International Man: President Trump recently imposed sweeping tariffs on much of the world, dubbing it Liberation Day.
Trump declared: “It will forever be remembered as the day American industry was reborn, the day America’s destiny was reclaimed, and the day we began to make America wealthy again.”
What’s your take?
Doug Casey: The left constantly calls Trump a liar. And frankly, things like this are why. It’s not that he lies more than a typical politician, or even lies intentionally. It’s that his use of words is so hyperbolic, so estranged from reality, that it makes him seem like a liar. It’s intellectually dishonest—dishonest, period—to falsely label something. It’s bizarre that Trump thinks his potentially catastrophic tariffs should be called Liberation Day.
The fact is that tariffs are taxes paid by the importer of goods. The money mostly goes out of the pockets of the buyers and, perhaps, to some limited degree, the sellers. It’s 100% certain that tariffs are a tax, and the money goes 100% into the pocket of the State.
Supply chains between countries have become so complex that there are very few items that are—or even could be—manufactured completely within any one country. Production of everything will drop worldwide.
Trump’s tariffs will both increase prices and cause shortages. They don’t, however, cause inflation. Inflation is caused strictly by an increase in the money supply. Tariffs don’t increase the money supply, but they do cause higher prices and a lower standard of living for both the buyer and the seller. Just as bad, as a tax, tariffs result in more dollars in the hands of the State.
The US imports something on the order of $3 trillion annually. Perhaps Trump thinks that a 10% tax will result in $300 billion of revenue for the government, and a 20% tariff will yield $600 billion. But this is incorrect because the higher costs will reduce the amount of trade proportionately. Not only can’t tariffs solve the government’s deficit problem, they’ll make it worse.
He says that the main object of the tariffs is to force investment in the US. And, of course, that may happen to some degree. He’s forgotten that when the US was prosperous before 1971, it never needed foreign investment. But it’s as if we trade Cadillacs to Guatemala in exchange for their bananas. Since they sell more bananas to us than we sell Cadillacs to them, it causes a huge deficit in their favor.
So let’s put a 100% duty on bananas. Problem solved. Guatemalans sell many fewer bananas, but now they can’t afford to buy any Cadillacs at all. Everybody gets hurt—banana producers, Cadillac producers, and most particularly, the people who use those products.
Trumpers will counter: “Well, the tariffs that we threatened to put on Colombian coffee forced their government to accept some refugees.” True, that worked. You can push around a small country, but you can’t push the world around. You can’t even push China around because China is the producer, and the US is the consumer. In the real world, those who produce things are in the driver’s seat, not a country that prints up fiat currency to enable its consumption.
I can’t be sure what Trump is really trying to do. He says things one week, then contradicts himself the next. And he does it constantly. Perhaps he wants to see the whole world go to zero tariffs, but I doubt it. He’s essentially a mercantilist; he seems to believe he can force the whole world to run a trade deficit with the US. He thinks trade is a “win-lose” proposition, and the whole world is “ripping off” the US. He must feel the Guatemalans are ripping off the US on bananas, for sure.
If his object is to get the world to zero tariffs, that would be great. But that’s not his object. And it won’t solve the huge and growing trade deficits that the US has had since about 1980. He might ask himself why the US had huge trade surpluses in the decades before 1980 when, coincidentally, the dollar was very strong. But he won’t. He’s not an introspective guy.
More likely, as the world’s economy declines, burdened by government debt, currency debasement, regulations, and taxes, Trump’s gigantic tariffs will make things much worse. The Smoot-Hawley Tariffs of 1929 made things much worse, causing unemployment both here and abroad. Trump’s tariffs are much higher, and trade is vastly more important than it was in the 1930s. They’re very, very bad news.
International Man: The Trump administration views the dollar as dangerously overvalued, blaming it for America’s deepening economic imbalances.
Is weakening the US dollar a path to prosperity?
Doug Casey: This is further proof of Trump’s economic ignorance. Although I hasten to add that whatever he does, it’s almost certainly not as bad as what would’ve happened if Kamala had been elected.
Since 1971, the German mark, which basically was transformed into the Euro, has risen from 25 cents to 1.25 to the dollar and Germany’s trade surplus increased even as their currency quintupled in value. The same thing happened with the Yen, which increased in value from 360 to about 100 to the dollar. So much for “currency manipulation.”
The immediate and direct effect of devaluing your currency is that it reduces prices to foreigners so they can buy more. The profit of manufacturers, therefore, seems to go up. But it’s an illusion since profits only go up in terms of devalued currency.
Every country should want a strong currency. A strong currency allows it to buy foreign technology and raw materials, which it can’t do with a weak currency. A strong currency encourages saving, and the building of capital. A strong currency makes for a stable country, which makes for the confidence you need to invest domestically. It also allows foreign investment on advantageous terms.
A weak currency is not worth saving. It hurts domestic savers, makes capital accumulation difficult, makes the import of foreign tech unaffordable, leads to social instability, and discourages business and investment. A weak currency encourages debt and speculation. Keynesian and Marxist economists have these things completely backward.
Trump says he wants a weak dollar. One reason why is that the US is buried under many trillions of debt, and a weak dollar might appear to help the situation. But it won’t. Trying to inflate it away subtly amounts to theft. If a weak currency led to prosperity, then Zimbabwe and Argentina would be the most prosperous countries in the world.
International Man: What lessons can the US draw from Argentina’s experience with tariffs, protectionism, and a weakened currency?
Doug Casey: It’s well known that Argentina went from being one of the most prosperous and wealthiest countries in the world a hundred years ago, to turning into a total economic disaster with Peronist policies—which prominently included a weak currency and high tariffs.
The Argentine government put on tariffs to protect domestic industries. The result was that domestic industries were able to get away with crappy and overpriced products that were uncompetitive in the world market. Argentines suffered a much lower standard of living for many years as a result of the tariffs put on by their government. They put themselves under embargo with high tariffs, and that’s what Trump is promising to do with the US.
Furthermore, investors tend to stay away from countries where the rules can change arbitrarily, which was a major reason why Argentina got little investment. The same could happen to the US. The US has historically been better than most countries, but Trump’s protectionist and weak dollar policies could change that. Worse, if the economy goes sideways, the Democrats could be re-elected. That’s a scary but real prospect. Hopefully, Trump’s efforts at domestic deregulation will succeed as a counterbalance.
International Man: If Trump truly wanted to revive American industry and boost the economy, what could he actually do?
Doug Casey: Trump would radically and permanently reduce the size of the State. DOGE is great, but you don’t want to just make government more efficient. DOGE needs to pull most of it out by the roots and sow Agent Orange where it grew.
He would radically cut taxes, but that can only be done if he radically cuts spending—which seems unlikely. He would radically cut government borrowing because when the government borrows in the market, it only drives interest rates higher or sells its debt to the Fed, which debases the currency. But since spending is unlikely to be cut—especially as the Greater Depression unfolds—neither will borrowing.
A gold currency would kill inflation—but that’s impossible unless gold reprices to $30,000 or more.
He should stop threatening foreigners. Trump has this strange idea that foreigners are ripping off America. Saying and believing things like that only creates antagonism. He’d do well to follow Thomas Jefferson’s dictum—be a friend to all but an ally of none. It doesn’t matter if Israel wants the US to bomb the Houthis and Iran; it’s not in our interest.
Trump has said, “We are going to charge countries for doing business in our country, taking our jobs, wealth, and a lot of things that they have been taking over the years.”
It’s just factually untrue and goes a long way toward turning the world into an antagonist or even an enemy.
International Man: The stock market has tanked since Trump introduced his tariffs. What are the investment implications of what comes next?
Doug Casey: Small countries selling to the US can be intimidated and will do as they’re told. But large countries like China will put on counter tariffs. He can expect that the shelves of Walmart and other retailers in the US will be emptied as Chinese goods no longer enter the US.
The funny thing about this is that at the same time as Trump is creating more distortions by putting on tariffs, which always make things worse, DOGE is getting rid of distortions. While DOGE is excellent, it will necessarily hurt businesses that were profiting from those distortions. So businesses can expect bad news coming and going, as it were.
I can’t help but be very pessimistic about the stock market as the Trump regime creates chaos. Some of that chaos is wonderful and intentional, like destroying DEI, ESG, Wokism, and the WEF-approved world order. Other things will be collateral damage. What things? Those are what Donald Rumsfeld—if anyone remembers him—called unknown unknowns.
And two things that markets don’t like are chaos and lots of unknown unknowns, which is why I continue holding gold.
Reprinted with permission from International Man.
