Here’s a new feature of my columns going forward: “A headline you might have missed.”
Trump levies 35% tariff on Canadian wildfire smoke entering the U.S.
Tax will be collected via increased medical co-pays incurred by Americans
——
Hello Downriver,
Since our inception as a nation, we — like civilizations through history — have had two economies.
The first always seems to get the daily attention of political leaders (and kings of old), of pundits and the press in general.
The second always gets lip service from politicians (and those pesky kings), but seldom gets the attention it deserves.
And pundits and the press usually only pay attention to the second when they can find a human interest story to pin themselves to.
(Kings only fret when those trying to live in the second economy threaten their reign.)
The first, of course, is an economy best illustrated by the markets that trade in business and government ownership (or colonization): stocks and bonds and all the derivatives financial manipulators can invent.
The second, is the economy of the corner market, where bacon, eggs, milk and the other essentials of life are bought and sold — plus the larger retail world of shelter, clothing and transportation.
Because my wife and I are retired, we pay more attention to the first economy than we used to because our finances are impacted by the ebbs and flows of Wall Street; our former 401(k)s are now a “portfolio” of investments in a number of companies via stocks.
We don’t personally trade in that market; we have a portfolio manager who does so on our behalf.
As a result, we’re left with simply watching how our nest egg is doing from month to month.
Of course, we live our daily life in that second economy, just like the rest of you — with an eye on the first economy to ensure our fixed income is OK.
We pay for things on a regular basis — often behind the scenes via aut0-pay arrangements with various vendors for monthly services — and then pay off the balances each month.
We shop at three markets each week, because each offers a specialty of foods and products we use. (We also do periodic bulk shopping maybe once every other month.)
We don’t gas up the car very often anymore, since neither of us commute to work, so we’re not as affected by price fluctuations at the pump.
(My most recent fill up was literally of an empty tank; our mileage since we bought our car at the end of March averages about 700 miles a month.)
Obviously there are differences between the two economies: one is for the buying and selling of company value — or in the case of our government, Treasury Bonds to finance debt — whereas the other is for the daily buying and selling of commodities we need to survive and thrive.
That’s not to say we don’t need Wall Street — shorthand for the various financial markets — to survive, but only in a tangential way.
However, the success and failure of Wall Street certainly impacts what we can buy (and for how much) on Main Street.
Which brings me to one of the things front of mind for most American businesses and is growing in importance for the American consumer.
The Trump Tariff Tax.
Do not be misled: Tariffs on imports are a national sales tax on us, the end-user, the consumer.
In short, no matter who cuts the check to Uncle Sam when products hit our shores, that cost will eventually hit our wallets when we purchase that item down the street; businesses can’t absorb that tax, so they pass it on to us.
So far, we haven’t felt much of the impact of Trump’s Tariff Tax — for one reason: many companies began stockpiling inventory from overseas as soon as Trump declared at his inauguration to “tariff and tax foreign countries to enrich our citizens.”
(Double-speak; we won’t be enriched at all.)
The uncertainty began on April 2, Trump’s so-called “Liberation Day” (or more accurately, “Trump Tariff Tax Day”), when the president arbitrarily imposed a 10% baseline tariff on imports from nearly every country.
That rash, unprecedented and absurd move immediately caused a global stock market crash, triggered by widespread panic selling.
The Dow Jones Industrial Average experienced its biggest single-day decline since June 2020 (the rise of the global COVID pandemic), and the first time it had lost more than 1,500 points on back-to-back days.
The S&P 500 also saw its biggest decline since March 2020 (start of COVID), and dropped over 17% from its recent high.
Nasdaq entered a bear market, dropping 22% from its December record.
In short, it was the largest global market decline since the 2020 stock market crash that occurred during the COVID recession. (Sorry for repeating myself, but you need to understand the seriousness of Trump’s actions; his is as deadly as a pandemic.)
Each of these market hits also hit my wife and I right in the pocketbook, as it did any retiree with a pension or 401(k).
We lost real savings — all because Trump “threatened” to impose a draconian across-the-board tariff tax.
And while we’ve started to grow again, we’ll never recoup the losses from the Trump crash; it was like starting over.
But here’s the thing: that crash prompted Trump to reverse course a week later, on April 9 — providing a windfall to any investor who read Trump’s almost immediate posts on social media. (It wasn’t us.)
“BE COOL!” he posted moments after announcing the tariffs. “Everything is going to work out well. The USA will be bigger and better than ever before!”
Minutes later, he added: “THIS IS A GREAT TIME TO BUY!!! DJT”
(FYI: DJT is the stock symbol for Trump Media & Technology Group — the parent company of Truth Social —which saw its stock price jump in the moments after Trump’s post. Its price continued to rise throughout the day, spiking around the time word came that Trump had retreated from his threats.)
The fact is that investors who took Trump’s post as a signal to buy when the market crashed — either Trump’s stock or the stock market in general — did extremely well, achieving returns of more than 20%.
So egregious was the profiteering that Democrats asked whether insiders had profited from the market swing.
“Who in the administration knew about Trump’s latest tariff flip flop ahead of time?” asked Sen. Adam Schiff of California.
“Did anyone buy or sell stocks, and profit at the public’s expense?” Schiff said. “I’m writing to the White House — the public has a right to know.”
Joining in the questioning was Massachusetts Sen. Elizabeth Warren who asked plainly: “Was it corruption in plain sight?”
“We need an independent investigation into market manipulation,” she said, “because Americans need to know whether President Trump or anyone in his administration manipulated the market to benefit their donors, all while they are working for the American people, and while small businesses and those working families are paying the price.”
Well, we never got an answer to Schiff’s questions — nor did we ever get an investigation.
But what we have gotten over the last four months is a roller-coaster ride of tariffs, no tariffs, revised tariffs, increased tariffs — earning the president the “TACO” moniker: “Trump Always Chickens Out.”
So far, though, the impact of Trump’s Tariff Tax has been felt primarily on Wall Street, which adjusted its expectations about a month into his flip flops and has since stabilized and even grown in value.
This might seem like a paradox, but the truth is that Wall Street had started to “bake in” Trump’s empty threats.
For a while.
But because business leaders have a responsibility to protect (and increase) profits, they’re now admitting they’ll soon be passing along Trump’s Tariff Tax to American consumers: In June, 45% of CEOs said they’d do it; this month it was up to 64%.
Which means that second economy — the one we live in on a daily basis — needs to prepare for real shocks to its system.
For example, Moody’s chief economist, Mark Zandi, said the recent bombshell labor report from the Bureau of Labor Statistics — among other data — led him to say that America is “at the precipice of recession.”
Worse yet, Bank of America research economists say the U.S. economy is headed toward a battle with “stagflation” — not just a recession — and that if the Fed cuts interest rates this fall, it could worsen “that toxic mix of stagnation and inflation.”
And what is “stagflation?”
It’s an economic period of 1) high inflation, 2) slow economic growth (or stagnation) and 3) high unemployment.
For those of a certain age, we unfortunately remember the last period of stagflation: the 1970s — which lasted until the early 1980s when Fed Chair Paul Volcker raised interest rates to curb inflation.
That, however, threw us into two subsequent recessions that negatively impacted both Wall Street and Main Street.
In short, nothing good is coming from Trump’s Tariff Tax.
And if anyone tells you different — including Trump — feel free to call him a liar.
I just did.
To read my essays — long and short — check out Substack.com and look for me at “Farrandipity.” It’s free. Craig Farrand can be reached at craig.substack@gmail.com.
