An Update on Tariffs and Trade Deals: What You Need to Know

Transcript

Ken Fisher:

So my firm has in the past suggested that there's basically three kind of likely outcomes in the aftermath of the April 2nd tariff announcement, and people often ask me how I think those are progressing. And the three, to make a long story short, were one, the tariffs could be reined in by Congress and or the courts that actually do have the power to collar the president on these topic matters if they so choose, but that's not gone anywhere. I come back to that in a moment. The second is that which has had some movement going forward, which I'll also come back to. Is the president engaging in deals that then change the April 2nd announcement in ways that create something else. And then third, is instead of deals, countries retaliating, and the only major country to retaliate on the April 2nd announcement was China. And as we speak, there's been a temporary 90 day adjustment to those issues, which I'll come back to also. So first, it is entirely possible for Congress and or the courts to have reined in the president on tariffs. On the one hand, the Republican Congress did have a bill introduced to do a little bit of that, which got pretty much no traction. And this would require more votes on the Republican side with the Democrats than the Republicans would have oomph to deliver, because it's not very comfortable early in a president's term, any president's term for that president's Senate to go openly against the president. If you're a Republican senator, regardless of what you think about the tariffs, and there has been some discussion that I know of by significant Republican senators going to the president and saying, you need to make some deals if you want, but you got to off ramp these tariffs and you got to do it pretty fast or there's going to be problems. It's going to hurt us in the midterms, etc.. But and not just senators, there's also been members of the House doing that. But more importantly senators. But in both the Senate and the House, there's going to be much more concern about the big budget spending and tax bill that they've got to move through by the end of this fall that's been started at, not breakneck speed, kind of slow, moving through Ways and Means and now out being to the point where it'll be adjusted by changes in other committees that need this, need that, or don't like the other. That's going to be of more importance to all of these people in terms of the outcome, and they're not going to want to jeopardize that with an intraparty squabble over the tariffs. There's a—they all understand there's risks with the tariffs, but that's because it made—the court has the potential always to intercede in things. And the courts have interceded in some things that the president has been doing, but not on this particular topic. And this which the arguments, and there are lawsuits filed, courts could offer temporary restraining order, preliminary injunction and lead to greater conclusive outcomes. But there's some tendency on things that are inherently constitutional in their nature not to rush them. And it's, in this regard, heavily about the universal tariffs, which appear to be unconstitutional. And in appearing to be unconstitutional, were predicated on the act that Congress provided that gives the president powers, on limited basis to declare universal tariffs under an emergency. It's not so clear what the emergency is. The president unveiled these tariffs as an emergency, while simultaneously talking about how trade deficits are unfair. And various foreign countries have been engaging in unfair practices against America, but all countries haven't been engaging in unfair practices against America. The president has never lobbied that they have. So then you get back to the trade deficit. And America has been running trade deficits steadily since the mid 1970s. And in that, it's hard to argue that there's anything that's an emergency about that, unusual or different than any of the other years before that. Moving on to the portion of the deals, it's unclear to me where this is going. In, I've already mentioned that the only country that retaliated in a significant way was China. And China's retaliation led to nosebleed level tariffs on both sides and a lot of sort of verbal hostility. And now has had a temporary 90 day reduction of the tariff levels that you should read about or could read about on the US side at 30%, and on the Chinese side at 10%. As they, over 90 days, are supposed to talk about some more permanent solution. What does that do after the 90 days is over? No one really knows. On the broader base, the president has said that since April 2nd, all kinds of countries have been talking to the United States about wanting to make deals to rectify whatever the perceived problem is. One of the problems is that the president and the administration have never done a clear job of articulating specifically what it is that they're upset about on any given country. And so we don't really know what it is they're trying to rectify. But the first deal, as I'm sure you all know, was the deal that was announced between Britain's traditionally great ally. Britain has always been generally perceived as America's greatest ally overseas and one of our larger trading partners in the top five, but not number one, two or three. And in that, I'm just going to tell you this, It's not brutally hostile, And I say this with a great amount of regret, the agreement that was signed isn't worth the paper it's written on. I mean, it tells you right in the first page, "This agreement is not legally binding on either country." And then later in the agreement, which is only five pages long, you know, I posted online, anybody can find it. It's an easy agreement to read. The back of it says either country can back out of this agreement at any time by providing written notice to the other party. So it really doesn't have any binding effect. It is more of a general agreement in principle that has had the tariffs reduced while again, they continue to talk about things. Traditionally, these kinds of agreements, trade agreements, take a long time to effectuate. And we don't really know what the outcome of a lot of that will be and is likely to be quite varied with very different countries. So when we go back, the one thing that seems to be common out of all of this, moving forward through this process so far, is that the president, in so many places has kept reverting to 10% tariffs. It seems like he really wants 10% as a number. Will that stand? I don't know. Will we know that soon? No, we will not, because he's going to have to negotiate with lots of other countries and all of these things are going to be a long ways until we get any kind of definitive agreements that are actually binding on any country. And so all of it remains in flux, which is not optimal, because when you remain in flux—I'm going to come back to this in a moment— you tell agent manufacturers, both American and non-American, all over the world, we have things that may be undone in the not terribly distant future. And then, of course, even when you're setting tariff agreements, a subsequent president in 2029 can change those tariff agreements and change tariffs. So based on tariffs, it gets very hard when a plant takes a good five years to build, to commit capital to building plants in America. So with that I'm not giving you clarity and simplicity. I don't think there's clarity and simplicity you can get out of this. There's just not. So, we all have to try to interpret as best we can, envision for some good period of time ahead, 10% tariffs almost across the board from the United States. And a hope that all of this works out well when it also might work out not so well. Thank you for listening to me. I wish I had a better answer for you, but that's kind of where we are, kind of where we're going and only time will really tell. Thank you. Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel if you like what you've seen. Click the bell to be notified as soon as we publish new videos.