The Trouble with Tariffs

I am not an economist, but I do understand a few things about the economy.

The United States is often considered a free market economy, governed by the natural laws of supply and demand. Lately, however, it is more accurately described as a mixed economy with strong elements of governmental intervention. We all know where that goes.

Tariffs, in my view, are a direct attack against a free market, and while on the surface they may appear to be a money-making initiative, they have long-reaching ill effects. For starters, it is the consumer who ultimately pays the price, a hidden tax for the “protection” afforded to industry. In an effort to protect the auto sector, for example, General Motors recently reported that its core profit sank over 32% in Q2 as tariff headwinds sapped $1.1 billion from its results. Despite a 7% increase in sales, GM’s stock price slid 6% in early trading on the outlook that tariffs could hit the bottom line by $4 billion to $5 billion. Stellantis, the makers of Jeep, Dodge, Ram and others, also warned of significant losses, costing it about $350 million in the first half of 2025. Both Stellantis and Ford shares fell 1% on the news. Corporations can only absorb so much.

We haven’t even considered job losses, or the tariffs’ uncertainty impacting our domestic economy as many will hold off making major purchases.

As an investor, would you consider buying into these “protected” companies? I sure would not. On a broader scale, the SPDR S&P 500 ETF (SPY), which is what we trade, instantly collapsed three points on the July 22 news when General Motors earnings were released. Money is mobile and easily moves to where it earns better returns. This one company is just a microcosm of what may well unfold; watch for outflows from equities, sectors and even out of the U.S. markets.

Tariffs inhibit innovation. In a totally free market environment, each participant must compete to survive. If an industry is protected by costly duties, creativity and innovation are stifled. The reason the United States was so far ahead of government-controlled economies was because of its ability to innovate, succeed and even fail. It is for this reason the United States reigns as world leaders in so many facets. Just note that Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia and Tesla are just a few of the companies headquartered here. It is for this reason that so many millions clamor to enter this country in hopes of a better life.

Tariffs are the antithesis to free-trade, the very reason we enjoy a wide range of quality products at low prices. Long-term effects of imposing duties can only hurt us. I understand it is to help government coffers, hopefully to pay down some debt, but consider that as costs increase to cover tariffs, demand will decrease. If we intend to maintain our standard of living, we must give careful thought to this initiative. Maybe I am wrong, and perhaps businesses will relocate to the United States, but on that aspect, I fail to see how we can produce the same products as cheaply as other countries can. Those Nike shoes made overseas will no longer be only $65.

It actually surprises me that the intelligentsia do not recognize the obvious. The removal of trade barriers is beneficial for economic growth and overall welfare. Tariffs are seen as detrimental, likely the reason for the free-trade agreements of the late 1980’s to the early 2000’s. Free trade generally contributed to economic growth in the world by fostering increased competition, specialization, lower prices, greater variety and higher incomes.

Conversely, the Trump Administration is using the threat of tariffs to bring countries to the bargaining table in an effort to procure investment in the United States. We can only wait and see how this strategy rolls out longer term.

Tariffs can come and go, and our economy may flourish or fade away, but we DayTradeSPY’ers continue to make money on a daily basis day trading options. Join us at 8:00 p.m. ET Sunday night, and I will show you how.

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