Tariffs Will Strengthen The American Economy

To investors,

President Trump stood in the Rose Garden yesterday and fulfilled his promise of Liberation Day with historic words: “This is our Declaration of Economic Independence.”

That sentence kicked off a firestorm of opinions online as Trump announced sweeping tariffs on almost every country in the world. Perplexity, my favorite AI search engine, summarizes the top three points of the announcement as:

* Baseline 10% tariffs on all imported goods to the United States.

* Reciprocal tariffs targeting approximately 60 countries deemed “worst offenders,” with rates ranging from 20% to 50%. Notable examples include 34% on Chinese goods and 20% on EU imports.

* A 25% tariff on foreign-made vehicles and the closure of duty-free loopholes for Chinese goods under $800.

The reaction to these announcements have been exactly what you would think — his supporters cheer them on and his critics loudly condemn them. Such is the world of politics.

But if you can ignore the partisan noise, there is something profound happening via these policies.

First, Trump is transitioning the United States from a punitive tariff system to a tariff incentive system. We have historically used tariffs to punish select countries as a response to actions they take. Now we are moving to a system where the default tariff on all imports is a minimum of 10% and we will reduce tariffs to incentivize certain products to come to the United States.

This is very smart. It will raise substantial revenue for the government, while providing a persistent incentive for companies to manufacture their products in America.

The second thing happening here is President Trump is leveling the playing field for American companies and workers. He had a great line yesterday where he said “they do it to us, we do it to them.” Seems fair, right?

The idea is that foreign countries have been taking advantage of the United States for far too long. They have been setting tariffs against us, subsidizing their producers, manipulating their currencies, and generally trying to gain an unfair advantage in bilateral trade.

It makes sense for them to do it. I would consider it rational for national leaders to try to do what is best for their citizens and their economy.

But enough is enough.

Mexico’s economic policies are Mexico First. Canada’s economic policies are Canada First. China’s economic policies are China First. India’s economic policies are India First. Why shouldn’t America’s economic policies be America First?

See this is the thing — people may hate change, but the United States is now following the playbook of every other country in the world. We are taking steps to protect our companies and our workers.

The critics claim consumer prices will increase under this model, but I don’t think that is right. Tariffs are actually a deflationary force, not inflationary. As I previously explained, the prices of every tariffed good from the 2018 tariffs was lower than pre-tariff levels within 18 months.

There are many reasons why prices end up going down. Tariffs don’t operate in a silo. For example, Walmart is already telling suppliers they have to eat the cost of tariffs and the large retailer says they are not going to pay higher prices for those goods. This shows that American companies have the leverage to squeeze the foreign companies, rather than be forced to pass higher prices on to customers.

But remember, there is one big loophole in this whole tariff kerfuffle — you don’t have to deal with tariffs if you make products in America and you don’t have to deal with tariffs if you buy products made in America. That is the whole point of this exercise. Protect American industries. Create American jobs. And raise revenue for the government.

Now some people are very worried about the stock market and their investment portfolio right now. I thought Treasury Secretary Scott Bessent had a great line in his interview with CNN’s Kaitlan Collins yesterday:

“I think what's going to be important are the underlying economic fundamentals, because at the end of the day, as Warren Buffett says, in the short run, the market is a voting machine. In the long run, it's a weighing machine.”

Ain’t that the truth. Rather than judge economic policies based on a few hours of stock market performance, we should wait to judge the efficacy over the first 6-12 months. The weighing machine is what ultimately matters. My guess is we will see stock prices of American companies rally later this year as they start to see the benefits of tariffs.

Stock portfolios don’t ultimately matter though. These economic policies aren’t aimed at helping the wealthy. They are fully focused on creating wealth and opportunity for the working class.

The US failed a large portion of the American population over the last few decades by exporting jobs, devaluing the dollar, and prioritizing other nations over our own. The mandate in November was to reverse globalization and create a strong domestic policy. That is exactly what voters are getting now.

Stephen Miller, the Homeland Security Advisor, explained the current administration’s approach to economic policy. He called it “the great reversal of the great betrayal.”

Some of you may agree with him, some of you may not. But it is clear the United States is going to run this experiment. If it works, a large portion of the country will be very happy. If it doesn’t work, a large portion of the country will be screaming “I told you so!”

I am an independent. Some of Trump’s policies I agree with and others I do not. In regard to tariffs, I think this is a great idea. My guess is they are going to work and the American economy will be stronger because of it. But if I am wrong, I’ll be the first to admit it publicly. Just don’t hold your breath — It looks like I won’t have to do that :)

Hope you all have a great day. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

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