Moneybeat: Trump’s tariff test

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

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David, and glad you’re here.

DAVID BAHNSEN: Well, thanks for having me Nick.

EICHER: So, last Thursday the White House declared “Liberation Day,” announcing a sweeping new tariff plan. But the market didn’t exactly join the party. Instead, we saw a steep sell-off. How do you read it?

BAHNSEN: Well, calling it a sell-off is a very nice way to put it. It was a very violent sell off. You’re looking at the worst day in markets in five years and the combined impact throughout the week was really, really bad.

So we’re in a place here where the markets are responding to two things that took place on so-called Liberation Day, and they’re the worst of all worlds.

One is the news itself being worse than expected, as bad as it could be in terms of what was announced around the tariffs. But then the double whammy of uncertainty that is ongoing.

Bad news that is certain becomes a little bit easier to digest than bad news that is not. In this case the cost to the American economy that was announced is also combined with several different uncertainties: dates when certain things are supposed to be implemented, doors left open for carve outs and waivers, and then what most troubled me as a constitutionalist, that the full modification authority lies with the President. Vice President Vance said on Thursday that all of this is done on President Trump’s gut.

I would add, by the way, Secretary Bessent said: We need to wait and see what happens.

All of those types of things indicate uncertainty. So, you have uncertainty combined with bad news, and that is not something markets liked at all.

EICHER: Some might still hold out hope that there’s a strategic method behind all this—that in a few months we’ll look back and say, “Ah, now I see what he was doing.” So, from where you sit, it’s that a possibility, or are you already clear on what’s gone wrong?

BAHNSEN: I think that why he’s doing it isn’t quite so complicated, in my opinion.

I think that he has a certain belief that we are getting “ripped off” whenever anybody is selling more things to us than they are buying from us. He believes the tariffs are going to make things fair—what they call reciprocity, reciprocal tariffs that level the playing field. Had they said, whatever you’re tariffing us, we’re gonna tariff you, it would have been a tiny fraction of what we ended up with, for the simple reason that there really aren’t that many big inequities.

But instead what they did is they divided the total trade deficit that a country has with us, by their level of exports to us and set that at the level of tariff.

So you ended up with countries like Switzerland that have almost no tariffs on us that are now going to be tariffed higher than the rest of the European Union. Vietnam is one of the worst countries in his chart, and even though it has barely any tariffs on us, it’s because of the trade deficit. Both Switzerland and Vietnam sell us a ton of stuff and don’t buy a lot from us—for very obvious reasons. It was almost sort of humorous, but that’s never really been historically framed, Nick, as somebody ripping us off, but there’s just a lot of advisors giving advice that, you know, we’ve seen before.

For example, President Biden was given the advice that if he passed a huge bill that gave a bunch of Americans more money, that it would be appreciated and that it wouldn’t affect deficits and wouldn’t affect prices. He got bad advice. When Bush Senior was told, you can raise taxes, the American people know it’s for the best, even though you said, read my lips, he got bad advice.

I could go on and on—from wage and price controls of President Nixon to that really ineffective stimulus that President Obama passed in the beginning of his presidency. Both Republican and Democrat presidents get bad advice, and this is just very bad advice that President Trump is getting.

The big question markets have and the big question for the economy is what an offamp will be and when it will come. At this point is I’m not sure that it will matter to avoid a recession.

I think it’s very possible that it’s too late. I got over a hundred phone calls last week from clients and non-clients. Not a single one brought up the stock market or their portfolios. All of them were about the impact on their businesses. At least eighty percent of these people, if not more, were Trump voters, but in some cases, they don’t know if they’re going to make it through the summer.

Others saying, you know, they’re going to be laying people off. I mean, this is a real big impact to small business, Nick.

EICHER: We did get a better-than-expected jobs report—200,000 jobs-plus added in March—but the unemployment rate ticked up a bit too. Still, that kind of labor market strength seems like good news, even though backward-looking.

BAHNSEN: Yeah, the unemployment number went up to 4.2%, but the jobs for March were at 220,000—a little bit better than the 140,000 that had been expected. So again, when that happens, it’s a labor participation force issue. It’s the math.

So not really big news of a job report with a full-blown global trade war breaking out. China announced 34% reciprocal tariffs on America. Those things tend to trump the jobs report, no pun intended. But also, as you said, the jobs report is backward looking. So, it’ll be much more interesting to see where jobs are in another month and in another month after that.

EICHER: Looking ahead, what signs will you be watching to get a clearer picture of where the economy’s headed? Are there specific indicators—or conversations—that will give you the best read?

BAHNSEN: The next thing that I’m going to see and hear is anecdotal, things like, you know, Nintendo just announced they’re going to delay release of their next game console because of the impact of tariffs. A massive multi-hundred-million-dollar shoe company telling me last week that they think they’ll go out of business because there’s no capacity to make the footwear here in America—and these tariffs are over 100% of their margin.
Those things are going to be anecdotal, but then you’ll see the data backward looking with the actual measurement of Institute of Supply Management (ISM) manufacturing, industrial production, of capital expenditures in the GDP number. That comes throughout the second quarter and into the third quarter. So, there’s two areas—the anecdotal that foreshadows what comes and then there’s the actual data that validates it over the months ahead.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. David writes at WORLD Opinions and at dividendcafe.com, and I will urge a close read of this week’s Dividend Café to dive into the details. But I’ll say, even when the news isn’t great, I do always appreciate your calling the balls and strikes each week. Thanks very much!

BAHNSEN: Thanks so much, Nick.

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