In the grand theater of American economic policy, where the ghosts of Presidents Alexander Hamilton and William McKinley still whisper their protectionist theories, we find ourselves witnessing a remarkable resurgence of tariffs as instruments of statecraft. The current administration, with a directness that would have pleased Andrew Jackson, has deployed these fiscal implements not merely as economic tools but as levers of geopolitical persuasion.
The tariff strategy has achieved what diplomats’ gentle murmurings could not: Colombia and Venezuela, those troublesome neighbors to the south, have acquiesced to the repatriation of their citizens. Canada and Mexico, our NAFTA brethren and largest trading partners, find themselves temporarily spared from a 25% levy, having demonstrated sufficient vigor in securing their frontiers. Meanwhile, China, that economic Communist colossus of the East, faces a modest 10% tariff, sufficient to prompt a tête-à-tête between presidents.
It would be naive of conservatives that regard these tariffs as mere negotiating ephemera, destined to vanish with the dawn once behavioral modifications are secured. The administration’s fondness for tariffs is as enduring as a Roman statue, harking back to the time when such taxes were first introduced. The ultimate design encompasses not merely the curtailment of illicit border crossings but the wholesale repatriation of supply chains to American soil and tariff revenue that will persuade Trump’s Congressional flock to pass his coveted tax cuts.
The inflationary specter that haunts such policies deserves scrutiny through the lens of historical perspective. While the ghost of Smoot-Hawley lurks in the memories of economic historians, reminding us of tariffs’ deflationary potential when taken to extremes, current levies remain historically modest. The tariff effect on CPI and interest rates is diluted by many other factors. Our strong economy could exacerbate the import price hikes that will keep inflation trending sideways to higher. Tariffs could also trigger a rise in the US Dollar as capital flows to the US. Such a move would be deflationary as import prices are reduced. The Federal Reserve, that modern temple of monetary wisdom, possesses ample tools to counterbalance any price perturbations, whether inflationary or otherwise. It’s premature to expect a dramatic change in interest rates and consumer prices due to the Trump tariff wave. What appears certain is that tariffs will spread to more countries and last longer than his supporters expect.
In our present circumstances, where the services sector demonstrates the resilience of a well-maintained Constitution, manufacturing has emerged from its winter doldrums with the vigor of an early spring. The GDP Nowcast of 3.9% suggests growth rates that will sustain consumer optimism and national prosperity. This robust foundation provides what one might term a buffer against potential trade confrontations, particularly as Trump casts his gaze toward Europe.
The equity markets, those real-time referenda on economic policy, have demonstrated a remarkable immunity to pessimistic prognostications. Just as in 2017, we seem to be having a similar explosion in small business sentiment. After the S&P 500’s impressive 23% ascent in 2024 – a performance repeat of 2023 – recent corrections have proved shallow. For the contemplative investor, the vaunted “Magnificent Seven” technology firms have commanded attention, yet after two years of extreme out-performance, the real opportunity may lie among the smaller enterprises. These smaller firms, modestly priced at a 16 multiple compared to 22 forward multiples for the SP 500, stand to benefit disproportionately from the administration’s reshoring initiatives and regulatory forbearance. AI related tech will shine, but healthcare and the small to mid cap sectors are ready to add some diversity.
The stock market’s response to the negative news cycle has been another hallmark of this Bull market. When the Fed announced that rate cuts were over – when Deepseek appeared to derail Nvidia and semis – when Trump announced tariffs and China retaliated – in each instance the market plunged for a day, but immediately regained its footing. As we progress through 2025, the market is poised for what the cognoscenti term a “broadening out” – a democratization of gains beyond the technological elite to encompass those sectors more aligned with Trumpian themes: bitcoin, that digital successor to the gold standard; cybersecurity, our digital equivalent of coastal fortifications; and energy infrastructure, as essential to our AI economy as roads were to Rome.
Markets occasionally require the purgative effects of minor corrections to maintain their health. Call option buying implies an excess of optimism short-term. By March, one suspects, sufficient weak hands will have been wrung out to permit another assault on record highs.
