Amidst great oceans encircling America, mighty walls rise out of foaming seas to divide neighbors at peace. Trump’s gilded statues, glaring condescendingly, adorn stone pedestals guiding only costly aircraft above. The walls will tumble, but when and how and what can you do?
This week Donald Trump declared Liberation Day, which, in Orwellian language, stood for punishing trade wars on most of the world coupled with threats to grab Greenland, the Canal and a third term. Defying Roosevelt Liberals and Reagan Conservatives alike—and most economists—Trump weakens NATO, abandons Ukraine and threatens allies like Canada while rewarding Russian dictators. Xenophobia prevails because we fear our own proven abilities to compete.
Erica York of the Tax Foundation calls Trump tariffs, averaging 16.5%, the “largest peacetime tax increase in history.” Before inevitable retaliation, “Trump Tariffs will reduce after-tax income by an average of 1.9 percent and amount to an average tax increase of more than $1,900 per US household in 2025.” Not only will cars be costlier, but even goods at Target and Safeway, and the burden will hit low breadwinners hardest. Wall Street woes presage suffering on Mt. Herman Road.
The Federal Reserve wonders if it must lower interest for unemployment or raise interest for expected inflation, so homebuyers can’t expect relief. Legal tax avoidance will be as difficult as market safety. In 2008, panic-selling wrecked the savings of fearful people who abandoned market gains. Planning is problematic when Trump’s tariff goals are mutually unattainable and stiflingly uncertain:
1. Punishing countries for immigration and drug exports? Will Trump lift sanctions, reducing revenues, if foreign countries sincerely try compliance? Trump has flipflopped on Mexican punishments already.
2. “We have not been treated Fairly,” grumbles Trump, who seeks tariff “reciprocity” measured vaguely with currency manipulation and trade barriers and determines tariff rates by ratios of imports and exports. Yet Switzerland got a 32% tariff despite free trade policies and Brazil suffers despite trade deficits. Trump abandons principles for convenience.
3. Can Americans boost non-robotic production in battleground states with costlier labor and environmental laws than foreign countries? Tariffs encourage inefficient production and protect monopolies that weaken American competitiveness. The U.S. simply can’t compete with Ecuadorean bananas, Taiwanese chips or Chinese solar panels. Tariff retaliation on Silicon Valley genius raises American prices abroad; this cuts production and employment as does the expense of trying to finance foreign parts. Thus uncertainty is warranted and pessimism expected in uncertain legal climates. Unemployment follows business hesitation as Trump bargains unpredictably with everyone who wants exemptions.
4. Raising revenue? Mckinley made do with tariff financing because America had no Social Security or Medicare, and our military was second to many. If Trump couldn’t even dump Obamacare, how will he finance big government with tariffs? Scaring investors toward bonds might lower deficit financing costs, but chasing illegal immigrants and ceasing Social Security taxes won’t be cheap. Tariffs eliminated as incentives won’t raise revenues.
Could stock options or short sales help securities traders play the game of market timing? Buyers of calls gain rights to buy assets at a “strike price.” This is very risky in a faltering market, but selling “covered calls” is conservative because buyers own the asset at risk. Stockholders can buy puts for the right to sell at a strike price and they would only do so if they expect or fear declining values. This too is risky for someone playing against experienced traders. Option sellers can make modest gains from expired options. At least these strategies don’t rely on guesswork about stock market timing.
Hedge Fund manager Mark Spitznagel argued convincingly to sacrifice gains in strong markets by purchasing out of the money puts on the S&P 500 index—which would give you bargain-priced equities in a downturn. You might risk only 0.5% of your portfolio on this Tail Hedging strategy to avoid unexpected “Black Swan” tragedies and, he claims, outperform passive, technical and stock picking strategies.
With scary 1930’s Smoot-Hawley precedents, tariffs endanger Republicans who might reclaim congressional control of taxes. Hedge bets if you dare in uncertain or declining markets, but admit ignorance to “ride out the storm” with fundamentally sound market choices.
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. He serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
