Posted by Donald Trump’s 25% tariffs on Mexico and Canada, plus a 10% increase on China, started today March 4th, 2025. Trump alleged that illicit drugs such as fentanyl continue to enter the U.S. through Mexico and Canada. But according to the U.S. Customs and Border Patrol, nearly all fentanyl seized by the U.S. came through the Southern border with Mexico. This is clearly an excuse to implement tariffs in order to cause the American economy to decline so that the Federal Reserve will be forced to lower interest rates. Tariffs are the only tool that Trump has which have an immediate effect on the economy. How is it that Trump has the power to implement tariffs? Well, the Trade Expansion Act of 1962 allows the President to impose tariffs if national security is at risk. So, while the ultimate authority lies with Congress, they have granted significant flexibility to the executive branch to act on tariffs when deemed necessary. Thus, using drug smuggling as a national security risk, Trump is able to impose tariffs without approval from congress.
There is little doubt that imposing tariffs on our neighboring countries will cause inflation. Canada slapped a 25% retaliatory tariff on $30 billion worth of goods. Tariffs on an additional $125 billion worth of products will take effect in 21 days. Mexico and China also announced plans to impose retaliatory tariffs on U.S. goods. This will give American companies the green light to raise prices on their products. When that happens, price increases are typically slow to go back down when tariffs are removed. Trump wants companies who sell products in the US to produce their products in the US. Placing a blanket tariff on a trading partner is not the best way to achieve this goal. It will take years to move production and the sourcing of raw materials back to the US. Meanwhile, the American consumer will experience increased inflation on every product they buy.
Our only hope is that these tariffs are short lived. Any longer than a month or two could spell disaster for the American economy and the stock market. If you are an optimist, stocks are on sale right now. In the last few days, I’ve had price alerts triggered on stocks that I didn’t expect. But with the whole market falling, I don’t feel like investing because tariffs have just started, and prices could go even lower. Unlike the pandemic, this is a man-made problem that could go away without warning. On the flip side things usually get worse before they get better. Better to wait and see what Trump does next.