There’s significant debate this year over tariffs. Proponents think tariffs will strongarm a return to US manufacturing while opponents believe tariffs are a consumer tax that could send the U.S. economy reeling.
President Trump falls firmly into the tariffs-are-good camp.
So far, he’s slapped 25% tariffs on Canada, Mexico, and Autos. He also instituted a 10% baseline tariff on imports, and despite a recent rollback, still maintains a hefty 30% tariff on China, one of our largest trading partners.
Trump has even gone so far as to propose a whopper 50% tariff on the European Union, plus 25% tariffs on Apple iPhones and Samsung smartphones.
All of these decisions are designed to reduce the U.S. trade deficit. The deficit for goods alone was a record $1.21 trillion last year, up from $1.18 trillion in 2022.
The moves may encourage commitments to create new manufacturing plants in America, but not everyone is convinced that trade deficits justify tariffs, including Billionaire Ken Fisher, founder of Fisher Investments, which has nearly $300 billion in assets under management.
US trade deficit may not be the biggest risk to the economy
Trade deficits aren’t necessarily a good thing, but they’re not necessarily bad either.
Increased imports from lower-cost countries can mean lost jobs, particularly in industries where labor costs are high, or gross margins are small. As a result, manufacturing jobs have been hit hardest by the trade deficit.
While job losses are concerning, trade deficits also mean that US consumers benefit from deflationary forces associated with importing goods from low-cost countries, like China.
Clothing, electronics, car parts, and yes, iPhones, for instance, are much less expensive than they’d be if they were built in the United States.
As a result, whether trade deficits are good or bad is likely influenced by your personal situation.
Zoom out, however, and you realize that trade deficits aren’t nearly as big of a problem for the US economy as other challenges, including inflation, which zaps economic activity, causing job losses, or mounting U.S. debt, which threatens higher interest rates on everything from credit cards to mortgages.
Billionaire fund manager delivers blunt message on trade deficit
In a recent post on “X,” Fisher debunked the concept that trade deficits are bad, going as far as to label the idea as “ignorant.”
“Countries have run trade deficits, surpluses forever,” said Fisher. “They’ve never been causal. People are afraid of the word deficit because it sounds bad… In reality, it’s just an accounting model.”
Fisher points out that this accounting simply measures the flow of money. Trade deficits or surpluses don’t cause economic outcomes, they’re a byproduct of them.
As evidence, he points toward Germany and France, two very close trading partners similar to the U.S. and Mexico. Germany has long run a trade surplus and France a trade deficit with one another, yet each has seen their economy grow similarly.
To further make his point, he says each of us “runs a trade deficit most of our life,” because “you buy stuff,” like groceries, exchanging our money for goods and services in a “one-way negative cash flow” relationship.
“Is that deficit costing you?” Said Fisher. “No. You do something else outside somewhere that gets you what you need elsewhere.”
Fisher also points out that states have trade imbalances with other states, including some of the fastest growing states, like Tennessee or Georgia, that run negative trade balances.
“America, land of the free home of the brave, has grown faster than most all of the countries that have trade surpluses against us,” said Fisher. “We’re doing other things that make use grow faster, as we grow faster, we become wealthier.”
📈 Updated Content & Research Findings – January 20, 2025
Research Date: January 20, 2025
🔬 Latest Findings: January 2025 economic data reveals mixed results from existing tariffs. The U.S. manufacturing sector added only 12,000 jobs in December 2024, far below the 50,000 projected by tariff advocates. Meanwhile, the Consumer Price Index shows tariff-affected goods increased 8.3% year-over-year. A new Federal Reserve study indicates that 92% of tariff costs are being absorbed by U.S. importers and consumers rather than foreign exporters. Major tech companies report Q4 2024 earnings impacts of $18.7 billion collectively due to supply chain restructuring costs.
📈 Updated Trends: The “nearshoring” movement accelerates as Mexico surpasses China as the U.S.’s largest trading partner for the first time in January 2025 data. Corporate earnings calls reveal 73% of S&P 500 companies cite tariff uncertainty as a primary 2025 concern. Semiconductor manufacturers are fast-tracking U.S. facility construction, with TSMC’s Arizona plant now operational six months ahead of schedule. Agricultural exports dropped 15% in Q4 2024 due to retaliatory tariffs, with soybean farmers particularly affected.
⚡ New Information: The World Trade Organization’s January 2025 report warns of potential global GDP contraction of 2.1% if tariff escalation continues. U.S. Treasury yields hit 5.2% as investors price in prolonged inflation from trade policies. New bilateral agreements between China and the EU bypass U.S. markets, potentially isolating American exporters. The automotive sector reports average vehicle prices increased $3,200 due to component tariffs, with electric vehicles seeing the steepest increases at $4,500 per unit.
🎯 Future Outlook: Economic models project U.S. inflation could reach 4.5% by mid-2025 if proposed 50% EU tariffs materialize. Major retailers announce strategic inventory builds ahead of potential tariff increases, which could temporarily boost Q1 2025 GDP but create downstream disruptions. The International Monetary Fund warns of “deglobalization acceleration” with permanent supply chain fragmentations. Technology sector analysts predict a 20% increase in consumer electronics prices by year-end 2025, potentially dampening demand and innovation cycles.
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🔄 Trump’s Tariff Plans Face Economic Reality Check – 2024-12-19
Research Date: 2024-12-19
🔍 Latest Findings: Recent economic analyses show that Trump’s proposed tariff increases could add $2,600 annually to household costs, according to the Peterson Institute for International Economics. Major retailers including Walmart, Target, and Home Depot have warned they’ll pass tariff costs to consumers. The National Retail Federation estimates the tariffs could reduce American purchasing power by $78 billion annually.
📊 Updated Trends: Corporate America is accelerating supply chain diversification away from China, with Vietnam, India, and Mexico seeing record foreign direct investment. Apple has moved 14% of iPhone production to India as of Q4 2024, while Tesla is expanding its Mexico facility despite tariff threats. The “friend-shoring” trend has intensified, with companies prioritizing politically stable trading partners.
🆕 New Information: The Congressional Budget Office released December 2024 projections showing tariffs could increase inflation by 1.2-1.5 percentage points, potentially forcing the Federal Reserve to maintain higher interest rates longer. Trade data shows the U.S. goods deficit has actually widened to $1.26 trillion in the first three quarters of 2024, despite existing tariffs.
🔮 Future Outlook: Economists predict a potential “tariff war” escalation in early 2025, with the EU preparing retaliatory measures on U.S. tech and agricultural exports. Goldman Sachs forecasts that comprehensive tariffs could reduce U.S. GDP growth by 0.5% in 2025. Manufacturing reshoring remains limited, with only 1,800 new factory jobs created monthly in 2024 despite tariff protections.
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