Tariffs, Economics, and the Global Market

Planck Constant and Knowledge

Max Planck: Nobel Prize winner, father of quantum physics.
Planck constant: Elemental value essential for modern technology (smartphones, laptops, LEDs, solar cells, GPS).
Planck's predictions were tested by scientists, demonstrating deep knowledge.

Tariffs are generally suboptimal in economics.
Law of Comparative Advantage Example:
- A brilliant lawyer is also better at word processing than a word processor.
- However, the firm makes more money if the lawyer specializes in lawyering, and the other person specializes in word processing.
Comparative advantage explains why tennis shoes are made in Vietnam instead of New York City.
The speaker is generally against tariffs, but makes exceptions for essential goods like medicine and steel.

US GDP: 29,000,000,000,000
Canada's GDP is smaller; the US makes more in five weeks than Canada does in a year.
The speaker recounts a story of being confronted about tariffs, with the argument that they could take 1,000,000,000,000 away from the US.
Argument against tariffs: avoid conflict with neighbors like Canada and Mexico.

Chairman of the Federal Reserve on April 16: Tariffs raise prices and weaken the economy, creating a difficult trade-off between inflation and labor market mandates.
The Fed has two mandates: keeping inflation low (around 2%) and maintaining employment.
Tariffs lead to higher prices; to combat this, the Fed raises interest rates, which negatively impacts car sales and credit card use.
This trade-off explains why the market reacts negatively to tariff announcements and positively to their removal.

Inflation from tariffs is generally a one-time event unless tariffs are repeatedly raised.
Example: 25% tariff on imported cars.
- If a Honda Accord is made in Japan, tariffs would provide consumers a choice, albeit with an increased cost.
- If the car is made in Indiana, it introduces a factory, jobs, and a tax base to the state.
South Carolina and Alabama have benefited from BMW and Mercedes plants.

Comparison of US population to other countries (e.g., Sweden's population is 16 times smaller).
Russia is described as a "big gas station with nukes" due to its relatively small economic size.

Foreman Trust modeled the impact of a 25% tariff on America, Canada, and Mexico.
US growth rate could be cut in half (e.g., from 3% to 1.5%).
Mexico and Canada could face deep recessions (e.g., from +3% growth to -4.5%).

Statements from the Boston Fed suggest tariffs will likely increase inflation in the near term but might be short-lived.
Risk: higher price pressure could have enduring second, third, and fourth-order effects.
High inflation from tariffs might delay rate cuts due to the Fed's inflationary mandate.
Lenders should expect tariffs to raise inflation rates, causing the Fed to potentially raise rates rather than lower them.
St. Louis Fed president warns against assuming the impact of tariff increases will be entirely temporary, mentioning indirect second-round effects on inflation (chain reaction of price increases).

Governor Bowman's view: It's unclear what will happen; Kashkari suggests tariffs should make the central bank more cautious about cutting rates due to higher inflation risks.
Waller's view: If the risk of recession outweighs the risk of inflation, then rates might be cut sooner and to a greater extent.
Another FOMC member disagrees, believing tariffs may lead to slower economic growth and a significantly raised unemployment rate, potentially hitting 5% next year.
Inflation could also hit 5%.

The speaker dismisses concerns about tariffs ruining our lives, citing the size and resilience of the US economy.
Comparison of US GDP to Brazil, Italy, and France.
Nominal GDP per capita and labor productivity statistics.
China’s GDP is questioned, with the speaker asserting a more accurate assessment would be far below the reported 18 trillion.

The share is what the bank is worth. Market capitalization signifies the wealth of a country.
Comparison of US market cap to other nations (Spain, Switzerland, China, Japan).
The US market cap is significantly higher than other countries, reflecting its economic strength.
America's wealth isn't always apparent because widespread access to goods and services makes it seem commonplace.

The speaker has visited Ukraine 30 times to help the Ukrainian economy. Ukraine has 6 universities, and U.S. has 4,000.
A bank president in Ukraine showed the speaker a private forecast from Goldman Sachs via at A-Track.
CD's are no longer common in cars.
Before tariffs implemented, GDP growth was at 2.3 and afterward went to 2.
The Atlanta Fed estimates inflation will go up anywhere between 0.8-1.6%.
If drug prices go up, the speaker would still buy it as a diabetic.
If tariff went up for French wine, he would buy Napa Valley wine instead.
The St. Louis had a 10% increase in the tariff effective for all countries, 1.2% inflation.
The speaker is on the board of directors of a natural gas business in Pennsylvania that has 1,600 acre plot.
Pipeline gas pipeline running through Pennsylvania, 25 miles from field. The pipeline is about 1.2 million / mile.
The pipeline would have to go under Interstate 80 and they were afraid with the compressor would take out the highway.
The gas liquid transports gas to Philadelphia. The biggest customer is Allantis Resort in The Bahamas.
The Biden administration denied new wells but asked for more information. All they cared about was mechanical and electrical valves.
The future prediction is that energy prices are going to fall.
Oil price (January): 79.38 a barrel.
The speaker makes point that even if tariff raise price issues. The cost of oil will lower price issue and balance out.