Quarterly Commentary – January 2025

Trump and Tariffs Again

Four years ago, did you think we would be talking about Trump moving back into the White House?! I know I didn’t! But here we are, and the big topic is again… tariffs. Thus, as a refresher, here is the commentary I shared in the summer of 2018… “What’s old is new again!”

My university years were filled with international trade and finance courses… lots of geopolitics and economics. From those courses, I learned that poor international relations generally lead to bad things. At their worst, they can lead to armed disputes, but normally they lead to less cooperation, less economic growth, and a general decrease in efficiency for all involved. And the great irony is that the instigator eventually finds themselves worse-off than before!

Let me share this analogy. You have been using a dry-cleaning company for years, and the service has been okay. But the real advantage is location… they are close, and easy to get to/from. Out of the blue, the owner begins making comments that he may begin charging more because he feels he does a better job than his competition. There is not any factual evidence, he just believes in his mind that he is better.

This rhetoric continues for a few weeks, and one day, there is a sign on the door… he has increased his prices by 25%. You “plug your nose” and drop off your cleaning. When you arrive a couple days later to pick-up your dry-cleaning, you are presented with an attitude that you should be honoured to do business with them. Needless to say, this does not feel good.

A week later, you drop off the cleaning at the usual spot only because of the convenience. But again, on pick-up, you leave feeling belittled.

Later, you notice another dry-cleaner only a little further from your home, and the next time, you decide to give them a try. When you do, you find their service and demeanor is welcoming, they thank you for your business, they charge the same as the “original price”, and the finished product is just as good. No surprise, you are no longer a customer of your original dry-cleaners.

While the original dry-cleaner may see more revenue per customer for a while, soon the number of lost customers outweigh the increased revenue per customer, and the business struggles.
While this analogy is a very micro-economic story, the principle also applies to the macro-economic/international scale. History has proven that widespread tariffs only ever slow economic growth, and the instigator generally bears the brunt of the downturn. The real irony is the victims are the instigator’s own citizens.

I share this because I believe if the tariff battle is initiated again, the US economy will eventually bear the brunt in a material way. President Trump seems to be convinced that the short-term pain will be worth a long-term gain, but history does not share this view. And yet, the last time he did this, he realized ~6 months later that it wasn’t working the way he thought it would, so he dropped the tariffs… yet, here we are again!

From an investment point of view, there’s nothing I feel is necessary to change right now. But, you can be assured the situation has my attention!

In the meantime, I hope your 2025 has started well and I look forward to keeping in touch.

All the best,
Bryson

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