of the package. If the lable stating their origin changes in concert with a price increse, I'll likely notice the latter change before the former.

Jeff

OK, no argument from me. That said, the American consumer will have to understand that goods, whether from abroad (including tariffs) or made domesticly, will now cost considerably more.

It is a fairly simple truth that the US as a whole has long consumed quite a lot more products and services than they produce, the gap being made up by imports. If one assumes that this is not a good idea in the long term (note, not axoimatically true), it clearly follows that US consumption has to come down and/or production has to go up. The US is already one of the more productive economies in the world, and total factor productivity is notoriously hard to budge (ask any UK politician). So the remaining solution is to crush consumption: US folks consuming way fewer products and services overall. Falling standards of living, not import substitution.

It could fall into the category of "be careful what you wish for".

Berkshire is pretty resilient, overall, but owner earnings will follow real GDP in a lot of ways. If that takes a long term hit of whatever magnitude, so will Berkshire's real value per share.

Jim

IMHO the endgame is just what has been stated: stopping the asymmetric tariffs where other countries put a grossly high tariffs on US goods but the US has a low or no tariff on goods from them.

But that isn't true. USMCA (which by the way was signed into law by Trump) sets tariffs between the US, Canada, and Mexico at the same rate, with some minor exceptions.

Similarly, if a country is a member of the WTO, they have to extend the same tariffs to all other WTO nations, again with some minor exceptions. The notion the US is somehow getting singled out is pure fiction.

For as long as I remember, ever since at least 50 years, US sugar prices have been hovering at around twice the level of world prices. (That's why so many products have the abominable HFCS instead of real sugar.) Somehow nobody seems to care about that. What is going on here is the abrupt change. Change upsets the balance that everybody is accustomed to.

Thanks for that post! You stated the obvious very clearly.

OK, no argument from me. That said, the American consumer will have to understand that goods, whether from abroad (including tariffs) or made domestically, will now cost considerably more.

Let's say BMW makes a car in Germany and it is priced at $40,000. If there is a new 25% tariff, then $10,000 must be paid to import that car. Now if BMW raises the price of that car to $50,000 then the US consumer (at least the ones who will still buy that car) pays the $10k tariff. But if BMW only raises the price to $45k, then half the tariff is paid by the US consumer, and half the tariff is paid by the German manufacturer. This will probably be the case for almost all non-commodity goods. For commodities, I suspect the prices will rapidly adjust as they always are constantly adjusting for myriad other things.

I am not sure about the BMW example. Sales will go down as the price has gone up. So why will BMW be able to absorb $5,000 extra cost on lower sales? It doesn't seem like Economics 101 to me.

Aussi

Sales will go down as the price has gone up. So why will BMW be able to absorb $5,000 extra cost on lower sales? It doesn't seem like Economics 101 to me.

I don't know what will happen, that's why I mentioned both cases.

Right now, the BMW 228 starts at $39,600. If they have to pay ~$10k tariff when new ones are shipped next week (or next month, whenever they run out of stock), then they need to decide what to do. If they raise the price to $49,500, they may not have any customers at all anymore, so they may choose to eat part of the tariff so they can at least have some sales. Economics 101 - the price of ANYTHING is what a willing buyer will pay a willing seller. We will have to wait and see what happens.

But if BMW only raises the price to $45k, then half the tariff is paid by the US consumer, and half the tariff is paid by the German manufacturer. This will probably be the case for almost all non-commodity goods.

The margins on cars aren't very good. Maybe BMW's are better, but it is unlikely they have an extra $5K on a $40K vehicle they are willing to eat. That's true for most consumer products. A computer from Vietnam will have a 46% tariff. There's no way they can split the difference. They might eat a couple percent here and there, but rest assured you the consumer will be paying the rest.

If it were Birkin bags maybe it is different.

US is the largest international market. If the rest of the world wants to sell to this major market (they do!) they will do whatever they need to. The US is the elephant in the room, everybody else has to work around that fact. After all, there is no reason that other countries MUST sell to the US. They can always decline to export goods the the USA.

The merit in the last bit relative to the first bit may be greater than you suppose. The US accounts for 13% of global goods imports. That's more like the dog in the room than the elephant in the room. If that dropped by a third some specific businesses would certainly be whacked hard but the rest of the world would carry on.

Some optimists suppose that the announcement is just an opening salvo to lay the groundwork for cutting deals one on one. But I am hard pressed to think of anyone on the planet who would trust the US government to honour any deal at all ever again, even one signed by the same players. Interesting times.

Meanwhile I assume American coffee sellers are actively looking for where in the US they can add coffee plantations, and what pay they will have to offer the workers. e.g., 46% tariffs on beans coming from Vietnam, the biggest single source of robusta for instant coffee. Kona for everyone!

Jim

The margins on cars aren't very good. Maybe BMW's are better, but it is unlikely they have an extra $5K on a $40K vehicle they are willing to eat. That's true for most consumer products. A computer from Vietnam will have a 46% tariff. There's no way they can split the difference. They might eat a couple percent here and there, but rest assured you the consumer will be paying the rest.

Don't forget the other big variable, which is currency movement. If the car's production costs were largely labour and other local inputs, and the USD rises 20% against other currencies, then the sums can still work out. The USD selling price may remain flat to maintain volume, but measured in Euros the selling price of a Beemer goes up enough to cover the tariff. The relative hit to the exporting country is spread diffusely across all holders of that currency, rather than merely bankrupting a few car companies. Large tariffs, if lasting, tend to drive a currency up.

Of course a soaring dollar means US exports, both goods and services, get crushed, which worsens the aggregate US trade deficit. That's the main reason import tariffs don't generally improve a goods trade deficit. Jawboning the dollar down, the current strategy, is unlikely to be a sufficiently viable balance for that, so military threats have been floated as well.

I would not bet the rent on it, but if the high US tariffs last then I would expect the direction of the US dollar to be up, not down as we saw as a first reaction. Along with the more obvious results of a weakening US economy, rising inflation, and falling equity prices.

In Berkshire related news, I see that the price of Apple shares is back down to Berkshire's average selling price. Pretax, anyway. The articles about what an idiotic move it was to sell should get thinner on the ground.

Jim

over 10 T had fled to europe before the tariffs since trump inaiguration. Many Researchers from universities are also fleeing.. new brain drain....and it will speed up from here.

I recall and was part of the UK brain drain to the USA...it does have lasting effects on the loser and receiver countries. Many old silicon valley hands will say, the Brits founded silicon valley...

You assuming that BMW can continue to make cars.
In Germany.
But, okay, they just have to wait for days when the sun is shining and the wind is blowing.

I'm not sure how many BMW buyers are price sensitive. Last time I looked at a BMW in the local dealership their cars were unreasonably expensive compare to Hondas and Toyotas and Lexus's.

Saw an amusing meme this morning:
Canada to US: "Fine, I won't buy your products!"
US to Canada: "LOL, ok. But can you afford us not buying yours?"

But I am hard pressed to think of anyone on the planet who would trust the US government to honour any deal at all ever again, even one signed by the same players. Interesting times.

Are you kidding me? The USA has been "agreement incapable" for a long long time. Arguably worse than other countries, because the President and administration changes every 4 or 8 years.


All countries, of course, break agreements & treaties whenever they feel like it.

The advantage that the elephant in the room has is that it sleeps wherever it wants to. It can get away with things that the bears and racoons can't. They just have to work around it.

The country that has the "elephant" designation changes over the years. At various times it was Rome, Spain, Britain, etc. Currently is it the USA.

Saw an amusing meme this morning:
Canada to US: "Fine, I won't buy your products!"
US to Canada: "LOL, ok. But can you afford us not buying yours?"


I tend to agree that Canada can't do much by taxing imports from the US.
If applying pressure to the US were desired, I think much better be to halt (or wildly overtax) a few exports. Electricity, oil to US refineries that can't use other grades, car parts, nuclear reactor and helicopter components. The engines for the F35 and KC-135R "stratotanker" are made in Canada. Some of that would be rather funny, as many of the Canada-based suppliers in question are wholly US-owned, like Pratt and Whitney Canada.

The Canadian government would have to find a (very very expensive) way to keep the Canadian owned companies afloat, so I'd expect Canadian bond yields to jump. The US car companies would shut down production within a few days, upon whom depend over 7 million US employees.

Note, I am not advocating this. Just pointing out that there is no need for Canadians to bring a knife to a gun fight. A more Canadian way would be to ask "why on earth would I want to go to a gun fight?"

Jim

Look at the table*. Every single country that got hit with "reciprocal" tariffs still taxes us as much or more than we tax them, sometimes a lot more.

That was exactly my initial reaction before my friend pointed out that the Trump White House made up the percentage numbers. The percentage is not based on actual tariffs or trade barriers. They are based on the trade deficit that the US has with that country regardless of how much that country actually taxes US imports or how free the markets in that country are. And this deficit is based solely on US goods, not US services where US usually runs a trade surplus.

Forgot to mention, this is why I called a a sleight-of-hand in my original post. Because the Trump White House knows exactly what will outrage its supporters. You literally cannot take anything on faith when it comes out of this White House unfortunately. Sorry this is more of a political post, but also a friendly warning if you are after the truth regardless of your political leanings.

I would not bet the rent on it, but if the high US tariffs last then I would expect the direction of the US dollar to be up, not down as we saw as a first reaction. Along with the more obvious results of a weakening US economy, rising inflation, and falling equity prices.


Jim,
I did not understand this part. Rising inflation should weaken the dollar unless the Fed raises interest rates commensurately. If there is a massive recession in US and rising unemployment, then they won't. Perils of their "dual mandate".
Unless you're saying that other countries would be much worse off than US, and their currencies will fall in relation to a US dollar whose purchasing power goes down less.

"But I am hard pressed to think of anyone on the planet who would trust the US government to honour any deal at all ever again, even one signed by the same players. Interesting times." - Mungofitch

"Are you kidding me? The USA has been "agreement incapable" for a long long time. Arguably worse than other countries, because the President and administration changes every 4 or 8 years." - rayvt

You are totally ignoring the degree in "agreement incapable" between the current administrations and past administrations. It isn't even close and to pretend they are the same is absolutely laughable.

In the past, new administrations generally kept to prior administrations agreements even if they didn't like them. Obama held to Bush's agreement on Iraq withdrawal. Biden keep to Trump's Afghanistan withdrawal agreement, Biden kept to Trump's NAFTA negotiation. Heck, Biden even kept to most of Trump's tariffs. Prior administrations generally kept to prior administrations international agreements because the new administrations always understood that the Value of having the word of the USA mean something.

The current administration has reneged on the Paris accords, The Iran Nuclear deal, Ukrainian support, and even his own NAFTA agreement. He regularly threatens to renege on our NATO obligations.

If you do not think this administration has taken it to a greater degree, I challenge you to name any major international agreement that was negotiated by a prior administration that was abandoned by a newer administration? In the past quarter century, the only administration that has done this has been the current one.

But it is just more than international agreements. The current administration regularly says one thing, does something else, then changes his mind a month later and does a 3rd thing. Look at how chaotic the initial Canadian and Mexican tariffs went. F

It is absolutely absurd to say the USA has been "agreement incapable" for a long time. Only someone using poor sources of information that take advantage of them would say that.

One thing we have learned is that when a new hot topic comes up, newly minted experts propound on it, from their exhaustive scholarly background of 10 minutes of google research.

I read and get news from a variety of web sites, not just those that agree with me.

Anyway.....here is an article on this tariff brouhaha that I found interesting: https://www.coffeeandcovid.com/p/the-first-seal-fr...

Interesting tidbits:
"Treasury Secretary and economics professor Scott Bessent explained (1:04) in an interview that in trade wars, the surplus countries always be defeated, because the deficit country (here, the US) has the least to lose."

"The ‘Magnificent 7’ account(ed) for almost almost 50% of the market indexes.
This record-shattering predominance by a handful of tech stocks creates a massive risk. In other words, a tech adjustment was long overdue, and everybody knew it."

"independent journalist (and former Democrat) Michael Schellenberger posted a very helpful tariff explainer... rightly noting how during the pandemic, we learned the hard way that our “international” supply chain is incredibly weak and easily disrupted. Remember toilet-paper hoarding?"



Further down in that article is an amusing tidbit.
The U.S. Justice Department announced it will “surge FBI assets across the country to address unresolved violent crimes in Indian Country, including crimes relating to missing and murdered indigenous persons.”

They’re sending sixty FBI agents to Indian Country, in places like Montana and Utah.
The good news is Native Americans on reservations will soon receive some long-overdue law enforcement attention to their stale, unsolved cold-case crimes. The bad news, for them, is they are probably getting the entire DC field office.

I suspect the Alaskan Inuits also have a backlog of unsolved crimes, in case more diligent FBI personnel need another plum assignment.

Christine Grady, the wife of Dr. Anthony Fauci,” the Washington Times reported, “was among several top officials who were notified they were being reassigned from the National Institutes of Health to regional offices of the Indian Health Service.” Well thank goodness. It’s about time the Indians got some decent medical care from the government. And the Eskimos, too.




More fun than any laws allow. LOL ;-)

I would not bet the rent on it, but if the high US tariffs last then I would expect the direction of the US dollar to be up, not down as we saw as a first reaction. Along with the more obvious results of a weakening US economy, rising inflation, and falling equity prices.

Jim, if the Mar A Largo accords are followed, then tariffs, currency, security protection are all linked.
As far as I can tell, this is not random blustering but a detailed plan, a sort of global economic and geopolitical Project2025.

From Stephen Miran's paper (currently head of the Council of Economic Advisors) "A Users Guidet to Restructuring the Global Trading System"
https://www.hudsonbaycapital.com/documents/FG/huds...
a bit about how tariffs, and currency, and security zones can be linked. It seems like this plan, like the Project2025 plan, is getting implemented by the people Trump put in place e.g. Miran, Bessent, etc

START QUOTE
Instead, recall that President Trump views tariffs as generating negotiating leverage for making deals. It is easier to imagine that after a series of punitive tariffs, trading partners like Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs. As currency accords are typically named after resorts where they are negotiated, like Bretton Woods and Plaza, with some poetic license I'll describe the potential agreement in the Trump Administration as others have done as the prospective "Mar-a-Lago Accord." However, there are many differences between the economy today and that of the 1980s. For one thing, gross U.S. debt as a share of GDP is now in excess of 120%, relative to roughly 40% when the Plaza Accord was agreed. That drives concerns about the consequences for the debt market that didn't exist in the 1980s.

One suggestion put forth in Poszar (2024) is for any accord to incorporate a duration agreement. Poszar's hermeneutics of the remarks of likely economic policy leaders in a second Trump Administration explicitly links the U.S. provision of a security umbrella to the international financial system, and infers that efforts to reduce interest rates can help finance the security zone. He synthesizes the following Mar-a-Lago Accord from potential policymakers' remarks:
"1) security zones are a public good, and countries on the inside must fund it by buying Treasurys;
2) security zones are a capital good; they are best funded by century bonds, not short-term bills;
3) security zones have barbed wires: unless you swap your bills for bonds, tariffs will keep you out."

To strengthen their own currencies, reserve managers must sell dollars. As their currencies appreciate, the United States will receive a competitiveness advantage helping our tradeable and manufacturing sectors. To help mitigate potential unwanted financial consequences (like higher interest rates), reserve selling can be accompanied by term-out of remaining reserve holdings. Increased demand for long-term debt by reserve managers will help keep interest rates down, even if there is overall selling of USD fixed income as a result of the currency adjustment. Reserve owners hold fewer USD reserves, pushing their currencies higher, but the reserves they do hold are longer duration, helping contain yields. If the term-out is into special century bonds as suggested by Poszar, then the funding pressure on the U.S. taxpayer for financing global security is significantly alleviated. The U.S. Treasury can effectively buy duration back from the market and replace that borrowing with century bonds sold to the foreign official sector. Such a Mar-a-Lago Accord gives form to a 21st Century version of a multilateral currency agreement. President Trump will want foreigners to help pay for the security zone provided by the United States. A reduction in the value of the dollar helps create manufacturing jobs in America and reallocates aggregate demand from the rest of the world to the U.S. The term-out of reserve debt helps prevent financial market volatility and the economic damage
that would ensue. Multiple goals are accomplished with one agreement.
END QUOTE

Notably, he says elsewhere
QUOTE
It is worth repeating that many of these policies are untried at scale, or haven't been used in almost half a century, and that this essay is not policy advocacy but an attempt to catalogue the available tools and analyze how useful they may be for accomplishing various goals.
END QUOTE

"Note, I am not advocating this. Just pointing out that there is no need for Canadians to bring a knife to a gun fight. A more Canadian way would be to ask "why on earth would I want to go to a gun fight?" - Mungofitch

This, this and more this.

I have absolutely zero doubt that this whole tariff scheme is going to hurt Canada worse than it hurts the U.S. No doubt. However, it is still going to hurt the U.S., a lot.

Why are we hurting ourselves in order to hurt what was once our closest friend and neighbor worse?

I would not bet the rent on it, but if the high US tariffs last then I would expect the direction of the US dollar to be up, not down as we saw as a first reaction. Along with the more obvious results of a weakening US economy, rising inflation, and falling equity prices.
...
I did not understand this part. Rising inflation should weaken the dollar unless the Fed raises interest rates commensurately. If there is a massive recession in US and rising unemployment, then they won't. Perils of their "dual mandate".
Unless you're saying that other countries would be much worse off than US, and their currencies will fall in relation to a US dollar whose purchasing power goes down less.

It is hard to be sure how it will all unfold, as there may be lots of economic bullets flying through the air. Ignoring what ELSE might happen, if large US tariffs stay in place, then US imports will fall because they are a lot more expensive for US consumers, rather obviously. With fewer imports, US buyers don't need to keep buying non-US currencies to pay for that stuff.* With lower demand for non-US currencies, the US dollar rises. Note that the US dollar rose all through 2018-2019 as the steel/aluminum and then China tariffs took effect. That might be a coincidence, but it's consistent with theory.

There have been policy people in the US government orbit discussing methods to drive the dollar down, to counteract this effect. I don't think the methods they are talking about will be particularly successful, though the utter disgust with which the world sees the US, new a clear adversary of "the west", means that fewer people trust or want to hold the dollar (me included), so maybe that part of the "plan" is working. Calling it a plan might be a bit generous, but the effect is there for the moment: the US dollar is down a fair bit this week, despite the normally expected effect of US tariffs.


In cheerier news, my remaining Berkshire long puts and short calls look nice. My overall portfolio is up 1.6% so far today. Mr Buffett always advises never to bet against the US, but perhaps that should be "almost never"?

Jim

* yes, a huge fraction of international trade is denominated in US dollars, but that's just the bookkeeping. A firm in the Netherlands exporting goods to the US with a US dollar invoice immediately sells the dollars to buy euros, so in terms of currency pressure it's the same as if the invoice and payment had been in euros

But, okay, they just have to wait for days when the sun is shining and the wind is blowing.

Oh come on man, you are too smart to say such ridiculous nonsense. German energy production and consumption figures are widely and easily available

Your meme based analysis of Canada is particularly poor. Let me help you: https://www.google.com/search?q=what+is+canada%27s...

I think Canada will do just fine offloading their crude to Europe and China. I am sure the US can make up for it with the goodwill they have engendered with our second largest source of crude imports, Mexico.

Anyway.....here is an article on this tariff brouhaha that I found interesting: https://www.coffeeandcovid.com/p/the-first-seal-fr...

The psychology of outrage based news consumption is similar to drug addiction. Reinforcement of confirmation bias produces dopamine, and as you get further along, just like a drug addiction you need to increase the dose to get a similar reaction. Damage to the prefrontal cortex leads to emotional dysregulation that compound this cycle, hence the age based correlation in demographics of partisan breakdowns.

It is immediately obvious that this site is a garbage source of information. This is a propaganda blog, and it legitimately concerning to me that with one side of your mouth you'd say "new hot topic comes up, newly minted experts propound on it" and then link there. Sites like this purely exist to soothe you when you have doubts. As exhibit A, this is just part of the intro from today's new roundup:

In today’s mind-blowing roundup: tariffs terrify media and globalist parasites; stock market woes — or are they?; tech leaders coordinate with Trump proving things are going to plan; Trump announces world leaders calling to make deals; the astonishing implications of the carefully orchestrated Trump tariffs;

Pay no attention to the stock market! Things are fine! Things are going to plan, although we can't point you to any evidence it was part of a prior plan or what our predictions were!

I am truly concerned for your wellbeing that you would consider this a source with passing along.

Your reasoning is deeply flawed, and your assumptions are grossly off...which leads to your wildly absurd conclusions. I spent 35 years going here and there in six continents, on behalf of the USG, and nothing comes close to approximating the loss of trust that has happened in the last 90 days.

Besides right or wrong of what Trump is doing, his lack of strategy is very surprising. Why wouldn't he pick fights selectively first and in sequence that would have a better chance of winning? Instead, he fights the whole world at the same time.

One thing we have learned is that when a new hot topic comes up, newly minted experts propound on it, from their exhaustive scholarly background of 10 minutes of google research.

I am sure you have been an expert on tariffs for many, many, many years.
Nonetheless, don't knock Google research. Gemini output in particular, that the search results now show, is pretty good. Even years of one puny human's expertise cannot match AI now. At least in the knowledge domains that have a large corpus on the Internet.

Christine Grady, the wife of Dr. Anthony Fauci,” the Washington Times reported, “was among several top officials who were notified they were being reassigned from the National Institutes of Health to regional offices of the Indian Health Service.” Well thank goodness. It’s about time the Indians got some decent medical care from the government. And the Eskimos, too.

More fun than any laws allow. LOL ;-)

I mean, we all enjoy schadenfreude. Some more than others, evidently.
Nepotism transcends all political boundaries (at least in US).
Anyway, back to topic at hand:

"Treasury Secretary and economics professor Scott Bessent explained (1:04) in an interview that in trade wars, the surplus countries always be defeated, because the deficit country (here, the US) has the least to lose."

That is the point. It is a war. Bloodless so far unless a few Wall Street guys defenestrate themselves.

US started this very unnecessary war. We could have gradually pressured NATO countries to spend more on defense, negotiated (/strong-armed) trade deals to reduce deficits, any number of sane sensible measures putting America First, without a sudden war.
Cutting your nose to spite others, even if they lose an arm and a leg, still leaves you without a nose. Or as Gandhi allegedly put it, "an eye for an eye makes the whole world blind."
The pain is here. For US middle class, working class, and poor. The rich will no doubt scoop up financial and real assets on the cheap once the massive recession takes hold. That's the aim of every oligarchy.

Long-term, the hope seems to be that companies will in-source manufacturing (and mining? And grow more avocados and rice? And substitute clean Canadian energy with coal-fired plants?)
But that is inefficient and wasteful. As Jim has explained previously, free and fair trade is good. It's hard to see what unfair practices Canada, Mexico, UK or most of EU were following. 50% of S&P revenues came from abroad. Does that sound like US was being taken advantage of?

Jim: "A more Canadian way would be to ask "why on earth would I want to go to a gun fight?"

I saw a very Canadian suggestion yesterday. "Has anyone tried unplugging the U.S. and plugging it back in?"

Meanwhile I assume American coffee sellers are actively looking for where in the US they can add coffee plantations, and what pay they will have to offer the workers. e.g., 46% tariffs on beans coming from Vietnam, the biggest single source of robusta for instant coffee. Kona for everyone!

I've read that something like 5% of Starbucks operating expense consists of coffee beans. So even if the price of coffee beans goes up by 50%, that only increases their operating expenses by 2.5%, so a very small price increase (or a small reduction in margin) can cover it.

The psychology of outrage based news consumption is similar to drug addiction.

Recognizing this in myself lead me to delete my social media accounts 10 years ago.

"Interesting tidbits:
"Treasury Secretary and economics professor Scott Bessent explained (1:04) in an interview that in trade wars, the surplus countries always be defeated, because the deficit country (here, the US) has the least to lose."

That is absurdly backwards.

The U.S. had the largest, most dynamic economy in the world. It attracted the brightest from around the world due to its dynamism. Having the dollar as the world's reserve currency gave the U.S. (and its citizens) untold advantages.

By having an unnecessary trade war, the U.S. is risking all of that.

The U.S. has the most to lose.

It is crazy to look at what the U.S. will gain or lose in a trade war only through the lens of trade deficits. Dumb.

Recognizing this in myself lead me to delete my social media accounts 10 years ago.

In general, message boards, like this one, are not substantially different than social media. The primary difference is that most social media shows you things in order of what it thinks you will think is most popular, while most message boards still show things in roughly chronological order. Twitter used to have an option to show you stuff in chronological order, and I miss that option.

Meanwhile I assume American coffee sellers are actively looking for where in the US they can add coffee plantations, and what pay they will have to offer the workers. e.g., 46% tariffs on beans coming from Vietnam, the biggest single source of robusta for instant coffee. Kona for everyone!
...
I've read that something like 5% of Starbucks operating expense consists of coffee beans. So even if the price of coffee beans goes up by 50%, that only increases their operating expenses by 2.5%, so a very small price increase (or a small reduction in margin) can cover it.

I was thinking more of Folgers and Maxwell House. And the [shudder] instant coffees.

Jim

For those who do not understand the nuances of reciprocal trade policies, how difficult is it to actually identify specifically what the tariffs are for each country vis-a-vis the US? I understand there is some sleight of hand going by conflating trade deficits with tariffs, but surely there must be a respected economist or two who can publish a chart showing exactly what each tariff is that is currently being imposed on each country. Then, use that as a point of departure for negotiations to equalize and/or ratchet down each tariff, ideally all the way to zero. This can’t be that difficult or complex unless I am missing something. It’s not rocket science but it just seems to me that we are instead battling a contest of stubborn political will, instead of simply comparing and contrasting the mutually accepted data by each side and go from there to discuss perceived unfairness with the goal of restoring balance.

how difficult is it to actually identify specifically what the tariffs are for each country vis-a-vis the US?

The tariff numbers are pretty easy to find, at least for developed country importers who are, after all, the ones who import almost all the "stuff".

They are mostly very low in rich countries, with relatively few striking exceptions. Don't try to bring a car into Singapore or a gallon of milk into Canada, or (don't ask) a banana into the EU. Or a bag of sugar into the US, or rice into Japan.

It's much harder to put a number on non-trade barriers like quotas, inspections, unreasonable product standards, and the like, which work to block imports without the dubious benefit of raising tax money. But if you count those, you have to count the same things in the US.

Jim

how difficult is it to actually identify specifically what the tariffs are for each country vis-a-vis the US?
...
The tariff numbers are pretty easy to find, at least for developed country importers who are, after all, the ones who import almost all the "stuff".

A couple of 2023 figures, from before the recent chaos
Trade-weighted average duties on all non-agricultural products entering the EU from all origins, 2.3%
Trade-weighted average duties on EU non-agricultural products entering the US, 2.7%

That's not to point out that one is higher than the other. The difference is trivial, and mainly a function of a different mix of goods. The main point is that both figures are low.

Both places (and many others) generally add sales tax on top of that, but that's almost always the same without consideration of local versus imported goods, so it's a level playing field rather than a barrier to trade.

Jim

US started this very unnecessary war. We could have gradually pressured NATO countries to spend more on defense, negotiated (/strong-armed) trade deals to reduce deficits, any number of sane sensible measures putting America First, without a sudden war.

We can at least say that having the former security guarantor of Europe and Canada effectively ally with their (formerly) greatest enemy, while repeatedly and frequently threatening to conquer them by force, has produced a very rapid increase in their (announced) security spending. Granted that most of it will need to go to defend against said security guarantor.

I doubt that offers to sell US "protection" are going to find a lot of takers among the protectees, but I suspect the size of the nuclear club will grow significantly in coming years.

<<
"Interesting tidbits:
"Treasury Secretary and economics professor Scott Bessent explained (1:04) in an interview that in trade wars, the surplus countries always be defeated, because the deficit country (here, the US) has the least to lose."

That is absurdly backwards.

The U.S. had the largest, most dynamic economy in the world. It attracted the brightest from around the world due to its dynamism. Having the dollar as the world's reserve currency gave the U.S. (and its citizens) untold advantages.

By having an unnecessary trade war, the U.S. is risking all of that.
>>

This trade war is quite strange in historical aspect: the country printing paper money is sanctioning countries making goods. The result could be epic.

<i.Your reasoning is deeply flawed, and your assumptions are grossly off...which leads to your wildly absurd conclusions. I spent 35 years going here and there in six continents, on behalf of the USG, and nothing comes close to approximating the loss of trust that has happened in the last 90 days.

I have to add, once you break trust you can never really get it back. Breaking trust gives you an advantage one time and it is a disadvantage for the rest of your life. You can recover some trust, but never all of it.

I hope this was worth it, but I really doubt it.

Reminiscent of an annual meeting statement by WEB a number of years ago, along the lines of it taking 20 years to build a reputation and 20 minutes to lose it.

Here we might substitute “over 200 years” and “ten weeks”

— sutton

I was thinking more of Folgers and Maxwell House. And the [shudder] instant coffees.

For shame, sir! These are beneath consideration.

However...
I don't know what chemicals Nestle puts in it, but Indian Nescafe is really good. Far better than Mexican Nescafe, which is still miles ahead of its American counterparts.
I have heard people swear by Vietnamese instant coffees which have milk powder and sugar added, found them OK too. My tongue can still identify them as coffee though. Unlike American instant coffees.

I'm not joking, when I first came to this country as a poor graduate student, I tried Twinkies and Hostess products, and my tongue simply refused to recognize them as food. To me, they will forever be oily blobs filled with sugar, and no recognizable natural analog. India world is poor country when I grew up, but at least we ate real food. I still don't understand the point of being the richest country in the world and eating super processed food-like substances.

"The advantage that the elephant in the room has is that it sleeps wherever it wants to. It can get away with things that the bears and racoons can't. They just have to work around it."

It's also big and slow and can't turn around so easily. That's why these tariffs are mind numbing- they won't bring manufacturing back. Our labour market is not conducive to low-mid end manufacturing (unless you used illegal aliens), we have have shifted to a services economy dependent on a strong consumer and we were benefiting from the low end production we were getting from Asia. look, I'm all for doing what you can to have a strong manufacturing base but it's not like tariffs are the only way this can be achieved. Tax credits, deregulation and cooperation with other countries (not just USMCA but meaningful cooperation between countries that lowers inputs that are a roadblock to making goods) all can lead to a better manufacturing base for the US.

Instead what we have now is an insane zero sum game that not only calls for no cooperation but hoists a middle finger to everyone everywhere. How is that good? How is that productive? If you acted this way in the regular business world people will stop trading with you, like what is happening with Tesla right now.

No one likes a bully and in the end the bully usually gets what it's asking for. It is a dark path we are going down and at some point there needs to be a check and balance. I was encouraged to see the senate take back some of the power it had on trying to limit tariffs but that is only a start. Wake up America, we need you!!

India world is poor country when I grew up, but at least we ate real food.

With my favourite diets being Indian and Thai --- and that though being born and raised in Germany :)

Sorry, "India was".
iPhone sliding feature is not useful for old(er) people.

With my favourite diets being Indian and Thai --- and that though being born and raised in Germany :)

Haha, no one can resist spices.
(I don't mean hot Chile peppers, I mean real, fragrant, variety of life, spices). Ask your compadre, Columbus.

Yes, compadre. You Europeans may have delusions of grandeur, but as a white guy once said, Europe is just a jagged promontory of Asia. European "nations" are just states who couldn't live together. The Urals are a molehill compared to the Himalayas, so it's not the geographical barrier that determined that Europe was a continent. Hmm, wonder what it was.

If trump was actively trying to harm the US, would he be doing anything differently?

I feel like we have been attacked, on multiple fronts, by a foreign power trying to take us down, or out.

I have just read Bob Woodward's book on Trump's first term. He wanted to do all this then. The only difference I can see now is that there are fewer adults surrounding him.

If trump was actively trying to harm the US, would he be doing anything differently?

I feel like we have been attacked, on multiple fronts, by a foreign power trying to take us down, or out.

When a warehouse full of unstable volatile vapors blows up, the exact spark that started off the explosion is never the cause of the explosion.

Any little thing can start it. The issue is not the spark, the issue is the precarious and unstable situation that had been building up for a long time.

WW1 was not caused by the assassination of Archduke Franz Ferdinand. That was just the spark which triggered it. If it hadn't been the assassination it would have been something else.

The sleight of hand comment by a poster here was interesting and I think they may be on to something. When the tariffs were announced they had every country (some which I had never even heard of) listed. Why not just list the countries that make up 95+% of the trade...was it done as a "distraction" so one wouldn't focus on 1 or 2 specific countries?

Why was an unknown formula, one which makes absolutely no sense, used for calculating the tariffs? Was it by design to target specific countries? If a any country complains the response can be that the metrics apply to everyone in the same way...no one country is being singled out.

Vietnam, a country that many US companies who left China moved their supply lines to, was hit with a crazy high tariff %. Within a few days of the tariffs being announced there have been news reports about discussions that could result in completely free trade (zero tariffs) with the US. Just a coincidence or might that have already been negotiated? Vietnam could be the poster child for how trade should be done...why can't other countries do the same thing?

What are some other things that the administration wants that the tariffs might bring about? A tax cut passed by Congress? The Federal Reserve lowing interest rates? If not, then Powell sets himself up to be the scapegoat for a poor economy as well as an endless stream of personal attacks from the administration. Lower energy prices? Oil dropping like a rock...does that hurt Iran?

As of now the response has been that the tariffs are insane and the people in the administration implementing them are total idiots. It may turn out that those criticisms are spot on but I suspect that there are a number of other related things going on. We'll see how it plays out. My own take is that without question China is the main target.

It is quite clear what Trump is doing with tariffs because his guys have written the strategy down and the document is public. Importantly, tariffs are linked to a global currency realignment, as well as to national security realignments, so if you think tariffs and trade is all that is going on, then read the document "A User's Guide to Restructing the Global Trading System" by Stephen Miran, linked below.
https://www.hudsonbaycapital.com/documents/FG/huds...
Stephen Miran is now head of Trump's Council of Economic Advisors. The Tresaury Secretary is now Scott Bessent, who also buys into this line of thought. Lower lying positions are also filled with people who buy into this. I extract some relevant bits of this long document later.

It is similarly quite clear what Trump is doing with the domestic situation i.e. cutting government etc. It too was all written down and made public, in the Project 2025 document
https://static.project2025.org/2025_MandateForLead...
The architect of Project 2025, Russell Vought, is now Trump's director of Office of Management and Budget (OMB). Lower lying positions are also filled with people who buy into this line of thought. Musk came along and accelerated things by using a chain saw.

Back to tariffs:
If you think tariffs are just about trade, read the Miran document linked above, or at least the excerpts below. Tariffs are not just about trade, they are part of a plan to restructure trade, the global currency system, and national security associations. Miran's document is quite dense, you can get a summary from Gillian Tett of the Financial times in this interview with her
https://www.youtube.com/watch?v=3PXVrLH4zSU&t=1700...

I extract some relevant bits of Miran's (head of Trump's Council of Economic Advisors) document below. If you read nothing else, read points (1), (2), and (3) in the middle paragraph (my emphasis in bold):

From "A User's Guide to Restructing the Global Trading System" by Stephen Miran, head of Trump's Council of Economic Advisors
START QUOTE
Instead, recall that President Trump views tariffs as generating negotiating leverage for making deals. It is easier to imagine that after a series of punitive tariffs, trading partners like Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs. As currency accords are typically named after resorts where they are negotiated, like Bretton Woods and Plaza, with some poetic license I'll describe the potential agreement in the Trump Administration as others have done as the prospective "Mar-a-Lago Accord." However, there are many differences between the economy today and that of the 1980s. For one thing, gross U.S. debt as a share of GDP is now in excess of 120%, relative to roughly 40% when the Plaza Accord was agreed. That drives concerns about the consequences for the debt market that didn't exist in the 1980s.

One suggestion put forth in Poszar (2024) is for any accord to incorporate a duration agreement. Poszar's hermeneutics of the remarks of likely economic policy leaders in a second Trump Administration explicitly links the U.S. provision of a security umbrella to the international financial system, and infers that efforts to reduce interest rates can help finance the security zone. He synthesizes the following Mar-a-Lago Accord from potential policymakers' remarks:
1) security zones are a public good, and countries on the inside must fund it by buying Treasurys;
2) security zones are a capital good; they are best funded by century bonds, not short-term bills;
3) security zones have barbed wires: unless you swap your bills for bonds, tariffs will keep you out.


To strengthen their own currencies, reserve managers must sell dollars. As their currencies appreciate, the United States will receive a competitiveness advantage helping our tradeable and manufacturing sectors. To help mitigate potential unwanted financial consequences (like higher interest rates), reserve selling can be accompanied by term-out of remaining reserve holdings. Increased demand for long-term debt by reserve managers will help keep interest rates down, even if there is overall selling of USD fixed income as a result of the currency adjustment. Reserve owners hold fewer USD reserves, pushing their currencies higher, but the reserves they do hold are longer duration, helping contain yields. If the term-out is into special century bonds as suggested by Poszar, then the funding pressure on the U.S. taxpayer for financing global security is significantly alleviated. The U.S. Treasury can effectively buy duration back from the market and replace that borrowing with century bonds sold to the foreign official sector. Such a Mar-a-Lago Accord gives form to a 21st Century version of a multilateral currency agreement. President Trump will want foreigners to help pay for the security zone provided by the United States. A reduction in the value of the dollar helps create manufacturing jobs in America and reallocates aggregate demand from the rest of the world to the U.S. The term-out of reserve debt helps prevent financial market volatility and the economic damage that would ensue. Multiple goals are accomplished with one agreement.
END QUOTE

It is debatable whether Trump understands in any detail either Project 2025 or the User's Guide to Restructing the Global Trading System. But he apparently understands enough to feel that both programs resonate with his own core beliefs, so he installed people to execute the published plans, and then let it rip.

The people Trump put in power to execute the domestic plan and to execute the international plan are not stupid or ineffective people. But just because you're bright, and effective, doesn't mean that you're not completely bat shit crazy. Having bright, effective, crazy people in power is extremely dangerous to both the U.S and the world. Then add in Trump.

I've started exploring ex-U.S. defense sector stocks.

When a warehouse full of unstable volatile vapors blows up, the exact spark that started off the explosion is never the cause of the explosion.

Any little thing can start it. The issue is not the spark, the issue is the precarious and unstable situation that had been building up for a long time.

I don't think that analogy applies to Trump's actions. It's not like enmity against Canada was building up in US or there was a popular groundswell to rename Gulf of Mexico to Gulf of America. It's all Trump, it's not some unknown spark, it's one giant flaming bag of Cheetos.

1) security zones are a public good, and countries on the inside must fund it by buying Treasurys;
2) security zones are a capital good; they are best funded by century bonds, not short-term bills;
3) security zones have barbed wires: unless you swap your bills for bonds, tariffs will keep you out.

Though the merits of these views can be debated, I think the big flaw is the notion that any country would now do a deal to obtain US security guarantee. It's like paying for a certificate of authenticity for a photo of Bart Simpson kissing Elvis.

Who would trust in it? It wouldn't even have deterrent power between signing and crisis. Despite an iron clad treaty already in place, no-one still thinks that the US would lift a finger if the Russian army rolled into Estonia tomorrow. The other Nato members are mostly honourable, but I still wouldn't book a vacation in Narva.

So the only way to move in that direction is by outright force. Might as well be clear about it.

Jim

<<"Though the merits of these views can be debated, I think the big flaw is the notion that any country would now do a deal to obtain US security guarantee. It's like paying for a certificate of authenticity for a photo of Bart Simpson kissing Elvis.">>

Jim how do you come up with this stuff? :)


With your permission I would like to share a quote of yours from a few years back on the other board which may
become pertinent in the days/months ahead.

"There is only one Avuncular Apex Predator and he resides near the banks of the Missouri River."

So the only way to move in that direction is by outright force. Might as well be clear about it.

I'm a bit unclear about what you meant, were you referring to attempting to take Greenland by force, and perhaps Panama and Canada?
Monaco is probably safe, but the inmates are running the asylum, and you got nice beachfront property there, shame if someting happened to it, know wadda I mean?

I've narrowed my list of ex-U.S. defense contractors, available via ADR, to the following for further analysis.

BAE Systems plc BAESY (England)
Thales.S.A THLLY (France)
Leonardo S.p.a. FINMY (Italy)

BAESY is the most prominent, but apparently has large U.S. contracts so that complicates things, while THLLY and FINMY are apparently much less exposed to U.S. contracting. I say "apparently" because I never trust chatGPT until I manually verify what it says with a reference. I don't know if this direction will pan out, but the thesis is that defense contracting within EU and NATO/ex-US using non-U.S. companies will increase rather sharply.

It is quite clear what Trump is doing with tariffs because his guys have written the strategy down and the document is public. Importantly, tariffs are linked to a global currency realignment, as well as to national security realignments, so if you think tariffs and trade is all that is going on, then read the document "A User's Guide to Restructing the Global Trading System" by Stephen Miran, linked below.
https://www.hudsonbaycapital.com/documents/FG/huds...
Stephen Miran is now head of Trump's Council of Economic Advisors. The Tresaury Secretary is now Scott Bessent, who also buys into this line of thought. Lower lying positions are also filled with people who buy into this. I extract some relevant bits of this long document later.

It is clear that's the purpose of the tariffs. It is not clear if the bosses knows about the plan or not. On Thursday on CNBC Project 2025 co-author and senior presidential advisor Peter Navarro asked what it would take to remove the tariffs. Navarro said "this is not a negotiation," and gave the examples of the VAT and Israel stealing US IP as reasons why tariffs needed to stay in place (apparently Russia always plays fair, so no tariffs on them). Commerce Secretary Howard Lutnick said the same thing on CNN: Non-tariff trade barriers are the issue, and those had to be removed before the tariffs can be negotiated. Obviously, no country with a VAT is going to restructure their tax system before starting negotiations on tariffs, so there you go. The tariffs will remain.

Then later in the day Trump said that tariffs are negotiable.

So the only way to move in that direction is by outright force. Might as well be clear about it.
...
I'm a bit unclear about what you meant, were you referring to attempting to take Greenland by force, and perhaps Panama and Canada?
Monaco is probably safe, but the inmates are running the asylum, and you got nice beachfront property there, shame if someting happened to it, know wadda I mean?

I was thinking of more of a scenario like this:

The US says to (say) Costa Rica that they can join the US security umbrella to be defended from China and the US allies the Russians, in return for $30bn US dollars, plus granting 1000 acres for a new Trump golf club.
Cost Rica (per logic above), observes that such a guarantee is a entirely worthless, and responds "Ahahahahahahaha"
US gunships blockade the port of Puerto Limón till the economy collapses and they submit.

Hence, the only way to move in the direction of countries paying to be under the untrustworthy US defence umbrella is by force. Nobody is going to do a voluntary deal with a regime that doesn't honour any deals at all.

Jim

<<Vietnam, a country that many US companies who left China moved their supply lines to, was hit with a crazy high tariff %. Within a few days of the tariffs being announced there have been news reports about discussions that could result in completely free trade (zero tariffs) with the US. Just a coincidence or might that have already been negotiated? Vietnam could be the poster child for how trade should be done...why can't other countries do the same thing?>>

If free trade is the goal, many countries would sign up, including possibly China.

"If free trade is the goal, many countries would sign up, including possibly China"

China? No way can I see them signing up for a "free" trade deal. They wouldn't even enter the WTO on equal footing and would never allow their State Owned Entities (SOE's) to compete with behemouth international brands. Just take tobacco as an example. Chinese LOVE getting their tax free Marlborough's outside of China and dispersing them as gifts to friends. No way would the government allow cigarettes to be sold inside China on equal footing with the SOE's. Would never happen! And if it did boy would I be suspicious of the execution of that deal.

<<Chinese LOVE getting their tax free Marlborough's outside of China and dispersing them as gifts to friends. No way would the government allow cigarettes to be sold inside China on equal footing with the SOE's.>>

Is this about domestic law or trade tariff?

Here is a list of Free trade agreements China has signed to
https://en.wikipedia.org/wiki/Free_trade_agreement...

"Is this about domestic law or trade tariff?

Here is a list of Free trade agreements China has signed to
https://en.wikipedia.org/wiki/Free_trade_agreement..."

I'm talking about access to China's domestic market. They take protectionism to an extreme and to have access to their markets you really have to bend over backwards to accommodate how you are going to conduct your business.

I've narrowed my list of ex-U.S. defense contractors, available via ADR

Why limit it to ADR? May be time to start looking at overseas brokers that lets you buy outside of the US restrictions.

IP

“I don't think that analogy applies to Trump's actions. It's not like enmity against Canada was building up in US or there was a popular groundswell to rename Gulf of Mexico to Gulf of America.”

You’re looking in the wrong direction. Look west across the pacific for the dry tinder, not north.

My dissertation advisor argued nearly 30 years ago that the US and China would eventually go to war. I argued that the globalization of trade, commodity production, and capital flows, was creating a global capitalist class that would end interstate wars. Once again I proved to be the sophomore.

"I don't think that analogy applies to Trump's actions. It's not like enmity against Canada was building up in US or there was a popular groundswell to rename Gulf of Mexico to Gulf of America. It's all Trump, it's not some unknown spark, it's one giant flaming bag of Cheetos."

But it may be the gross economic inequality and lack of general opportunity that set the stage for Trump.

@InParadise
You're right, I just haven't used overseas brokers before, so am doing one step at a time (can expand later if necessary).
FWIW, here's something about Schwab that I wasn't aware of before, pasted from their page:

Schwab Global Account:
This account allows you to trade stocks directly online in 12 of the top-traded foreign markets using their local currencies. There are no account or trade minimums, and commissions are fixed in foreign currency (e.g., #19 for online trades in European markets).
You can access real-time quotes during foreign market hours and view multi-currency statements.
Australia (Australian Dollar)
Belgium (Euro)
Canada (Canadian Dollar)
Finland (Euro)
France (Euro)
Germany (Euro)
Hong Kong (Hong Kong Dollar)
Italy (Euro)
Japan (Japanese Yen)
Netherlands (Euro)
Norway (Norwegian Krone)
United Kingdom (British Pound).

The other Nato members are mostly honourable, but I still wouldn't book a vacation in Narva.

This hints at exactly what one of the problems is. They may be honorable, but they're mostly useless. They've depended on the USA to spend all the money, and to wield all the sticks, for decades. Meanwhile the USA went deeper and deeper into debt (partially because of being the world's policeman, and partially for various other reasons), and we simply can't do it anymore. We are nearly in a debt spiral (some folks say we already are in one, but I still have a modicum of hope that we can get out) and need to do *something*. Not necessarily what we are doing, of course, but something. Business as usual just can't happen or we will decline into oblivion (that is likely to happen anyway, but we can at least try to forestall it somewhat).

[Nato members] may be honorable, but they're mostly useless. They've depended on the USA to spend all the money, and to wield all the sticks, for decades.

Non-US Nato members had service members and others die in Afghanistan and Iraq, among many other things. Sep 11 remains the only time Article 5 has been invoked by any NATO member.

The USA also reaped unimaginable wealth from the alliance and the security it provided.

I suspect you'll all find business as usual, flawed as it was, was actually far preferable to the path you're leading down.

I've moved my post on ex-U.S. defense contractors to the non-U.S. stock investing board and will update it from time to time
https://www.shrewdm.com/MB?bid=26

But it may be the gross economic inequality and lack of general opportunity that set the stage for Trump.

I understand the frustrations that led to Trump winning the White House. IMO, mainly the three I's: immigration, inflation and incumbency. The last administration was... useless at best, mostly unresponsive to real Americans' needs. I did not know whether to laugh or cry when Kamala Harris said she would continue Biden's policies unchanged. Morons all around.
But nobody voted for Trump to start a trade war with our alliance, abandon NATO, and realign US with Russia, and of course, the silly stuff like taking over Canada and renaming the Gulf of Mexico. Greenland is important for potential rare earth minerals that China controls more than 80% of, but threatening to take them over is not the way to go about it. He could prop up a friendly regime like US did in Saudi Arabia and get mining rights as they did for oil. But when you think it's OK to grab everything by the, you don't plan like that.
(I have to stop responding to any more posts on this subject before this turns completely into political asylum. Mea maxima culpa.)

The last administration was... useless at best...

For the most part, yes. Hate to say it, but often that is the best you can hope for. First do no harm.

I did not know whether to laugh or cry when Kamala Harris said she would continue Biden's policies unchanged. Morons all around.

My big cringe moment was her choice of VP. One commentator suggested it was who she didn't feel threatened by, implying that Shapiro would give her a tougher presidency and make her think more. Well bring it. He's your back up. We are not looking for an ineffective VP. And still I held my nose and talked our kids off the ledge.

IP,
so tired of always having to vote AGAINST someone rather than for them, thinking that ranked voting is the only way to bring choice back to primaries

My dissertation advisor argued nearly 30 years ago that the US and China would eventually go to war. I argued that the globalization of trade, commodity production, and capital flows, was creating a global capitalist class that would end interstate wars. Once again I proved to be the sophomore.

I recently re-read Barbara Tuchman's Guns of August about the start of WWI. At the time, no one really believed a war could happen, or if it did, it would be over quickly because everyone was getting rich on international trade and a bothersome war would interrupt that. In 1910 Norman Angell published "The Great Illusion," in which he argued that economic interdependence between nations had made war unprofitable and essentially futile. Trading was simply far more profitable than wars of conquest. The book was a best seller, and many people believed that war was now obsolete. That helps explain why governments didn't try hard enough to head off WWI at the pass while there was still time. JFK reportedly made Guns of August required reading among his staff during the Cuban Missile crisis.

You can forgive yourself from 30 years ago for being wrong. Your logic was spot on. Human hubris, stupidity, and decisions based on wishful thinking defy any logic. We saw that today, where different administration officials made radically different statements about the US position on trade. Which means the US doesn't have a position. Which means the conflict can't be negotiated. We can't count on the notion that trade will save us.

I think the problem with political statements is that the stated goals of parties rarely reflect what the interests of the politicians wearing their cloak truly espouse. In the US, it is more likely the will of their political donors and the lobbyists they deal with.

I tend to travel a bit. When I renewed my Global Entry card a few years ago, it turned out I had been in 92 countries over the previous five years. During that time, I was able to observe, first hand, numerous things which directly countered the "facts" that most Americans take for granted.

Assuming that the goal of investing is to "make money", the handling of the economy by the previous administration tamed the rampant inflation caused by the wholesale dumping of money into most corporate and private hands during the first Trump administration, followed by the steady growth in the value of the equity market.

While he didn't go into minute detail, Trump promoted many of the actions which he has taken - both socially and economically. While many of the things we promised during his first term were whacky, he attempted to pull them off anyway. He, and his supporters, had four years in which to figure out pseudo-legal ways to let him succeed this time around. There was no reason to doubt that he would try - and a greater probability that he would succeed. Why is it that, all of a sudden, people are "shocked and appalled" by his actions. They were predictable and, if voters felt that they would be unacceptable, they should have voted in his competitor.

We are about to wake to a third day of 5%+ of drop in the US equity market and a likelihood that it will be a while before those losses are recouped by people's portfolios. And, it's not only the US - I have investments on various exchanges (Australia, Switzerland, Japan and Hong Kong come to mind, but also holdings of ADR's representing stock in a number of other countries) and his recent tearing up of trade agreements has caused a global loss in value.

While I still am around 33% in equities, WendyBG convince me to pick up some TIP's (Treasury Inflation Protected bonds) at decent prices and the rest is (ala Buffet) waiting in a pile to be deployed at more beneficial prices.

The important thing to remember is that politicians are your employees. If an employee acts in their own interest (certainly if their actions don't support your interests), it's time to replace them (regardless of whether you like them, like their party or find them entertaining).

We live in a country where the wealthy enjoy a very low tax rate compared to the rest of the world. Our military expenses have not been high to protect Europe, but rather to protect our interests. Sure, European countries enjoy national health car, free education, long vacations and so on, but they are paid for by much higher taxes. They have allowed their militaries to become small for two reasons - a lack of a major continental threat when the Soviet Union crashed, coupled with the US maintaining the attitude that we were more comfortable when Europe was "owing us one" and having bases throughout the continent than looking at an armed Europe from outside (as we did before the Second World War).

We have given up that advantage at the same time as proving an untrustworthy party to shake hands with. Just imagine the number of changes which have already been made in what amounts to a couple of percent of a US president's term. I hope for the best, but find it prudent to prepare for the worst.

Jeff

"Our military expenses have not been high to protect Europe, but rather to protect our interests. Sure, European countries enjoy national health car, free education, long vacations and so on, but they are paid for by much higher taxes. They have allowed their militaries to become small for two reasons - a lack of a major continental threat when the Soviet Union crashed, coupled with the US maintaining the attitude that we were more comfortable when Europe was "owing us one" and having bases throughout the continent than looking at an armed Europe from outside (as we did before the Second World War)."

The argument against Europe in the Nato debate is a total canard. Ok, on the surface they never paid their 2% but was it really that much of an issue? As you correctly point out we got to have our bases all throughout Europe and our defense contractors supplied the majority of armaments. From Europe's perspective nothing was broken with the arrangement and hence no need to heavily invest in military. It was all mutually beneficial.

Now that's not to say that the US shouldn't have gently nudged NATO counterparts to invest more. Almost all presidents did before but they were also acutely aware of the aforementioned benefits that came along with the alliance. Trump has been hostile to Europe from day one. That is not only negligent but frankly speaking downright bizarre!

I recently re-read Barbara Tuchman's Guns of August about the start of WWI. At the time, no one really believed a war could happen, or if it did, it would be over quickly because everyone was getting rich on international trade and a bothersome war would interrupt that...

An interesting observation about the "getting rich from trade" bit: Indeed the world was. Global trade as a fraction of global GGP hit about 14% by 1870 and remained that high, give or take, until the first war. The nadir was around 6.7% in the mid 1930s, not that surprising.

But more interesting is that world trade intensity didn't back up to the gilded age levels again until around 1975.

Jim

Peter Navarro on CNBC just now, re the EU:
"The bigger problem, by orders of magnitude, is the non-tariff cheating"

Apparently, a Value Added Tax is "non-tariff cheating".

I don't see a way around that. VAT applies to imported and domestic goods and services. The EU can't drop VAT on imports and have a viable economy.

But more interesting is that world trade intensity didn't back up to the gilded age levels again until around 1975.

Quite a bit of the world industrial capacity was destroyed in the 1940s, maybe it took some regions 30 years to get back to full industrial strength?

Apparently, a Value Added Tax is "non-tariff cheating".

From the "sales to end users" point of view, VAT and other purchase taxes can indeed be considered cheating of sorts. Look at it this way:

Germany and USA each produce a good car for $40,000 and want to sell it for $50,000 to produce a $10,000 gross profit that will result in some net profit around 10% as expected by the owners of the business.

Germany makes their car in Germany, ships it to the USA, and sells it for $51,000 plus 7% sales tax (in FL let's say, most states have a sales tax on cars in this range). So the end customer pays $51,000 + $3,570, or $54,570 in total.

USA makes their car in the USA, ships it to Germany, and sells it for $51,000 plus 10% import tax plus 19% cumulative VAT. So the end customer pays $66,759 in total. It's a lot easier to sell a car for $55k (USA) than it is to sell it for $67k (Germany), so the US auto companies sell many fewer cars in Germany than German auto companies can sell in the USA. Yet they both produce the car for $40k or so.

But more interesting is that world trade intensity didn't back up to the gilded age levels again until around 1975.
...
Quite a bit of the world industrial capacity was destroyed in the 1940s, maybe it took some regions 30 years to get back to full industrial strength?

I'm pretty sure that's not really it. It isn't a measure of global trade, it's a measure of global trade as a fraction of the size of global production. Both trade and GGP shrank, but GGP recovered faster than trade did.

I think it's mainly that trade was simply out of fashion, partly because of perceived risks, despite those risks in absolute terms being vastly below what was considered entirely acceptable in the late 19th century. A part of it may have been the introduction regulation...it was surprisingly easy to invest outside one's own country before the first war (if you were one of the few with the money) because little was prohibited. Later, national brokerages and regulators made it a lot more difficult. It's still not that easy, in general, except for the really big money.

When my (tiny) company was selling stuff in a few Asian countries in 1982, including "red" China as it was then known, I heard we were profitable in more countries than any other Canadian firm. Still, Telex was probably easier than letters sent to an agent by flying boat or clipper ship.

Jim

the european onsumer also pays VAT.. where is that in your example ?
plus, USA will never sell so many cars in europe. many towns have tiny roads, a US car just cannot navigate them easily.

I'm pretty sure that's not really it. It isn't a measure of global trade, it's a measure of global trade as a fraction of the size of global production. Both trade and GGP shrank, but GGP recovered faster than trade did.

Isn't that essentially saying the same thing? The European and Asian countries that had their industrial capacity destroyed had to rebuild everything, so "all" their increased production went to domestic rebuilding instead of being shipped to other countries ("trade").

From the "sales to end users" point of view, VAT and other purchase taxes can indeed be considered cheating of sorts. Look at it this way:
Germany and USA each produce a good car for $40,000 and want to sell it for $50,000 to produce a $10,000 gross profit that will result in some net profit around 10% as expected by the owners of the business.
Germany makes their car in Germany, ships it to the USA, and sells it for $51,000 plus 7% sales tax (in FL let's say, most states have a sales tax on cars in this range). So the end customer pays $51,000 + $3,570, or $54,570 in total.
USA makes their car in the USA, ships it to Germany, and sells it for $51,000 plus 10% import tax plus 19% cumulative VAT. So the end customer pays $66,759 in total. It's a lot easier to sell a car for $55k (USA) than it is to sell it for $67k (Germany), so the US auto companies sell many fewer cars in Germany than German auto companies can sell in the USA. Yet they both produce the car for $40k or so.

There are some serious issues with the conclusions.
Most significantly, you've forgotten the US import tariffs on light vehicles. 2.5% on cars, 25% on light trucks. The US passenger market is about 75% light trucks, not coincidentally: being protected by such a high tariff wall, the producers have a huge incentive to convince/force every buyer possible to opt for a profitable oligopoly truck rather than a car that faces competition. (you wouldn't weight by number imported, since the 25% tariff all but prohibits any pickups from being imported). So the market weighted average US import duties on vehicles used primarily for passenger purposes are considerably higher than in the EU.

The main reason US passenger vehicles (cars and light trucks) aren't seen to sell well in Europe are twofold:
* Many US vehicles aren't very well suited to the typical uses. Fuel is very expensive, and parking spots are generally 7.5 ft wide versus (say) 8.5 to 9 in the US. Cars from non-US non-EU regions do pretty well in Europe facing the same tariff, as they are suited to the local use. The car I drive most often is a Daihatsu.
* Unknown to most, US passenger cars do in fact sell pretty well. Other than cars from the UK, which was until recently an integrated part of the EU motor vehicle chain and so only "half" counts as an exporter to the EU, the US has the highest passenger car market share of any source country selling into the EU. OK, not quite true, as China has taken the lead just recently. This fact is perhaps not very visible because the US is not that big a big producer of passenger cars - the tariffs and odd fuel rules (huge advantage towards trucks which are in effect exempt from CAFE rules) mean that light trucks dominate both production and consumption.

Jim

The tariff situation, as well as the situation with Canada, Panama, Greenland, NATO etc, has caught everyone's attention with many wondering "What is going on"?

Jennifer Burns, assoc professor of history at Stanford and research fellow at the Hoover Institution, a conservative leaning think tank, has the best short explanation of the relation of Trump's tariffs and geopolitical issues that I've seen so far
https://www.nytimes.com/2025/04/07/opinion/tariffs...

What's going on is that a economic and geopolitical plan is being executed, the plan is a public document written by Trump's head of Council of Economic Advisors Stephen Miran and endorsed by his Treasury Secretary Stephen Bessent
https://www.hudsonbaycapital.com/documents/FG/huds...
It proposes to use tariffs and strong arm tactics to weaken the dollar. This would make exports more competitive, support U.S. manufacturing, and pressures China economically. It also relates to the USD being the world's reserve currency - so things get wonky fast. Burns does an excellent job of explaining how all this interconnects, along with some of the relevant history. What some see as surprising attempts by the Trump administration to strong arm other countries (Panama, Greenland, Canada, the NATO countries, etc) are laid out in the plan, which explicitly notes it intends to "intertwine trade policy with security policy." If countries don't agree to terms to be under the "fair trade" umbrella that's strong armed by the U.S., then they are no longer under the U.S. "security umbrella". Furthermore, weakening the dollar essentially declares economic war on China, who holds a huge amount of currency reserves and U.S debt. While not explicitly commenting on Trump's current tariff plan, Warren Buffett notes that tariffs are "an act of war to some degree" https://www.forbes.com/sites/robertdaugherty/2025/...

This is far from even being at the start of being over. Even if the immediate tariff issues are papered over with some immediate deals, and with deals to postpone tariffs to try to negotiate deals, the cover is paper thin.
It's very hard to do rational cap ex, or even to negotiate in good faith, if you think the rules of the game could be changed at any point in essentially the next four years.

<<The tariff situation, as well as the situation with Canada, Panama, Greenland, NATO etc, has caught everyone's attention with many wondering "What is going on"?>>

Trump's style is an important aspect of all that's going on. His past business dealings include multiple bankruptcies, numerous lawsuits, unpaid bills... and yet, every time he emerged stronger and more popular. So he must think that's a winning formula.

Jennifer Burns, assoc professor of history at Stanford and research fellow at the Hoover Institution, a conservative leaning think tank, has the best short explanation of the relation of Trump's tariffs and geopolitical issues that I've seen so far

The US Dollar has served as the reserve currency for a long time. Towards that end some fairly sketchy things have been done to American's in the past by our own government. In particular,

In 1933, our dear leader Franklin D Roosevelt confiscated all the gold held by Americans and ended the ability of American's to trade their US Dollars for gold. Why? So that we could continue to support foreigners being allowed to trade THEIR US Dollars for gold. To futher nail down the conscription of American's into the cause of treating foreigners better than Americans in order to keep the gold standard for them, it was actually ILLEGAL for American's to even own Gold, which prohibition was kept in place until the 1970s.

So now what is the price Americans pay to keep the US Dollar attractive to foreigners as a reserve currency? Well one price is that employment in the US no longer includes reasonably high paying jobs that the bulk of Americans can get and use as the basis of a middle class way of life. We traded a bunch of manufacturing jobs for "Do you want fries with that?" jobs.

I don't let my children run up credit card debt to pay for their current consumption. Why should I let our government and other American's do it? Especially when it is at the expense of a middle class whose income is stagnant while a minority of our workforce gets richer and richer?

If we manage to de-value the US dollar to the point that we have a lower trade deficit, and even better, a trade deficit which stops growing faster than our economy is growing, and that results in a lower government deficit and a higher rate of pay for the bulk of the American workforce, then that sounds good. The idea that this will stop the rest of the world from using the US Dollar as its go-to reserve currency seems far-fetched. We abandoned the gold standard in the early 1970s and then had epic inflation through the next decade or two and that didn't stop the US Dollar from being the reserve currency. I don't think putting the dollar back on a basis that supports approximately balanced imports and exports between the US and the rest of the world is going to do what giving up on gold and having double-digit inflation couldn't do in the past.

R:

"... confiscated all the gold held by Americans and ended the ability of American's to trade their US Dollars for gold. Why? So that we could continue to support foreigners being allowed to trade THEIR US Dollars for gold. "

The majority of the victims of the US gold bond default were non-US investors.

More seriously, the US government was broke and admittedly had little choice. Had they similarly halted the exhangeability of gold for non-US central banks (not all "foreigners"), what remained of the US and global economy would have crumbled, which it nearly did anyway. The only real reason any material amount of gold was redeemed by those entities 1934-1971 is because the fixed exchange rates and gold backed currency of Bretton Woods (or any other similar regime) could never have lasted forever. Pressures build, then it goes pop.

As it was, the US managed to come up with a wonderfully circular bit of legal reasoning about the default to save face, and managed not to turn into Argentina.

Jim

So now what is the price Americans pay to keep the US Dollar attractive to foreigners as a reserve currency? Well one price is that employment in the US no longer includes reasonably high paying jobs that the bulk of Americans can get and use as the basis of a middle class way of life. We traded a bunch of manufacturing jobs for "Do you want fries with that?" jobs.

This isn't true though. Since the US started running a trade deficit in 1980 until now, real income has increased for every decile. Middle income people (which is what you are talking about) have seen their incomes increase by about 20%, which is a non-trivial boost in standard of living.

https://www.visualcapitalist.com/growth-in-real-wa...

https://en.wikipedia.org/wiki/Household_income_in_...

To be sure, these gains haven't been shared equally. But that is a matter of public policy, not trade policy.

Similar to agricultural jobs, manufacturing jobs as a percentage of the workforce isn't very big and has been declining for a long time. That's true even in manufacturing powerhouses like Germany. Even if tariffs were 100% successful, the total number of jobs that could potentially be reshored in very small.

Labor statisticians track the number of people who leave their jobs voluntarily. Turns out, coal mining and manufacturing are the industries where the most people tend to leave even though they don't have to. The reason is coal mines and assembly lines aren't good places to work, and there are better jobs with equal or better pay to be had.

So as a matter of public policy, why are we trying to create those types of jobs, instead of service and tech jobs that people actually want?

This isn't true though. Since the US started running a trade deficit in 1980 until now, real income has increased for every decile. Middle income people (which is what you are talking about) have seen their incomes increase by about 20%, which is a non-trivial boost in standard of living.

Just remember, statistics is not the plural of anecdote. So here is an anecdote.

When I bought my first house in 1988, it cost me about 1.3 times my then annual salary. And it was a two family home of which I could rent out the right half.

My daughter is looking at homes in a market where homes are essentially about 15 times her annual salary. Of course she could move out of Sandy Eggo to the absolute boondocks of South Carolina where she could get a fine house for only 5 times her annual salary.

So since 1988, houses seem to have risen from about 1.3 times your annual salar to at least 5 times your annual salary.

But this is just an anecodte. I'm sure my daughter's situation is completely unique and atypical and that American nearly-30 year olds are happily buying house after house more easily than ever before because the real income has increased in every decile. My bad for even bringing this up.

R:

So since 1988, houses seem to have risen from about 1.3 times your annual salar to at least 5 times your annual salary.

If China could export houses and learn to build them on, they would be cheap too.
Housing shortage, and un affordability has nothing to do with trade deficits. How about clothes, shoes, silverware, furniture, a lot of the stuff that goes in the houses?

LAND to build them on.

When I bought my first house in 1988, it cost me about 1.3 times my then annual salary. And it was a two family home of which I could rent out the right half.

Surely that was unreasonably cheap? Even if items are on sale at really low, fire sale prices occasionally (very occasionally), we shouldn't expect that all the time. Perhaps a product of authorities and lenders making it hard for ordinary people to get a mortgage.

Another view; interest rates are much lower now than they were then. A lot of the increase in asset prices since that era is simply due to the lower rates we have now. (This might mean that the slightly higher rates of the last 2-3 years will depress asset prices eventually ...)

SA

So since 1988, houses seem to have risen from about 1.3 times your annual salary to at least 5 times your annual salary.

This is a big deal, so it's worth considering the causes.
In reverse order of my perception of significance:

* Big cities get more expensive, and smaller places not so much. Most people live in big cities, so that dominates the statistical effect. I imagine the price of a house in Podunk hasn't exploded upwards.
* Even in some "off peak" big cities, it's not exactly egregious: real house prices since 1987 are up 2.1%/year in Cleveland. Median real US household income is up not much less, despite the falling number of people per household.
* Zoning restrictions, in particular single family dwelling monoculture, but more generally all the Nimby-like restrictions on building anywhere near where people want to live.
* US government policy to drive housing demand, primarily through interest subsidies and running the mortgage market. The US has the most socialist housing finance system of any developed country.

Jim

When I bought my first house in 1988, it cost me about 1.3 times my then annual salary. And it was a two family home of which I could rent out the right half.

My daughter is looking at homes in a market where homes are essentially about 15 times her annual salary. Of course she could move out of Sandy Eggo to the absolute boondocks of South Carolina where she could get a fine house for only 5 times her annual salary.

Sure, and a similar story can be told about what my parents paid for their first home and what I paid for mine. Difference is that I had to move away from home because of the high cost of living, buying a property in a much cheaper area several states away. I started with a banal non-HGTV worthy property, on a busy road, that I then fixed and put into rental service when I moved into my next fixer upper in a better location. It's important to note that I learned on the job, coming in to home ownership with little more than having hung out as Daddies Helper as a kid, while he worked on the house and yard. Contractors have never been cheap. The only thing that seems to be new under this sun is the unwillingness to buy anything other than that perfect HGTV ready property, to start with a first time buyer place that will be traded in as one builds equity. There is an entitlement issue with people seemingly feeling they should be able to afford Tiffany type areas, instead of starting at Walmart neighborhoods. Because they can't get what they want at their price point, the whining about it's so unfair starts. You can't always get what you want, so go for what you need. Truly, the disconnect between understanding needs vs wants is incredible to me as technology firms spits out endless toys. In some ways I think we have done our kids a disservice in not allowing them to be truly poor for any period of time. One learns to make tough decisions, to think outside the box and develops grit with the challenge of unaffordability. One learns to ask themselves "What do I need," rather than mindlessly buy what they want.

Our 30 year old is moving from Atlanta to Portland Maine, in part because he wants a stand alone home, not a condo. From what I've seen on Realtor.com, it should be about 2 times his salary.

IP

Another view; interest rates are much lower now than they were then.

Wow. You need to review history. 1980's where tough times and mortgage rates were MUCH higher than now. Google it, or just look at what came up when I did:

AI Overview

In 1988, the average 30-year fixed-rate mortgage was 10.38%. This was slightly lower than the 10.40% average in 1987 and the 10.39% average in 1986.

The answer isn't always "You had it so much easier then." Rates today are quite normal to good. What was unusual is the very low rates of recent history.

IP

* US government policy to drive housing demand, primarily through interest subsidies and running the mortgage market. The US has the most socialist housing finance system of any developed country.

The fact that US home owners can deduct the their mortgate interest is often cited as a big impact on housing prices; but the statistics don't support this. Roughly 85% of the population uses the standard deduction, and doesn't itemize (which is where the impact would be felt).

Also: Demand for housing is not really impacted by government policy; demand for home ownership can be however.

tecmo
...

agree ! had just graduated Masters, no jobs in uk. worked in a shop for a year in accounting dept. C C rates were 28%+ APR and mortgages 10% +. rented.
5 years later, I bought my own house.and I still weild a nifty paintbrush etc etc...

When I bought my first house in 1988, it cost me about 1.3 times my then annual salary. And it was a two family home of which I could rent out the right half.


A key issue has been that 30+ years ago most families were supported by a single income. Now with most being supported by two incomes; this unfortunately didn't make everyone "twice as rich"; it raised prices (homes being the most obvious). It is now very difficult for anyone to purchase a home on a single income.

tecmo
...

When I bought my first house in 1988, it cost me about 1.3 times my then annual salary. And it was a two family home of which I could rent out the right half.


Also a better metric would be % of income required to finance the mortgage. This metric hasn't changed much over the past 30 years (on a household level)

tecmo
...

This is a big deal, so it's worth considering the causes.
In reverse order of my perception of significance:

Where do you think housing costs attributable to regulations would fall in that ranking?

I've read estimates that almost 25% of a home's price in the US can be attributed to regulations. That's a hefty sum if true at ~$100K on a $400K median home price.

Of course, some of those regulations, we'd never want to remove. But I've read estimates that this figure in a number of other major industrialized countries such as Australia, UK, Germany, Japan comes out to only around 10%. If those countries can get by with 15% less of a home's price in terms of regulation costs, I wonder why we in the US can't.

It's a serious situation for upcoming generations. I'd love to see an affordability housing initiative taken on to thoroughly research, identify, and rank all causes/factors and propose plans to address them.

I've read estimates that almost 25% of a home's price in the US can be attributed to regulations...I've read estimates that this figure in a number of other major industrialized countries such as Australia, UK, Germany, Japan comes out to only around 10%. If those countries can get by with 15% less of a home's price in terms of regulation costs, I wonder why we in the US can't.

It's a serious situation for upcoming generations.

Yeah, there is something of a movement going on in the US to make it easier to build housing. A big part of the problem is local control of stuff like zoning and building regulations. NIMBY is an understandable reaction by any person faced with a big development coming to their neighborhood, but the laws empower the NIMBY far too much in this arena.

Another part of the problem is voluntary near-permanent down-zoning of massive amounts of lands that are limited by deed restrictions and HOAs to a suburban low-density development pattern.

A key issue has been that 30+ years ago most families were supported by a single income. Now with most being supported by two incomes; this unfortunately didn't make everyone "twice as rich"; it raised prices (homes being the most obvious).


A common saying is that the husband works for the family and the wife works to pay the taxes.

Several years ago when I was doing our tax forms, I said to my wife that our Federal tax that year was $30,000 (most of which was covered with the W-2 withholding). She said "Crap, that's what my annual salary is." Along with her sometimes 2 hour commute to home on the Chicago tollway.

That's when I told her that the next time her boss gave her grief and made her cry, that she is to reach down under her desk, grab her purse, stand up, and walk out the door.

So since 1988, houses seem to have risen from about 1.3 times your annual salary to at least 5 times your annual salary.

What kind of tent did you buy? When I bought a house in 1983 it cost 5 times my annual salary. When I sold it 30 years later, it cost 5 times my last annual salary before I retired. My salary had grown quite a bit in real terms over the years, fortunately, but still no earth shattering change overall in housing prices.

Elan

"So since 1988, houses seem to have risen from about 1.3 times your annual salary to at least 5 times your annual salary."

What kind of tent did you buy? When I bought a house in 1983 it cost 5 times my annual salary. When I sold it 30 years later, it cost 5 times my last annual salary before I retired.


It very much depends where you live.

We once bought a new house in a new tract subdivision. Our neighbor 2 doors down bought the same model around the same time.

They sold their house and moved away 6 years later.
We had them over for dinner and he said "We made more money on our house in 6 years in Algonquin than we made in 20 years on our house in Carpentersville."

What kind of tent did you buy? When I bought a house in 1983 it cost 5 times my annual salary. When I sold it 30 years later, it cost 5 times my last annual salary before I retired.

...
It very much depends where you live.

And what kind of offer you make. I love investing in real estate because it is not always an efficient market. Different sellers have different motivations, some Realtors are better at assessing value than others, and these days properties with minimal need for cosmetic only improvements go without buyers, so if you recognize these advantages, you can make them work for you. The house we are selling now, (perfect timing!,) was priced as not waterfront. We snapped it up and it is now on the market for almost twice what we paid in 2019, with mostly sweat equity poured into it.

IP,
whose next property may be in Canada, or Malta...

What kind of tent did you buy? When I bought a house in 1983 it cost 5 times my annual salary. When I sold it 30 years later, it cost 5 times my last annual salary before I retired. My salary had grown quite a bit in real terms over the years, fortunately, but still no earth shattering change overall in housing prices.

I think one disconnect here is interest rates. Rates were super high in the 80's, so while housing prices were lower at that time (and a smaller fraction of one's annual salary than today), housing prices combined with high interest rates still made housing affordability very challenging for the average family paying a mortgage.

Today, rates are not as high, but real housing prices have gone up in price more than they were then. The end result is a similarly challenging environment that is reflected by this chart from a businessinsider article on the topic showing that we have the worst housing affordability situation in over 40 years today:

https://i.insider.com/6541237696f7540cd06a5c90?wid...

showing that we have the worst housing affordability situation in over 40 years today...

I had to go back and re-read your post, as my quick read did not jive with what I then saw at the link. My bad, not yours. For those who are also quick skimmers, looking at the chart will show you that the affordability index today is essentially that of 1985, which is what the above alludes to. What is different is that rates from the '80's eventually went down and those buying in high rate/low price times could refinance. I suspect rates today are not going lower any time soon. Prices either.

IP

What kind of tent did you buy? When I bought a house in 1983 it cost 5 times my annual salary. When I sold it 30 years later, it cost 5 times my last annual salary before I retired. My salary had grown quite a bit in real terms over the years, fortunately, but still no earth shattering change overall in housing prices.

I think one disconnect here is interest rates. Rates were super high in the 80's, so while housing prices were lower at that time (and a smaller fraction of one's annual salary than today), housing prices combined with high interest rates still made housing affordability very challenging for the average family paying a mortgage.

Indeed interest rates were very high in 1983. I assumed an adjustable rate mortgage from the seller at the time, and paid about 13% annual interest, which came down far too slowly as interest rates dropped. So I refinanced a couple of times until the rate came down to earth. But that's not the whole story either. Inflation was very high too. Real estate was a very good inflation defense, so while interest rates were high they weren't very high after inflation, and houses therefore weren't as cheap as you'd expect.

Elan

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