February 5, 2025
On his Sunday night broadcast, Peter dove into the fallout from President Trump's tariff policy, which surprised markets on Friday. Peter explores everything from foreign exchange moves to the tariffs' impacts on everyday American consumers, using analogies to illustrate how these policies could unravel the American economy.
Peter starts by outlining the global reverberations of these actions, focusing especially on financial markets:
Look at the reaction around the world. First of all, the stock markets are getting clobbered. The Dow is off close to 600 points, 580 points right now. That's 1.3%. NASDAQ down a bigger percent, about 2.4%. Hardest hit - Russell 2000, U.S. small caps- they're down 3.4%. But the big story really I think is in the foreign exchange markets where the dollar is up across the board. The dollar index is up maybe 1.3%, 1.4%. The Euro is down 1.4%.
Drawing on hist past economic work, Peter revisits an analogy to explain trade imbalances and the beauty of comparative advantage:
I had two farmers. One was growing apples and the other one grows oranges. Now, at the end of the harvest, right, because both farmers want to eat apples and oranges, but one farmer's got a parcel of land that is very good for apples. Right? He can't. It's not that great for oranges, but it's great for apples. The other farmer's got a farm and the land's not really great for apples, but he can grow oranges. And then rather than both farmers growing apples and oranges, one farmer only grows apples. The other one only grows oranges. And then they trade with each other. Right? They trade apples for oranges. And as a result of this, both farmers have more fruit to eat. Right? They both have more apples and more oranges than they would have if they each grew both fruits.
Taking Trump's policies to their extreme, Peter points out how this is all ironically ultimately self-defeating:
What if Donald Trump raised the tariffs not to 25% but to 200%, 300%, right? What if Donald Trump made the tariffs so high that no more imports at all came into the United States? Imports were now so expensive that no goods whatsoever came into the United States. Who is the biggest loser in those circumstances? Is that a big win for America? Ha ha, yeah. The world can't screw us over anymore. We're not going to take any of their stuff.
The economic consequences of burdensome tariffs, Schiff argues, will be felt by every American as domestic production struggles to replace imports:
What about all the jobs that we have? They'd all be gone. What is a cashier going to do if there's nothing to buy? All those jobs are gone. All the retail jobs go away if we can't import all this stuff. Now, we may have to start doing it ourselves. Well, we got to build a factory. Where's the money going to come from to do that? We have to borrow a lot of money.... Mortgage rates would go to the double digits because we have to redirect capital to building factories that we don't now have.
In a broader context, Schiff reflects on America's unsustainable role in global trade imbalances:
We are not in a position to fight a war because we're benefiting right now from these trade deficits. The rest of the world has to bear the burden of financing those trade deficits. Not only does the world supply us with the goods that we don't produce, they loan us the money that we don't save. So we're taking them all for a ride and basically trying to bite the hand that feeds us without realizing that we're being fed. The world wakes up, and again, this is like maybe a wake-up call to shock them into doing the right thing.
This originally appeared on SchiffGold.com.