Trump’s Tariffs: Boneheaded? Or Brilliant ?

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Trump’s Tariffs: Boneheaded? Or Brilliant?

Markets are in a frenzy as I record this episode over President Trump’s most recent tariff reveal. On Wednesday, April 2nd, the President unveiled the most sweeping global tariff plan since the 1930’s. The reaction in markets has been more volatility than we have seen since Covid. Let’s pause there for a moment for some perspective. Is in the most volatility we’ve seen in a few years? Yes. Is it the most volatility I’ve seen in my 24 year career? Not even close. I say that as a reminder that it is important to keep these moves in historical perspective.

So, let’s talk tariffs today. It is no surprise the President Trump is talking tough. But even the most aggressive forecasts for the tariff landscape would have fallen short of what was unveiled last week. It was sweeping. Friend and foe alike will face a minimum of 10%, with many much much higher. I’m able to process this recent news a little better after having opportunity to watch a 2.5 hour interview with Commerce Secretary Howard Lutnik on the All-In podcast recently. It was a fascinating interview that peeled back the curtain a bit on the thinking of the administration and its plans. Now, a few episodes ago, I answered the question, “Are tariffs really that bad.” My response was “not if they are temporary.” After hearing Mr. Lutnik’s interview, I am convinced that the Trump tariffs are not temporary, and not merely a threat. They are a strategy for raising revenue. Lutnik shared multiple times that his goal is to raise $1t in revenue, and that the job of DOGE was to save $1t, which would allow the deficit for this fiscal year to be eliminated. One of the strategies to raise that revenue is tariffs. Lutnik defended the idea of tariffs, stating that they were basically normal until World War II. His argument was the since then, the U.S. has increasingly allowed other countries to levy tariffs against us in order to give them an advantage and help those other countries rebuild. He contended that over those decades, most countries in the world have now gained an unfair advantage over the U.S. in trade. So in Lutnik’s mind, tariffs will re-level the playing field – and in the process help raise revenue for the Federal budget. This may or may not be true. But regardless, that is the administration’s claim and motivation.

I believe these tariffs will prove to be either boneheaded or brilliant. Let me start with how they might prove to be boneheaded. If other countries retaliate, we could find ourselves in a full blown trade war that is driven more by egos than economics. So far, China is retaliating. They hit back with a 34% tariff. Yesterday, President Trump promised an additional 50% tariff if they did not drop theirs. President Trump has had such success domestically that I perceive that he has speculated that most countries will be quick to negotiate when they saw the unveiling of the reciprocal tariffs. To be sure, some will. But others will retaliate, being willing for their people to endure pain (since some don’t have elections to worry about). Again, this becomes a bit of a game of economic chicken. As I said previously, if this goes on long enough it can have a dramatic effect on both the supply of economic goods and services as well as demand for those goods and services. In short, an extended trade war could push us into a recession. And maybe that is what President Trump wants – a recession that pushes interest rates down and that gets us ready for the next leg of economic expansion. But a trade war could also lead to something worse than a recession and that is stagflation. Stagflation is a slowing of the economy simultaneous with an increase in prices. This is also a very real possibility. In light of volatility in markets, the President is calling for the Federal Reserve to lower interest rates. But if the Fed does this, the risk of inflation goes up even while the economy slows down. President Trump American made goods can fill the gap left by more expensive foreign goods and maybe they can – not in the amount of time he would like.

But this move could also be brilliant. He may be talking tough with tariff rates with the intention of reducing them dramatically for those countries who offer concessions. I do think that he intends to keep some measure of tariffs in place permanently, but for those who negotiate, he intends to use the U.S. consumer as his bargaining chip. For those countries inclined to play ball, they could leapfrog other strong exporters, find themselves having an edge for the exports into U.S. markets with little or no tariffs to contend with. For example, it may end up that Canada and Mexico have a much more favorable trade status than China, that at the end of it all there is a North America trade block that causes the entire continent to be less dependent on Chinese goods. Once again, if certain tariffs are temporary, they could prove to give President Trump the leverage he needs to get certain countries to the negotiation table. To be fair, if the world thinks they are temporary they will not negotiate. The world has to believe that the President is willing to keep them in place, even if he has no intention of doing so. So these moves end up looking brilliant, if on the other side of this pain, there is a more level playing field of trade for the U.S. globally.

We don’t know how all of this is going to play out. These are risky moves. And things are changing by the hour. Just this morning, Treasury Secretary Scott Bessent began communicating an hope and expectation that multiple countries would come to the bargaining table. That has markets roaring back upward this morning. So the volatility is moving markets both ways.

My best advice is not to get caught up in the day-to-day drama. There is a reshaping to the world order taking place before our eyes, for sure. It is dramatic, but it is impossible to accurately predict while you are in it. It probably won’t be clear until it’s in the rear view mirror. Focus on what you know to be true today and make decisions in light of that. There are always opportunities present, particularly in volatile times. Look at today’s prices and today’s rates and see if they offer good opportunities, or a reason to sit on the sidelines. And we will all watch it play out in what promises to be an eventful 2025.

Mortgage rates are moving all the time, but did you know we have an in-house mortgage solution in which rates stay pretty static? Are you looking for some calm for your upcoming mortgage experience? Let us help. Start your financial conversation today by visiting Foundationbank.org. We also hope you’ll subscribe to this podcast in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on April 8, 2025. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.