Since President Trump’s tariffs became a threat, stocks have been severely impacted. Investors fear a prolonged trade war which will affect corporate profits and the economy.

Pre-market movements indicated that yesterday was going to be a bad day in the stock market with tariff tensions continuing and low confidence across the world on achieving a resolution. The day ended pretty good relative to where it started (basically minimal change from the previous day). Today was a sign of hope and then turned back to disaster. 

As someone who studied economics and graduated with honors (incoming humble brag: was in the top 10 of econ major graduates), this is really interesting to me because we get to see economic theory play out in a case that probably has never been done before in this fashion. 

Instead of letting journalists tell why these tariffs are bad, I’ll share my take on this. 

Countries use tariffs as a tool to protect domestic production by reducing foreign competition. There are legitimate reasons to impose tariffs. Imagine if the US no longer produced steel and everything had to be imported. This would be a huge concern since steel is used in so many areas like infrastructure, defense, shipbuilding, energy, etc. and being dependent on other countries for steel that can be influenced by a country’s leadership is a very vulnerable position to be in. In my opinion, THIS is the most important reason why tariffs are and should be used. The added bonus is that the government generates revenue from tariffs.

In this particular case with the Trump tariffs, the biggest risk is causing a tariff war and significantly disrupt trade. The saying that “tariffs are a tax” has been repeated nonstop across the media. It’s true because that’s the eventual outcome.

Tariff wars (especially with China) are not good for ANYONE. It becomes a d*ck measuring contest and seeing who folds first. While that contest goes on, industries and consumers are disproportionately impacted and become collateral damage.

Imagine tariffs didn’t exist. That American-made clothing made in a US factory paying US utilities and wages costs $30 to make. The company charges customers $70. Meanwhile, Vietnam makes similar clothing, but it only costs $8 to make. The company charges $50 for that piece of clothing to US customers. More people will buy that $30 piece of clothing from Vietnam. With lower demand, the clothing manufacturer struggles to compete and lays off workers and eventually shuts down. 

In this case, consumers SAVE $20. 

Now, imagine a 40% tariff is imposed for imported clothing from Vietnam. That 40% would make that $50 piece of clothing $70. The government makes $20 and the consumer now has to pay $70, which makes it $20 MORE than they would’ve paid without tariffs. Domestic companies can now compete on a level playing field. Tariffs act as a hidden tax since the consumer ends up paying it and that money gets into the government’s hands indirectly. 

And no, companies will not be lining up to manufacture in the US unless they have the capital and the capacity to do so. Automakers are more capable of doing this since they already have some production here in the US, but a clothing manufacturer? Yeah right. 

The reason those jobs were outsourced to begin with is because our economy transitioned from manufacturing to innovation and service-based industries. Good luck paying people enough to screw in iPhones when we, as a country, don’t even want to pay minimum wage workers a livable income. And I’m not sure if the majority of Apple iPhone users are willing to pay more than double today’s iPhone price.

While I’m all for the US maintaining some manufacturing capability, not every manufacturing job is the same. Our economy has evolved to the point that these types of jobs just do not pay the bills. In the 1970s, a manufacturing job paid well enough to live a modest lifestyle. This job might be enough to pay the bills somewhere else, but not here anymore.

The US went through an industrial revolution many years ago. Some countries are going through their own industrialization right now, which is why manufacturing capabilities in those countries exceed ours (since that is not our economy’s skill set anymore). Why would it make sense to bring back manufacturing when it costs more, is less efficient, and less capable? 

China did take manufacturing jobs to assemble the iPhone, but it’s a very small part of the process. Would you rather have the intellectual property and the other major components or the actual job of assembling the iPhone? Plus outsourcing that job helps consumers and Apple with a lower cost and wider customer base. It’s a win-win-win situation.

Unfortunately, this is very much a blanket tariff policy with very few exceptions. The silver lining is that the U.S. has A LOT of negotiating power so I can imagine many countries are willing to negotiate. Imagine if we were just an emerging market and we decided to stir up the global economy like this 😀

This is ultimately a gamble - in the end, we’ll get a mixed bag compared to what we started with. Some things will have higher tariffs, some will remain the same, and some will go down (maybe to zero). This is why many companies like Levi, Volkswagen, and many more are waiting till the dust settles. Negotiations are actively happening and updates are happening hourly. Until the dust settles, we won’t know the lasting effects and until then, consumers will be impacted. 

The uncertainty of how these tariffs will impact real life has led to the NASDAQ and S&P 500 to touch correction territory as this has been the biggest drop since COVID and the worst three-day performance for the S&P 500 since October 1987. While the market was up today (and then went back down), there is still the possibility that things do not end well and the risk of a recession increases (Goldman Sachs increased odds of recession to 45%) .

Of course people are panicking. It’s natural when you see what you built over years drop 20% in a matter of days. But, emotional decisions when it comes to money often don’t work out well. It’s important to remain level-headed and stick to the fundamentals.

Here’s the reality: you cannot control how the market performs. People will do one of two things - either you’re crying or you’re buying.

See this clip from the movie Margin Call that I posted:

Ultimately, we are just in it for the ride (hopefully, up).

The only thing you CAN control is how you prepare and react.

This section will showcase the tools I use for anything. I love trying new things so I’ll share what I’m using and why:

If you’re someone who wants to be prepared when a recession happens (it will - it’s just a matter of when), then you want to take these actions:

Now, these are all basic recommendations. Here’s the next level to recession-proofing your life:

As for me, I’m investing time into my content, newsletter, and email list. This is my foundation to building a community. I’m working on monetizing my brand better while still providing high quality content. This means spending some money on new software like this newsletter platform for a better experience and monetization opportunities.