12/14/25
S&P 500: 6827
Nasdaq: 23,195
10 Year Treasury: 4.1%
David R. Snyder, CFA
Geopolitics and tariffs are also a new major headline that should cause lower valuations. The increase in tensions internationally, especially between the US and both Russia and China is a deterrent to world economic growth and stability. Increasing US isolation also dampens world trade. Deglobalization is a major negative factor for world GDP growth. After the Berlin wall fell and world economies adopted free trade, world GDP growth averaged 3.6% from 1994 through 2007. The trade to GDP ratio rose from 20% in 1995 to a peak of 61% in 2008 and has plateaued until declining again in 2023. It is likely to plummet in the US due to tariffs. World GDP per capita grew almost 1% per year higher from 1994-2007 then it has since 2010 (to be fair not using 2008 and 2009 since we were in the midst of a major recession) when globalization began to decline.
Trump’s tariffs are going to permanently cost the US between 0.4-0.8% per year in GDP, or about $8500 in GDP per adult in the US. We do need to bring back some manufacturing for national security reasons, but subsidies are much more efficient than tariffs at achieving that goal. That is because they don’t raise domestic prices, don’t alienate foreign countries as much because there is no direct cost on foreign goods, less supply chain disruption, and are better at targeting specific market shares. It is not true that US trade deficits mean that other countries are stealing wealth from the US. Any current account deficit is offset by the capital account to bring balance of payments to zero. Thus, a foreign country that has a trade surplus with the US is offsetting their trade surplus with purchases of US assets including US government debt. The US finances much of its budget deficits through foreign investments in US debt. The US is taking advantage of foreign countries just as much as foreign countries are taking advantage of the US. There is nothing inherently wrong with trade deficits other than they are likely caused by budget deficits. The US grew rapidly in the first 60 years of the 19th century with high trade deficits. All countries benefitted.
Using tariffs to encourage manufacturers to invest in the US is bad policy and lowers economic growth for the world and the US. Trump wants AAPL to build iPhone’s in the US even though they would cost on average over $2000 per phone vs. $700 in India or China. Yes it would add jobs for building and then operating the new factory. However, if we are at full employment it will result in just substituting jobs from other industries. The compensation premium for manufacturing jobs relative to service jobs has declined markedly since the 1980’s to single digit percentages with some studies showing it has disappeared. Because AAPL will either have to sell the iPhones at higher prices or keep prices the same but have lower profit margins due to the higher costs of production, US economic growth will suffer either way. Higher prices will cause lower demand or if consumers are willing to pay the higher prices (inelastic demand) then they will have less money for other purchases. APPL’s supply chain will also suffer if demand for iPhones is lower. Foreign countries that were exporting the cheaper iPhones will then have less money to purchase US exports and assets. There is a multiplier effect on the US economy leading to lower economic growth and/or higher prices. The additional jobs created initially would likely decrease as price pressures decrease demand. And certainly the new jobs created would not offset the negative wealth effect from the resulting lower economic growth under any economic model. The AAPL example is a microcosm of what is happening to the US economy. Comparative advantage is being negated.
Tariffs also invite cronyism and that certainly has been true under both terms of Trump’s presidency. Tariff exceptions have been highly correlated with campaign contributions to Trump. It was clear that Trump’s carved out exception for smartphones and computers made in China was done to exempt AAPL, as they are the biggest beneficiary of the exemption. The deals and exemptions Trump extracts from corporations to promise to invest in the US are uneconomical. Most of the promised investments are operating expenses anyway or were already planned.
US non-tariff barriers are as restrictive as most foreign non-tariff barriers. The Buy America Act of 1933, Build America Buy America Act of 2021 and the Jones Act are all examples of US favoring domestic contractors. Shipping costs in the US are triple the rate of overseas shipping costs due to the Jones Act. Also, municipalities favor domestic contractors. The VAT is very similar to the US sales tax. Japan and Europe don’t buy American made cars because they don’t offer cheaper smaller fuel efficient SUV’s (with steering wheels on the right hand side in some countries) not because of non-tariff barriers. The US subsidizes agriculture on average $30 billion per year. And the IMF calculates that the US fossil fuel industry is subsidized by $758 billion per year in direct and indirect costs.
The US now has significant higher import tariffs on our 25 biggest trading partners than vice versa. Trump’s tariffs are not reciprocal. They are punitive. It was a positive development for foreign countries to eliminate their tariffs on US exports, but it was significantly more than offset by the US raising the effective tariff rate to 17% on US imports of foreign goods. Many of these tariffs don’t even further the goal of bringing manufacturing back to the US. For example Trump placed 20% tariffs on Vietnamese imports. It costs over 100% more to produce shoes in the US than in Vietnam. Shoe manufacturing is thus not coming back to the US because of a 20% tariff, and the tariff is just a tax on the American consumer. Similar scenario for the new furniture tariffs.
One of the least discussed bad effects of tariffs is the complacency they create. The Jones Act that restricts shipments to US vessels in the US causing rates to be multiples higher. In fact Philly recently had to import oil even though the oil was cheaper in the US because of high US shipping costs. No where is this more evident than in autos. In 1965 the US enacted a “chicken tax” of 25% on foreign imports of light trucks, vans and some SUV’s. At the time the US manufacturers had close to 85 to 90% market share of all autos sold in the US. Today they have less than 25% of the sedan market but still 85 to 90% of the full size light truck market because of the tariff protection. Also the incentive to produce light trucks and SUV’s has caused the sedan market to collapse to under 25% of all cars sold in the US from over 75% in 1965 while light trucks have increased their share of autos sold in US to 23% from 5% in same time period. Classic response to trade barriers in a free market economy!
Tariffs are going to cause the US manufacturers to fall behind the global shift to EV’s. The 100% tariffs on Chinese EV imports are causing domestic auto companies to focus more on ICE cars as the threat of EV imports dissipates. China is dramatically ahead of the US in EV technology, quality and cost. Eventually the world is going to reach 100% EV’s and the US auto companies are going to be left behind.
NVDA is a design company. It is probably the most remarkable success story in corporate history, reaching $5 trillion in market capitalization recently. It is a fabless company that outsources its manufacturing. Its value now exceeds any semiconductor manufacturer by a wide margin. Intellectual property and design are the highest value added products in the world! That is our comparative advantage that benefits the US and the entire world.
The stock market also doesn’t have any discount for our new planned economy. We are moving away from a free market system. Trump is telling corporations where to invest, what to invest, and what prices to charge. He is bullying companies to comply with his demands. He even is demanding government stakes in companies without paying for them. One of the most outrageous demands was requesting a 10% stake in Intel (INTC 35) without consideration as a payback for the government subsidies given to INTC. The CEO of INTC had no choice. If he had said no there would have been likely negative implications for INTC. Trump has now jeopardized all future subsidies as companies will have to consider the possibility of paying subsidies back through giving government free stakes in their companies. This is a big, big deal that wasn’t critiqued enough. It sets a new anti-capitalist precedent.
Full Disclosure: I own several of the securities mentioned positively. None have been purchased within the last month. The opinions merely represent the opinion of the author as CIO of Journey 1 Advisors, LLC and intended to inform the readers about our investment philosophy and strategy. The contents of this report are based on sources believed to be reliable. It is not intended for circulation. It is not intended to offer investment advice, or to recommend the purchase or sale of any securities or investment product. Investment advice is only given after a client has signed an investment advisory agreement with Journey 1 Advisors, LLC and will be subject to the terms and conditions therein. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk.