r/investing • u/TheInfiniteUniverse_ • 1d ago
The tariffs have nothing to do with protectionism
Many think the administration has slapped tariffs like a drunken sailor because it wants to bring the jobs back, punish the countries who were abusing us, protect the domestic industries, etc.
This can't be farther from the truth.
To understand what's happening, we need to look at the government maturing debt in the next 30 years.
An unusual load of debt must be refinanced just in the next few years during this administration.
You would need two things to do that, (1) a load of cash, and (2) low interest rates.
Slapping tariffs would do exactly that: (1) bringing a load of cash to the government, (2) causing the money in equity market to panic and escape to the treasuries which will cause the interest rates to drop.
Icing on the cake would be if Powell capitulates and lowers the funds rate "because" we might enter a recession.
As you can see, this is more of an emergency measure for a near term problem, something that has to be done if the country doesn't want to default and destroy the dollar.
So the thinking that the government is going to negotiate with China to remove the tariffs is completely flawed. The administration needs this money.
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u/Silly_Bluebird8196 1d ago
Is losing the trust of the rest of the world, which puts the perceived stability of the US at risk, which then puts the USD being the world’s principal reserve currency at risk, which takes away the US’ unique position of being able to issue debt without being too worried of their entire financial system going bust, worth it though?
Sure, implementing tariffs may decrease the US’ debt. But at the same time, it lowers the US’ tolerance of being in debt.
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u/TheInfiniteUniverse_ 1d ago
Totally with you on that. The country's long term prosperity is being replaced with short term necessities by the expense of the average American.
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u/kiwimancy 1d ago
Most has to be refinanced soon because most is short term. It will also have to be refinanced the year after and the year after. There is nothing special about it.
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u/krakenheimen 1d ago
Jesus, I’m as anti TDS doomer as they come and this 4D chess narrative coming out since yesterday is bullshit.
Any way you cut it, intentionally evaporating 11T in wealth to refinance 6.8T is nonsensical.
Reality is like usual, Trump has a reasonable thesis (Trade is heavily weighted against the US and middle class suffer because of it)…
…and instead of implementing a smart metered approach, Trump chaos bombs the effort, driven either by incompetence or emotion.
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u/urania_argus 1d ago
Trade is heavily weighted against the US and middle class suffer because of it
How is the middle class suffering because of cheap imports? I'm agnostic on the trade imbalance, but it seems to me the middle class will suffer more as the prices of most things it buys rise due to the new tariffs.
And isn't it the case that it is normal and expected for a rich country like the US to have a trade deficit with poorer countries simply because it can afford to buy and import a lot more things than they do?
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u/krakenheimen 1d ago
My region of the Bay Area is a good example. You’re either college educated STEM worker making a reasonable to high living, or a loser. Not much in between besides government.
A specific example is the NUMMI auto plant in the east bay. NAFTA incentivized auto production in Mexico and Canada, and it closed (until a decade later Tesla bought it and began production).
There’s plenty out there if you want a more macro discussion on NAFTA. Great for GDP, US government revenues and the top earners. Not so much for everyone else.
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u/dummy_reddit69 1d ago
Prequalifies as anti tds doomer then goes full tds doomer lol.
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u/krakenheimen 21h ago
Bro, come on. That post was 3/10 on the Reddit TDS scale.
Don’t hate the guy but he steps in shit often.
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u/Reasonable_Base9537 1d ago
I think you're correct, this absolutely has a bigger picture goal. Whether it'll work or not is up for debate. Whether the damage it'll do to the economy is worth it, also debatable.
But when I hear things like "bring manufacturing back to America" I just laugh. Who are those jobs for? I'm lower middle class and live in a very average area and I don't know anyone that wants to work in a factory, or be a seamstress, etc etc. Are there places in America that have large amounts of unemployed labor that want to be factory workers? I'm genuinely curious
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u/TopicTalk8950 1d ago
Jerome Powell, you know the head of the people who lower interest rates, just stated in his March report that tariffs could lead to higher inflation and higher rates.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected.” Also stating the Fed now faces, “elevated risks of both higher unemployment and higher inflation.” Which would move the Fed to raise rates to combat said inflation.
Never seen “investors” praise the tanking of their gains like I have here. The only billionaire winning is the Oracle of Omaha himself because he knew Trump would tank the economy and sold.
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u/TheInfiniteUniverse_ 1d ago
Totally. But you see, the inflation problem of the consumers is secondary to the priorities of the administration. The government's first and foremost problem is not to default in the next few years.
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u/TopicTalk8950 5h ago
How will they stop from defaulting if they can’t refinance due to higher rates?
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u/TheInfiniteUniverse_ 5h ago
well, that's the point. Funds moving to the treasury market would cause the rates to drop.
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u/TopicTalk8950 4h ago
Like I just said in my original post, the Federal Reserve who lower the rates, stated that tariffs will cause inflation to increase and rising rates. Blanket tariffs have always caused total hardship for Americans and increased our national debt in the long run.
The average American also doesn’t care about the inner-workings of some desperate ploy that most major economists disagree with. They only care about their investments which are tanking. Add on being laid off and prices RISING due to tariffs. They will act on what they see and feel.
The first time blanket tariffs were introduced by McKinley, Republicans lost 50% of their seats in the next election due to Americans suffering financially.
The second time blanket tariffs were introduced by the Smoot-Hawley Tariff Act, Republicans didn’t gain the house and senate for 60 years.
A billionaire salesman is now doing the exact same thing and it will only lead to financial pain for Americans. As proven throughout history time and time again.
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u/protohuman_cyborg 1d ago
Why can’t they just issue longer term bonds and use that cash to payoff the short term note holder?
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u/zeppo_shemp 1d ago
except the fact Trump promoted high tariffs since back in the 1980s completely disproves this hypothesis.
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u/Droopy1592 1d ago
This is uneducated logic Very shortsighted You have a lot to learn about finance
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u/MilkshakeBoy78 1d ago
let's go. i hope wall street is filled with people like you. the market currently isn't pricing in the incoming great recession. i can't wait to DCA my portfolio into some yuge dips.
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u/Droopy1592 1d ago
My puts are based off what I see, I priced in the recession two years ago when the yield curve first reversed. You’re late, honestly.
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u/MilkshakeBoy78 1d ago
late? i am just in time. you were 2 years too early.
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u/Droopy1592 1d ago
Nope, BOJ increased rates and now this happens. That was the trigger. The recession started two years ago once the curve flipped. It just has velocity. The market pumped during that period cuz rates since 2008. Look at the numbers.
How can I be too early? That’s dumb You never know the trigger
Do more research. People like you try to sound educated but your whole post had logic holes
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u/MilkshakeBoy78 1d ago
you don't make any sense. just look at the sp500. it is crashing hard because of trump who is causing a recession. the recession did not start 2 years ago
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u/Droopy1592 1d ago
lol you don’t know anything
S&P is not the economy
Literally not the same
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u/MilkshakeBoy78 1d ago
it's not the same. the economy is going to get very bad. the sp500 is just priced some of the recession early.
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u/Droopy1592 1d ago
Yeah I know
Which is why you’re late
I’m rich already and gonna get richer
BOJ carry trade was the canary in the coal mine
That’s what’s causing this crash
Stock price is not the economy
Just told you this
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u/ZealousidealNinja863 1d ago
So why are they plowing ahead with a tax cut for the 1% when they are wiping out gains for 2025. At the same time, you increase the deficit, and you alienate the people who hold it, and you hope to buy it in the future. Makes no sense.
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u/ThroatPlastic6886 1d ago
This is absolutely correct. Finally we are trying to stop borrowing from our future to prop up the boomers.
I want to buy cheap shares and refinance my debt.
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u/livinginahologram 1d ago edited 1d ago
Your logic breaks down into nothing once you account for all the bailouts (like the one being considered for farmers) due to the insane tariffs that were introduced.
Consumers will lose buying power because everything becomes more expensive. Some businesses will shutdown or take a long time to adapt. The US economy is going to enter a self inflicted recession.