Alright. Welcome back to Discourse. I am your host, Wayne Unger, and on today’s episode—we’re talking tariffs. But before we do, we are recording today’s episode on Sunday, April 6, at 3:30pm, and as always, things may have changed since. 

By now, you have likely heard that President Trump is implementing tariffs on pretty much everything and everyone. I thought we’d spend this episode discussing tariffs, what they are, how they work, the economic effect of tariffs, and how all of this might turn out—especially in a globalized world with global supply chains. 

Global financial markets have been down significantly over the last few business days, and they are expected to decline today, if the market futures are any indication. Meanwhile, Trump is sticking to his guns, which some may admire and some may think he’s just stupid. Trump said yesterday “sometimes you have to take medicine to fix something.” That’s a poor analogy. With the exception of chemotherapy, medicine is not meant to make you sicker in the short-term to make you healthier in the long-term. 

To begin, let’s start with the definition of a tariff. Quite simply, a tariff is a customs duty or tax levied on the import of goods. In other words, it’s simply a tax that must be paid in order to import a good from abroad. If you want to import a good—whether that is a raw material like aluminum—or a finished good like a car—you must pay the tariff if a tariff is imposed by Customs and Border Patrol. CBP is the organization responsible for handling all things trade, and that includes collecting the revenue generated by the tariffs imposed. 

Now, free trade is generally a policy choice where a government does not discriminate against the imports or interfere with the exports. Free trade is, quite simply, imports without any additional costs, like tariffs, and exports without any additional costs, like subsidies. A free trade policy does not necessarily imply, however, that a country abandons all control and taxation of imports and exports. Perhaps more simply, I can describe it as this—free trade is when a government allows trade to occur in an unencumbered way. 

The theory behind free trade traces back to Economist Adam Smith of the 18th Century. Adam Smith argued that the division of la or among countries leads to specialization, greater efficiency, and a higher aggregate production. In this way, free trade leads to greater prosperity and efficiency, lower prices overall because countries specialize in particular goods, and in the end, all of that raises our living standards. 

As you likely heard, the Trump Administration has taken a major risk in imposing tariffs on pretty much everything. There are a few exemptions, however. The White House has exempted some goods—like crude oil and certain minerals not available in the US, according to the Wall Street Journal.

To do this, Trump signed an Executive Order last week. In my last episode, I discussed where a President gets his legal authority to act, and you might recall from that episode, that a President must point to the Constitution and/or a statute because the President cannot do anything unless he has the legal authority to do so. 

While Congress has the general authority to regulate international commerce, including the express power “to lay and collect taxes, duties, imposts, and excises…” which is expressly granted to Congress in Article II, Section 8 of the Constitution, Congress has granted the President the authority to impose tariffs via legislative acts. For instance, the International Emergency Economic Powers Act (IEEPA) and the National Emergencies Act (NEA) both grant the President with the legal authority to impose these tariffs. 

Donald Trump, of course, said throughout the 2024 campaign that foreign countries and nationals will pay the tariffs. That’s not true according to the data, and we have a lot of data to look back at since tariffs are not an invention of recent times. The US has imposed tariffs since the 18th century. Most, if not all, economists say that tariffs are ultimately paid for by the consumer—whoever ends up buying that good down the road. 

Full disclaimer. I am not an economist nor am I a trade or tax expert. But I am a legal expert and an expert in supply chains. I began my career in supply chain operations at a major tech company. I am formally educated in supply chain management—shout out to Arizona State University. So, much of this episode is informed by my experience working in an actual supply chain operations organization. 

Here's how tariffs work. When an importer brings a good into the United States, it’s the importer who must pay the tariff. Say, for instance, a locally owned and operated general store wants to sell stuffed animals. Let’s say the store typically purchases those stuffed animals in bulk from a Chinese supplier. Once that package arrives in the United States, it’s tariffed. CBP collects the tariff once the good crosses the US border—they are collected at the point of entry. So, that locally owned and operated general store faces an increase in the costs—as the importer—they must pay the tariff on top of the costs for the stuff animals. 

Tariffs are taxes. It’s another tax. Here, the Trump Administration has raised everyone’s taxes. 

Now, that general store would do one of two things—either raise the price for the stuffed animals in the store to offset the increase in the costs to buy those stuffed animals from China, or absorb the increase in price and “take the hit,” which then begins to erode the store’s profit margins. 

In this example, we’re considering a Chinese supplier. The Trump Administration on Chinese imports, as I understand it, will be 54%. That means if the bulk order of stuffed animals previously cost the general store $100, it will now cost them $154. 

Many Trump Administration officials and Trump defenders have said on media interviews and on social media that if someone wants to avoid the tariffs, then just buy American. Trump’s Commerce Secretary said this repeatedly last week. This tells me that Trump’s Commerce Secretary has no understanding of supply chain. 

The issue with that is in the pure globalized nature of manufacturing and supply chains. Nothing is wholly made in the United States anymore. Nothing. 

While the finished good might be manufactured or assembled in the United States, something in that manufacturing process, I promise you, is from a foreign nation. Whether it is the tools used in the manufacturing and assembly process, or the individual parts—like nuts and bolts, literally—something in that end-to-end process is here as the result of international trade. 

Consider the classic American cars companies—GM and Ford. Ford assembles its F-150 pickup truck in Dearborn, Michigan, and Kansas City, Missouri. The Chevrolet Tahoe assembled at a plant in Arlington, Texas. Yes, if you consider the location of the final assembly—the F-150 and Tahoe are “classic American-made” cars. 

Except, they require thousands of parts that come from suppliers around the world. A car is no longer a simple piece of machinery—consider the mere technology in a car today—from graphic interfaces on the dashboard to the collision warning systems and blind spot monitors. In supply chain, the term is Bill of Materials (BOM). The bill of materials is a comprehensive list of all the components, subassemblies, and raw materials needed to manufacture a product. BOMs are generally considered to be proprietary information. So, if you tried to search for the F-150’s BOM, you likely won’t find anything online because Ford keeps that information confidential—often as a competitive advantage. 

Think about what would be in a bill of materials for a car or truck though. It’s a comprehensive list. So, I’d expect everything from the nuts and bolts, to the tires, to rubber gaskets in the engine and transmission, to the oil filter, to the door hinge assembly. Ford does not make every single part that goes into its vehicles. Rather, Ford outsources the parts. Ford likely works with a supplier that makes the oil filters, another supplier that manufactures the door hinge assembly, and likely another manufacture who makes the rubber gaskets. Ford, undoubtedly, has hundreds of thousands of suppliers—and they are based all over the world. So, everything that Ford must source for its F-150, even though that F-150 is assembled in Michigan and Missouri, it’s truly an international product. 

Trump supporters might argue—well, so what—the tariffs will incentivize companies to bring back manufacturing jobs. Ford will be forced to use US-suppliers. Or perhaps, they might argue that Ford’s suppliers will be forced to relocate to the United States. Sure, that might be true for some of the parts and components listed on the F-150’s BOM. But it is unreasonable to think that hundreds of thousands of suppliers that Ford relies on will relocate to the United States. 

So, what will Ford do in response to the tariffs? Almost certainly, it will be forced to raise its prices to maintain a certain profit margin. Because remember that a for-profit business must make a profit. No profit, no business. If you operate your business at a lost, either you have an endless source of money or you eventually go out of business. 

Ford, as the importer of the parts and components, will be forced to pay the tariffs everything that it imports to assemble the F-150. This leads to an increase in the cost of goods sold (COGS). The cost of goods sold is exactly how it sounds—it is the total cost of whatever good the seller is selling. COGS represents the direct costs associated with producing goods for sale, including the materials, individual parts, components, labor, and manufacturing overhead—like rent. If every part that goes into the F-150 is suddenly 10% or 25% more expensive due to the tariff, Ford now must pay more to manufacture the truck. Ford, again, could do one of two things here. Either Ford will raise the price of the F-150 for consumers and/or it will absorb the increase in the COGS, which in turn, will reduce its profit margin—how much money Ford makes on each truck. 

I do not know how accurate this is, but a simple Google search reveals that the profit margin on an F-150 is approximately $10,000 to $15,000—meaning that Ford makes 10 to $15,000 per truck. So, there is room for Ford to absorb the increase in its COGS. 

Except Ford can only absorb so much. See, Ford’s net profit margin is approximately 3-4%. Net profit margin is a measurement of how much profit (net income) a business generates. Think of it this way—the net profit margin shows how much of each dollar a business earns actually translates into profit. 

Compare Ford’s net margin with a software company’s net margin. Alphabet (i.e., Google)—its net profit margin is 27.5% or so. Meta’s is approximately 43%. For comparison, American Airlines runs a 4.5% net profit margin or so. 

What does this mean? Simply put, the lower the net profit margin a company has, the more responsive it must be to any notable changes in its costs. Meta, for instance, can take a hit. For every $100 that Meta spends, it profits $43. Thus, if the costs of servers, databases, and other networking equipment increases, which it will due to the tariffs, that Meta needs to purchase if it builds a new datacenter, it has a lot of money to pay with. Meta literally makes $40 more for every $100 spent than Ford. So what if Meta’s costs increase by $3 or $4? It won’t impact them that much. 

But if Ford’s costs increase by $3 or $4 for every $100 spent…then Ford is in big trouble unless it raises its prices. And who pays when Ford raises its price? You do. The buyer ends up footing the bill for the tariffs. 

Consider another example that will hit all Americans. You might not be looking for a new car. Fair. But you need food, right? You need to eat. Grocery stores have notoriously small profit margins as well. Toast—that point-of-sale device company—says that grocery stores have an average net profit margin of 1.6%. Some might have a slightly higher margin at 3%. That’s even less than Ford Motor Company. And as I just said, the lower the profit margin a company has, the more responsive it must be to any changes in its costs. For every $100 that a grocery store spends for its business, it makes $1.50 to $3.00. Not a lot of wiggle room there. To put this simply, our grocery prices will go up because if they don’t, then expect that grocery store to close within a few weeks or months. 

We should also consider the purchasing power of Ford. Given the mere size of Ford, the number of vehicles it produces, Ford can renegotiate with its suppliers to offset some or all of the cost increases attributable to the tariffs. But not every company has that same negotiating power. That small locally owned and operated general store, remember the stuffed animals, does not have the same negotiating power. 

This is how tariffs will disproportionately hurt small businesses. Small businesses do not have the negotiating power, like Ford, GM, Costco, Walmart, etc., to renegotiate its contracts with suppliers to help absorb the increase in costs due to the tariffs. Thus, it’s likely that many small businesses around the country will not survive.

Tariff supporters might also argue that this is the short-term pain. Trump has said this—there will be short-term pain. I believe what he is referring to is the inflation that will come as a result of the tariffs. Prices will increase. And he’s sold his supporters on the idea that foreign governments and suppliers will pay for it. That’s simply a lie. Americans will end up paying for the tariffs—just like Americans ended up paying for the wall. 

But I must acknowledge that President Trump uses unconventional methods to achieve his goals. Maybe I’m giving him too much credit on that front. But we’ve seen how a Trump Administration uses the economic power of the United States to achieve its policy goals and objectives in other areas—often completely separate areas. So, let’s conceive that there is another purpose behind the tariff policy—besides the “bring back manufacturing” to the United States objective. Trump has said that the United States has been taken advantage of for years by other nations. He has said that other countries have exploited the United States with respect to trade. He has reasoned that the tariffs will right those wrongs. 

Whether other countries have exploited the United States with respect to trade is subjective. But let’s say, for the purposes of this discussion that we agree with President Trump on that point—that the United States has been taken advantage of by other countries. How might the tariffs rectify those wrongs? How could the tariffs be used as leverage to obtain more favorable terms that benefit the United States—or at the very least, mitigate the harm that trade has caused the United States that Trump claims there is? 

Let’s revisit China as an example here. The Trump Administration is imposing a 54% tariff on China. China has said publicly that it will retaliate with a 34% tariff on all American goods—the goods that Americans export to China. Trump responded today and said that if China imposes that 34% tariff on American goods, then he will impose another 50% tariff on Chinese goods—all imports from China. That would bring the total tariff rate to 104%. This means that the stuffed animals that would have cost that general store $100 last month, it will now cost the store $204—double. 

What happens then? Well, we’d expect American importers to stop buying Chinese goods because now they’re too expensive. We’d expect that general store to cancel its order for those stuffed animals, if it can, or at the very least, cease with ordering more from that Chinese supplier. And if that general store needs stuffed animals, for whatever the reason, they will be forced to find a new supplier—perhaps a supplier in the United States. But again, the issue with this line of thinking is…everything today is impacted by global trade. 

What else might happen? Well, perhaps China, facing a massive decrease in orders from the United States, will face economic decline. Chinese manufacturers will be upset because their orders are down likely significantly reducing their revenue. But that’s Trump’s point. To get the Chinese government, and every other foreign state, to the table to negotiate a new deal—whatever is in that new deal, which could be related to trade, or it could not—these tariffs might put enough pressure on foreign governments to back down. To get them to the table. But there is no guarantee that will happen. Again, it’s a major risk that Trump is taking here. 

That’s essentially the economic power of the United States. That’s the leverage that the Trump Administration might be planning for. I mentioned that’s how the Trump Administration gets foreign governments to the table to negotiate new deals. Some may think this is smart af. Some may think this is stupid and will only harm Americans. I ask whether Trump, if he is successful at getting foreign nations to the table, what kinds of agreements will he make? What will the terms of those agreements be? Will they focus on trade specifically? Let’s say he gets China to the table, could he take the position that China must vacate the Taiwan Strait or cease its claim to the South China Sea? Maybe. Again, Trump is known to use unconventional methods to achieve his policy goals—in this case, using tariffs to achieve other concessions. But he’s also been known to strike deals, as the sitting president of the United States, that benefit him, personally. 

So, this last week was one of the worst weeks for the stock market in history. Since Trump unveiled his tariffs late on Wednesday last week, the S&P 500 companies lost $5 trillion in stock market value, according to Reuters. The tech-heavy Nasdaq has fallen 22% from its December 16, 2024, record close. The markets were setting records before Trump took office. Well, I guess, unfortunately, Trump is setting records with the markets, but instead of up-and-to-the-right…it’s straight down. 

For comparison, on March 12, 2020—at the start of the pandemic, the markets declined by 9.5%. On March 16—just a few days later—the markets declined 12%. Last week, between Wednesday to Friday, the Dow lost 9.26%, Nasdaq down 11.4%, and the S&P 500 lost 10.5%, according to CNN. And according to Morningstar, approximately $11.1 trillion in market value has been wiped away since January 17—the Friday before Trump’s inauguration. 

But I’ll be the first person to tell you that short-term market performance is not an indicator of long-term market performance. We know that, in general, over time, the market increases in value. If Trump’s major risk with the global economy and international trade reorganization pays off, we might have a market that reaches new highs. It’s possible. I’ll acknowledge that. 

Meanwhile, Trump is out there encouraging people to invest in the stock market now. As a general rule, we buy low, hold, and then sell high. So, many investors are doing that right now. They are buying at these lows, and they’ll hold onto the stocks until they can sell them for significant profits. 

The thing is…not everyone has the capital on hand to invest in the stock market. In fact, according to the Motley Fool, the median balance in savings accounts -- $8,000. Only a fraction of Americans have the capital to invest directly into the stock market—as a retail investor. 

So, you might respond—so what? I don’t care if the stock market is crashing. I am not an investor in the market. I don’t trade stocks. 

Except you should care. The Motley Fool reports that approximately 62% of Americans own stocks. You might be thinking—yea, I don’t—I am not part of that 62%. Except you likely are via indirect investments.

Do you have a retirement account? Do you have a pension? Do you have a brokerage account? Most Americans indirectlyown stock though mutual funds and retirement accounts, like a 401K. This means that this massive decline in the markets, if you hold a retirement account, you have likely seen that retirement account lose a lot of money since Trump took office. 

This, of course, retirees and soon-to-retire individuals the most. Millennials, Gen Z—we can ride this out because we have decades ahead of us to work—for the retirement accounts to recover. But if you’re looking at your retirement account—thinking that you are going to retire next year—you’re likely worried. Per CNBC, “Americans nearing retirement and recent retirees said they were anxious and frustrated”—their retirement accounts took a big hit. CNBC quotes a 54 year old in Georgia saying, “I looked at my 401K this morning and in the last two days that’s lost $58,000.”

Here's the thing, and this will be the last that I say on this point before getting back to the tariffs, retirees and soon-to-retire voters all voted for Trump overwhelmingly in the 2024 election. According to AARP, voters 50+ years old favored Trump 52 to 47 percent. But, really, when we look more closely at the data, it was 50+ year old white men who voted for Trump, according to the post-election analysis by Fox News.

But enough about the market, let’s return to the tariffs and Trump’s international trade policy agenda. If history is any indication, we might be set for an economic recession. 

I’ve seen on social media the false narrative that tariffs caused the Great Depression. That’s not true. Tariffs did not help the Great Depression, but they did not cause it. 

NPR interviewed several economists regarding the Smoot-Hawley Tariff Act of 1930—named after two congressional Republicans, Smoot and Hawley. The Smoot-Hawley Act of 1930 implemented high tariffs that reached nearly 60%--numbers similar to what Trump is doing today. So, perhaps a quick history lesson is in order to dispute the false narrative on social media. 

According to NPR, the United States began to transition to a free trade system in the early 1900s. We adopted federal income taxes in 1913 to help with this because income taxes helped reduce the federal government’s dependance on tariffs. We all know that the 1920s are generally referred to as the “Roaring 20s” because during the 1920s, the economy was growing and the stock market was thriving. Around the same time, Congress established the Federal Reserve. The Federal Reserve eventually raised the discount rate, which is the interest rate charged to member banks that borrow money, according to Assistant Professor of Economic History, Marcus Witcher from West Virginia University. Witcher further explained in the NPR article that, as a result of the Federal Reserve’s policies, the money supply contracted. This meant that there was less money in circulations, making it more difficult for Americans to obtain credit. Less money overall means less money to give out. 

This is what led to the economic decline that triggered the stock market crash in October of 1929. Note that the crash occurred in 1929, and the Smoot-Hawley Act, which increased the tariffs, was not signed into law until 1930. Thus, the tariffs could not be the cause of the 1929 stock market crash because the Smoot-Hawley Act wasn’t signed until a year later. 

President Herbert Hoover also signed the Revenue Act of 1932 into law, which increased the income tax rates from 25% to 63%. Here, Hoover increased the tax rates because he thought that it was important to balance the budget, and instead of cutting spending, he saw tax increases as the only way to do that. All of these factors contributed to the “perform storm” that caused the Great Depression of the 1930s. 

Every economist that NPR interviewed for this article agreed—the tariffs from the Smoot-Hawley Tariff Act worsened the Great Depression. As Economics Professor Christopher Clark, at Washington State University, said, “Less trade typically leads to less cooperation, less trust, which will lead to more violence.” And we know what happened in the 1930s and 1940s—World War II. 

Now, to be fair, economists say, and I agree, that the economy today is fundamentally different than the economy of the 1920s and 1930s. With the globalized nature of trade, the decades-long build-out of free trade, we ultimately do not know how this will play out. But economists agree that Trump’s tariffs will make us poorer, it will not save jobs, and in fact, it will likely lead to a net loss in jobs. 

And we have some data to support this. According to the Tax Foundation, a nonpartisan research institute focused on tax policy research, we can look back at Trump’s first term. Recall that Trump imposed tariffs on China during his first term, which Biden retained throughout his term. Well, the Tax Foundation assessed the economic effect of those tariffs—from Trump’s first term. According to the Foundation’s report, the “limited tariffs” reduced long run GDP by 0.2%, capital stock by 0.1%, and employment by 142,000 full-time equivalent jobs. I call these “limited tariffs” because, compared to the tariffs imposed by Trump last week, the first-term tariffs were limited and targeted. So, if those limited tariffs had a negative economic effect, then I’d expect that these tariffs will have a greater negative economic effect. 

And Trump is not making friends in Congress with these policies. Even Trump’s supporters are condemning the tariffs—like Senators Mitch McConnell and Ted Cruz—who both went on the record to say that tariffs are bad economic policy. But let’s not forget, from Trump’s perspective, McConnell and Cruz helped build the international trade system as we know it today—a trade system that Trump seeks to fundamentally redesign. 

Many, including myself to a limited extent, agree with the President’s end-goal, which is how can we incentivize the build out of manufacturing here in the United States? How do we onshore the jobs that America lost over the last several decades? Those are goals that, perhaps, all of us can agree on. 

But as I’ve said on past episodes, we might agree on the end-goal, but it’s the means where we diverge. How we go about achieving that end-goal is where we differ. It’s where I firmly disagree with President Trump. 

At this point, everything is pointing towards economic pain. To achieve Trump’s goal, we’ll experience economic pain. But I believe that we don’t have to experience economic catastrophe to incentivize the build out of a new manufacturing economy in the United States. 

We cannot “flip a switch” and suddenly have a renewed manufacturing economy in the United States. Tariffs will not have that effect. Sure, it’s possible that tariffs will change the economics for many businesses such that it will make economic and financial sense to onshore their manufacturing capabilities. But that will take years—just like it took decades for us to build out a free trade system, global supply chains, and manufacturing capabilities in countries with low labor costs. 

Let’s say that a manufacturer decides to relocate its manufacturing operations to the United States from a country in Asian. Let’s say that it makes financial sense for them to do so. Consider what it will take for that manufacturer to build out or restore its manufacturing operations. They must secure the land, perhaps build the physical building of the factory, then purchase and install everything that goes into their manufacturing process. This takes money. 

Here's the thing. If we tariff building supplies and materials, then it is going to take more money to build out the factory in the United States. And the manufacturer that desires to bring back manufacturing—now we’ve made it even more expensive for that manufacturer to onshore those jobs. 

Moreover, perhaps the United States is too costly for this manufacturer, from a labor perspective as well. If the manufacturer must build a new factory in the United States, then almost certainly, the manufacturer will do a cost-analysis to figure out what is the best way to build a new factory—what is most cost effective and efficient for their new factory. If labor remains expensive, then perhaps the manufacturer will automate more of its manufacturing operations. Why? Because machines cost less money in the long-run, and they are more efficient. Robotic manufacturing can operate around the clock—literally 24/7—thus, increasing the total output of that factory. 

So, even if it becomes cost-effective for this manufacturer to build out manufacturing operations and facilities in the United States, and they commit to that, manufacturing today will not look like the manufacturing of the past. 

To be fair, of course, this is not a comprehensive financial analysis. Lots of other factors, lots of other costs, all would go into the manufacturer’s analysis, such as tax incentives, whether the manufacturing automation is subject to the tariffs that might offset the increase in costs for building supplies, maybe future legislative action that exempts the tariffs for those companies that commit to return their manufacturing capabilities to the United States.

Another point—to be fair—I do not believe that automation will replace jobs. Any build out of robotic or automated manufacturing creates jobs as well. Consider how many people are required to design the automated manufacturing machines, to install those machines, to operate those machines, and to repair and maintain those machines. 

Regardless, it will not happen overnight. It will not happen during Trump’s term. If there will be any benefits from Trump’s tariffs, they won’t be realized until years after Trump’s term. Even then, that’s assuming the tariffs stay in effect beyond Trump’s term. 

I previously said that there are other means to incentivize the build out of manufacturing in the United States. There are other ways to encourage companies to onshore their operations. We don’t have to look that far back in history to find this either. 

Consider the CHIPS Act. The CHIPS Act was a bipartisan bill that Biden signed into law during his term. If you have not heard of it, in short, the CHIPS Act includes $39 billion in tax benefits, loan guarantees, and grants to encourage companies to build new chip manufacturing plants in the United States—often called Fabs. Congress and President Biden sought to encourage semiconductor companies, like Intel, NVIDIA, TSMC, Broadcom, and others—many most people haven’t heard of because they aren’t household names.

And it has worked. Thanks to the CHIPS Act, Arizona has attracted investments from across the semiconductor manufacturing ecosystem—from R&D with companies like Applied Materials, to materials suppliers like gas suppliers (semiconductor manufacturing requires nitrogen, oxygen, hydrogen, and other gases during the manufacturing process), to manufacturing operations like Intel and TSMC. Literally, billions of dollars invested in Arizona, and they will result in thousands of jobs. 

Guess what? Following each announcement of major investments in Arizona—those that I just mentioned—not once did the stock market crash in response. The CHIPS Act created market value. It did not and has not destroyed it. It did not and has not raised prices for everyday goods, like groceries. My point here is this—we can reach the same end-goal, we can incentivize the creation of more manufacturing jobs, we can bring back American manufacturing without hurting Americans. 

Oh, but wait. If the market doesn’t decline, then investors won’t be able to put millions of dollars in capital into the stock market—waiting to cash out later down the road with significant profits. 

So, why don’t we pass more CHIPS Acts? If that’s working, why don’t we do more of those? I think…that’s because it’d be too hard for Trump to work with Congress to get something, anything, bipartisan done. That’s a fundamental difference between Biden and Trump, if you think about it. Whether you agreed with Biden’s policies or not, President Biden was successful legislatively—he got more bipartisan bills through Congress and onto his desk than any president in recent history. Again, set aside your political opinions for a second, the Biden Administration governed. 

Trump, on the other hand, in my observation, prefers the stroke of his sharpie marker on those executive orders. He prefers to rule unilaterally. In so doing, he puts the legal boundaries of his power. He fails to respect the system and structure of our government. As he said during the campaign, he prefers dictatorial rule. 

I received this question from a great friend over the weekend, and I had to give it some thought. Again, I am not an economist. I am not an international trade expert. I also am not a monetary policymaker nor an investment banker. So, if what I say next is incorrect—someone please correct me. 

What’s going to happen in the short-term? JPMorgan Chase raised its probability of an imminent recession to 60%. It is also forecasting that unemployment will increase to 5.3%, per the company’s Chief Economist. If I translate that to legal speak, that means…it is more likely than not that a recession is around the corner. 

Now, let’s revisit how tariffs cause inflation—an increase in prices. If tariffs cause inflation, as we saw during President Biden’s term and into Trump’s second term, then the Federal Reserve raises interest rates to slow down the economy. If money is more expensive, if credit is more expensive, then people stop buying. We’ve seen this over the last several years. An increase in the prime rate by the Federal Reserve tapers spending by decreasing demand. And given basic economics of supply, demand, and price—if supply stays constant, demand goes down, then price goes down. 

But what will happen if we find ourselves in a recession? A recession means a slowdown in the economy. During periods of recessions—negative economic growth—the Federal Reserve decreases the prime rate. It decreases the prime rate to encourage spending because money is cheaper. Credit is cheaper. Loans are cheaper. A bigger house becomes less expensive because the interest rate is lower—you’re paying less in interest. A new car becomes attractive to you because you can afford the payment if the interest rate is super low. 

For many, this may be great news! Maybe you’ve been waiting to relocate. Maybe you’ve been trying to buy a house or condo but haven’t been able to afford it with the increase in housing prices coupled with high interest rates. With lower rates, you’ll finally be able to get into the housing market! 

Except, let’s put all of this together. Here’s what I predict, and again, if I am incorrect, someone please correct me. As we see an increase in prices due to Trump’s tariffs, which causes a recession, the Federal Reserve will lower the interest rate because this is a fundamentally different economic situation than what we had during the Biden Administration. During the Biden Administration, we had an economy that was too hot. So, the Federal Reserve poured some cold water on it. The federal reserve will lower interest rates during an imminent recession even though we have inflation. Why? To encourage economic growth. To encourage spending. Perhaps to decrease the probability of a recession or to save us from one if it hits.

But here’s the thing. That may not change your economic situation. Perhaps the higher prices due to the tariffs offset whatever the adjustment is in the prime rate. If you want to buy that F-150 today, auto loan rates are hovering around 5-6%. But the price will increase with the tariffs, right? So, the price of that F-150 goes up. Maybe this means that you are financing a higher principle. Meanwhile, the Federal Reserve lowers the prime interest rate in response to the economic conditions. So, now auto loans are hovering around 0-2%. I haven’t done the math, but perhaps, in the end, everything comes out equal. Then does the tariff policy is create the incentives that Trump seeks here? 

Trump only has the authority to issue these tariffs because Congress has enacted laws that allow him to do so. As I mentioned, Congress has the constitutional authority, in Article I, to impose taxes, including tariffs, and to regulate international commerce. That supersedes statutory authority given to the President. This means that Congress can, but likely will not, pull back on the President’s statutory authority to impose tariffs. Congress can always take that power away from him. 

We’ve seen some interest in Congress to do so, too. Senators Chuck Grassley—a Republican—and Maria Cantwell—a Democrat—introduced bipartisan legislation on Thursday that would require Congress to approve new tariffs. 

I am reassured because that is the Constitution and the separation of powers working as it should be. Finally! Finally, Congress has taken a stand, or at least some members of Congress, have taken a stand against a presidential action to check his power. Since January 20, Trump has acted unilaterally on almost everything, and the Republican-led Congress—they’ve sat back and acquiesced to what Trump is doing—refusing to exercise its authority to check him. 

That is not how our government was designed. Our Constitution is clear. Congress can check the President. Congress has the constitutional authority to impose taxes and regulate interstate commerce. It can overrule the President’s actions here. But they won’t. 

Even if they did, Trump would almost certainly veto any bill that Congress passes that attempts to pull back on his authority. And if that happens, the only option then is for Congress to override a Trump veto. But that will take an even higher threshold of votes than required to pass the bill in the first instance. To override a presidential veto, two-thirds of both the House and the Senate must agree to override the veto. And I just don’t see that happening. 

Ultimately, Trump is taking a major risk here at our expense…possibly for long-term benefit, but also possibly resulting in long-term detriment. So, Donald Trump will either go down as a great president, despite all the baggage and shit, following this experiment, or he will go down as the worst president in American history. Time will tell. And history will be the judge.