Field of play
America alone
In this post I will take a look at the impact of Trump tariffs on stocks over the long term, say 10 or 20 years. I invest in common stocks. It’s important to assess clearly whether common stocks, as an asset class, in the U.S. or in other countries, will be permanently damaged by Donald Trump’s tariffs.
Ripping off the U.S.
Donald Trump claims the existing global system allowed other countries to ‘rip off’ the U.S. He has said, “for years, hardworking American citizens were forced to sit on the sidelines as other nations got rich and powerful, much of it at our expense…now it is our turn to prosper.” He said, “If you want your tariff rate to be zero, then you build your product right here in America.”
What this means very simply is that he wishes to end globalization of trade, at least so far as the U.S. is concerned. This is a seismic change. He is using tariffs to effect this change.
Trade economics
Since I am not an economist I will use Alan Greenspan as my guide in this post. He Earned a B.A., M.A. and Ph.D. in economics from New York University. He served as chair of the Council of Economic Advisors under Republican President Ford. In 1987 he was appointed chair of the Federal Reserve Board, by Republican President Regan and served under both Republican and Democratic administrations until his retirement in 2006. He guided U.S. monetary policy in the aftermath of the October 1987 market crash, the late 1980s real estate crash, the early 1990s recession, the Asian financial crisis of the late 1990s and the crash post the Dot Com boom. For present purposes, let’s keep in mind that he had the confidence of both Republican and Democratic presidents and particularly Republican presidents (Donald Trump being Republican)
I make no apology for the lengthy quotes here. I don’t want to paraphrase or put my own gloss on what Greenspan has written. So here we go, straight from the horse’s mouth (bad metaphor)
Adam Smith in The Wealth of Nations, published in 1776, looked at the big issue of what makes an economy grow. Greenspan explains that Smith’s book “accurately identified capital accumulation, free trade, an appropriate – but circumscribed – role for government, and the rule of law, as keys to national prosperity.” (Greenspan, The Age of Turbulence, Adventures in a New World, 2007) p261 (Emphasis Added)
Mercantilism
Mercantilism is an economic policy where a country aims to increase its wealth by government regulations and protectionist measures, like tariffs. Through the 18th and early 19th century mercantilism ruled the waves. Greenspan credits Adam Smith and his immediate successors with gradually dismantling mercantilism.
Greenspan writes: “In Britain, this process reached its finale with the 1846 repeal of the Corn Laws, a set of tariffs that for many years had blocked imports of grain, keeping grain prices and therefore landowners’ rent artificially high – and elevating, of course, the price paid by industrial wage earners for a loaf of bread.” (Greenspan, 2007) p264 (Emphasis Added)
Of note here is that mercantilism can artificially help the owners of producers of goods and services while at the same time artificially increasing prices paid by consumers. More on this later. These two sides of mercantilism are at the heart of Donald Trump’s tariffs. Hurt one and help the other.
Global market capitalism – Globalization vs protectionism
Alan Greenspan tells us that, “Tariff barriers declined in the years following World War ll, a result of a general recognition that protectionism before the war had led to a spiraling down of trade – a reversal of the international division of labor which contributed to the virtual collapse of world economic activity. The post war liberalization of trade helped open up new low-cost sources of supply; coupled with the development of new financial institutions and products (made possible in part by silicon-based technologies), it facilitated the forward thrust toward global market capitalism even during the years of the cold war. In the following quarter century, the embrace of free-market capitalism helped bring inflation to quiescence and interest rates to single digits globally.” (Greenspan, 2007) p12 (Emphasis Added)
He notes “…the data point to three important characteristics influencing global growth: (1) the extent of competition domestically, and, especially for developing nations, the extent of a country’s openness to trade and its integration with the rest of the world; (2) the quality of a country’s institutions that make an economy work; and (3) the success of its policymakers in implementing the measures necessary for macroeconomic stability.” (Greenspan, 2007) p250
Current global trade system
The U.S. was one of the principal architects of the existing global trade system. The existing global trade system, as represented by the World Trade Organization (WTO), in its modern form, started with the General Agreement on Tariffs and Trade (GATT) in 1947, which was a direct result of the Bretton Woods Conference in 1944 that established the International Monetary Fund and the World Bank.
The benefits and drawbacks of globalization
We learn from Greenspan: “As barriers came down in the wake of global trade negotiations and major improvement in transport and communications technologies, manufacturing shifted to East Asia and Latin America, raising their real incomes. At the same time, the United States and other developed countries increasingly specialized in conceptual products and intellectual services that are value highly in the marketplace. In the United States, for example, value-added in finance and insurance rose from 3.0 percent of GDP in 1953 to 7.8 percent in 2006, while in manufacturing it fell significantly over the same years.” (Greenspan, 2007) p314
He goes on: “Production shifts, such as the transfer of some U.S. textiles and apparel manufacturing abroad, have freed resources to engage in the output of products and services world consumers value more highly; the net result has been increased real incomes, on average, for both U.S. workers and, for example, those in East Asia. The “net,” of course, obscures the trauma of job loss suffered by American textile and apparel worker” (Greenspan, 2007) p314 (Emphasis Added)
And that’s the rub. Net increases, on average, for U.S. workers comes at a cost to those who lose old economy jobs.
Can we blame cross border competition?
Greenspan makes a critical point. “Many U.S. businesses, for example, previously purchased components from domestic suppliers but have switched in recent years to foreign suppliers. These companies generally view domestic and foreign suppliers as competitive in the same way that they view domestic suppliers as competing with each other. Moving from a domestic to foreign source affects international balance-of-payment bookkeeping but arguably not macroeconomic stress. To be sure, firms and workers that lose sales will be adversely affected, a least until they can be reemployed in more competitive uses. But that is no different from the fallout from domestic competition.” (Greenspan, 2007) p358 (Emphasis Added)
Greenspan explains: “And on free trade, the fact was this: The distinction between domestic competition and cross-border competition has no economic meaning. If you’re in a Dubuque, Iowa, plant, it makes no difference whether you’re competing with someone in Santa Fe or across the border.” (Greenspan, 2007) p149
What about U.S. workers who lose old economy jobs?
One difference between the U.S. and other developed countries is the size of their social safety net. Workers that lose old economy jobs need to be supported as they retrain. The U.S. is not very good at that. As a result, the U.S. is more vulnerable to populist politicians.
Enter populist leaders
Greenspan makes this dire prediction. “It does no good to argue that unrestrained competition leaves a society on average better off, when, in recent years, workers see their bosses gaining large bonuses as they themselves get tepid wage increases. People have to experience competition’s advantages firsthand. If they do not, some will turn to populist leaders who promise, for example, to erect tariff walls. Such protectionism is perceived, erroneously, as securing high-paying jobs in steel, autos, textiles, and chemicals – the icons of America’s past economic might.” (Greenspan, 2007) p394 (Emphasis Added)
Populist leaders frequently pursue grievance politics. I’m cynical enough to believe that Donald Trump really doesn’t give a hoot about the people with grievances who elected him. It was a path to power. They will only realize they have been deceived when the pain hits. Based on the tariffs Trump has imposed it seems the jobs he seeks will be in “steel, autos, textiles, and chemicals – the icons of America’s past economic might”. Without tariffs, these economic sectors are not competitive in the world. Inevitably, the prices of products and services of all sectors and industries that need tariffs to protect them, will be higher than world prices.
Where I see this going
When all the dust has settled, when all the tariff and non-tariff barriers protectionist measures have been negotiated, the first losers will be American consumers. For Americans, clothing will cost more; Housing built with lumber will cost more; cars built with steel and aluminum will cost more; and so on. American prosperity will suffer. Increased prices compared with the rest of the world will make America a poorer place and dull the march of prosperity brought about by globalization and free trade.
But, as with the British Corn Laws in the early 19th century, while tariffs will raise prices for consumers, business owners will still profit, even those whose operations cannot compete on a level playing field with global competition. It’s amazing to think that U.S. consumer will probably face higher prices than consumers all over the world. Trump’s billionaire cronies will do just fine. The average American will not.
American alone
In the early 2000s the U.S. promoted a new trade agreement amongst a group of countries. This led to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This group of 11 countries today includes Australia, Canada, Japan, Mexico, Vietnam and Britain. When Trump was first elected in 2016, he pulled the U.S. out of the CPTPP discussions. CPTPP came into force in 2018 and today accounts for about 15% of global trade. Indonesia, Costa Rica, Ecuador, Uruguay, Ukraine, Taiwan and China have all formally applied to join CPTPP. The European Union is pursuing bilateral agreements with many countries. There is one with Canada for example. In fact, the EU has made free-trade deals with nearly all CPTPP members. In the last 8 years Canada has signed 16 trade deals, almost all of them bilateral. (The Economist, April 5, 2025)
There are other groups. For example, Mercosur is a South American bloc which has recently made a deal with the EU. Together they have some 700 million consumers.
At the millennium, in 2000, the U.S. accounted for about 20% of global trade. In 2025 it accounts for just over 12%. The world is moving on, without the U.S…
Conclusion
In the decades to come, the world, without the U.S., will enjoy the benefits of globalization. The U.S. will be isolated and the average American will suffer inflation and higher prices than other consumers around the globe. Many U.S. businesses will do just fine in spite of higher productions costs as the costs will be passed on to consumers. The most dynamic companies may, in time, be based outside the U.S. My takeaway is to look for those dynamic companies and invest in them, while carefully monitoring my U.S holdings.
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