Moneybeat: Tariffs through different lenses

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen.

He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN: Well, good morning, Nick, good to be with you.

EICHER: Well, David, as we near the end of the presidential campaign, seems like we’re getting the closing arguments now. Former President Trump appeared at the Economic Club in Chicago this past week gave an interview to the editor of Bloomberg Businessweek and as he has in rallies and other interviews he stressed his signature economic theme:

TRUMP: To me the most beautiful word in the dictionary is “tariff.” And it’s my favorite word. It needs a public-relations firm to help it, but to me it’s the most beautiful word in the dictionary.

And then two days later, we heard from the Treasury Secretary Janet Yellen, she appeared before the Council on Foreign Relations in New York, and inserted this line into her speech:

YELLEN: Calls for walling America off with high tariffs on friends and competitors alike or by treating even our closest allies as transactional partners are deeply misguided. Sweeping, untargeted tariffs would raise prices for American families and make our businesses less competitive.

Okay, so what about that, isn’t she right?

BAHNSEN: Secretary Yellen is not somebody that I look at as an ideologue compatible with my worldview in almost any way. I don't think she's been an effective treasury secretary, and I wasn't overwhelmingly impressed with her as chairwoman of the Federal Reserve. But she’s 100 percent right in what she said here: broad tariffs across the board raise prices on Americans. Now, that isn't even a remotely controversial statement.

The question is whether or not it’s effective, if it accomplishes something. This is where President Trump’s intentions with tariffs are a bit different because he says he doesn't want to do the tariffs; they're a negotiating tactic. And then other times he’ll say they're a beautiful thing, they’re the most beautiful word. And you know, everyone knows he can be kind of hyperbolic in the way he’ll talk about some of it.

So, as a matter of economic policy, there are a few things that have to be said. The broad tariffs are what she specifically criticized. She obviously didn't criticize targeted tariffs, which President Trump did in his term, because the Biden administration didn't get rid of any of those tariffs—they left all of them in place.

My own view is that the word “tariff” means “tax.” In American history, protective tariffs were literally done to say, “We want to protect one section of the country, or we want to protect one actor in the economy versus another.” I would be vehemently against that. I do not think tariffs are an effective way to protect, nor do I think the government should be in the business of picking winners and losers.

Now, some will say, “What if the country we want to impose tariffs on is a bad actor, or they steal our intellectual property?” That, of course, is a different subject. The issue is when people say, “I want fair terms, and these other countries have unfair terms.” That, of course, is easily rectified for those of us who believe in a free market. If I go to the store and they say, “Hey, just so you know, we’re charging you a $120 tax on your banana today,” I go, “Oh yeah, guess what? I'm not going to buy a banana from you today,” and then I take my business elsewhere.

So, we believe in buyers and sellers determining that because companies trade with companies; countries don’t actually trade with countries. It isn't like we are lined up to do an order. When Intel or Walmart or big companies are buying things, it's not the Treasury Department buying from China—it’s a company. If it’s an unfair term, then they shouldn’t do the deal. It’s really quite simple.

So, I don’t think that what she said is wrong, that broad-based tariffs raise prices. If any of us said, “Do higher taxes raise prices?” we’d all say yes. But President Trump's policies are a little more complicated than that because he wants to use tariffs as a negotiating tactic. In that sense, I just don’t really know exactly what he would do in a second term. It’s harder to be critical because he’s kind of put a few different things out there, and I’d rather hold my criticism or support until we see what he actually ends up doing because it’s a little unpredictable right now.

EICHER: Right about now, we’re in the last earnings season of the year, certainly the last earnings season before Election Day, with companies reporting their third-quarter performance: and that gives a different read on the economy. I saw one piece, with all the financial companies reporting first, saying that with JPMorgan Chase earnings came essentially the verdict that the Fed had in fact pulled off a so-called soft landing with its interest-rate policy. You’d agree, wouldn’t you?, the financial sector’s doing really well, pretty positive.

BAHNSEN: Yes, well, especially because we’re so heavily invested in the financial sector. At my firm, we take it as very positive. So far, there were a lot of good results—not just the banks, but what we call asset managers. They are managing money on behalf of pension funds, institutions, and, of course, individuals.

I think it is evidence of the Fed beginning to cut interest rates. There is anticipation of a soft landing—that if indeed the tightening of monetary policy is over, and we didn’t get a recession along the way, that’s what the soft landing thesis is. That would be considered very good for markets. And of course, banks make money doing activity, and with higher interest rates, you get less activity.

Now, the anticipation is that on a forward basis, there’s going to be more activity. And in the meantime, during the period where there was supposed to be suppressed activity, it was pretty darn good. JPMorgan has always been a very well-run institution.

I would add for listeners paying attention from a distance that there was a lot of activity I was heavily involved with, as well as other Christian organizations, when allegations had arisen of JPMorgan debanking. It wasn’t just that they went out of their way to ensure that wouldn’t happen, or where it had happened, it wouldn’t happen again. But since then, they’ve changed policies. They’ve engaged my consultants and are in conversation with them all the time. JPMorgan CEO Jamie Dimon has gone on air to talk about how the media needs to make more of an effort to understand conservatives and to be fair to the whole country.

There’s been a real paradigm shift over the last year or so, and I think that’s a positive development. Now, that’s a company with hundreds of thousands of employees. They’re still going to have all kinds of ESG language and other things. They’re by no means where I’d love to see them, but my point is, there's been a lot of positive movement.

I think for those of us who were critical of some things before—and in my case, actually went to litigation—it’s worth pointing out that they’ve been a very cooperative actor in trying to rectify some things.

Look, banks are an important part of the economy, and those that were a year or two ago—remember, we had First Republic and Silicon Valley Bank go under—now we’re in a place where no other regional banks have gone under, and I think that bodes well for where we stand right now.

EICHER: Ok, David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group.

If you aren’t subscribing to David’s regular market writing, you can find out more at DividendCafé.com. It’s free and you can receive it in your inbox. DividendCafé.com.

Thanks for your analysis this week, David, we’ll see you next time.

Have a great week!

BAHNSEN: Thanks so much, Nick, good to be with you.

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