President Trump’s announcement of sweeping tariffs sent the markets into a tailspin last week – as I forecast in January, the Biden stock market bubble is finally bursting, and about time too. The hysterical reaction from the left and the economic Whigs of globalization resembles that which faced Lord Liverpool when he introduced the Corn Laws in March 1815. Like the Corn Laws, Trump’s tariffs are sound policy, as I said two years ago when Trump first proposed them, although I would favor lower rather than higher tariffs, being a fan of the 1850s “Doughface” low-tariff, small-government approach to economics rather than the “Billion Dollar Congress” of the post-Lincoln Republicans that passed the 1890 McKinley Tariff. However Trump must stand firm as the record market bubble finally deflates and the economy de-financializes, to the great benefit of ordinary people.

When Trump took over in January, the U.S. economy and the financial markets were thoroughly sick, in ways that the distorted Keynesian figures of official statistics did not directly capture. As I wrote on January 13 the stock market was at least double its proper level, the S&P 500 having risen by 57.9% during Biden’s four years in office. Can you imagine any conceivable reason why the stock market should have risen by 57.9% from an already very overvalued level under an administration that was anti-capitalist, bloated government spending beyond belief, and indulged in wild “climate change” fantasies that diverted investment away from legitimate outlets and towards loss-making boondoggles?

The immense flood of illegal immigrants was also a gigantic drain on the economy, taking more than 100% of new jobs – employment among native-born Americans actually dropped over the period, effectively a recession since working-age population is increasing — and sucking up Social Security and Medicaid resources. It now appears that illegal immigrants may also in 2024 have cast illegitimately the decisive votes to push some leftist pro-bloat Democrat candidates ahead of solid pro-business Republicans. (The Wisconsin and Arizona Senate races and several California Congressional races look very suspect, even before we consider outright electoral fraud.)

Other markets were also overvalued in January. The junk bond market tightened to record low spreads in late 2024, obviously irrational since interest rates had substantially risen and credit standards had declined almost to the point of disappearance. The private equity market, a gigantic bubble with far more money to spend than plausible deals to buy, is now showing distinct signs of cracks. The biggest crash in private equity will occur in its hugely value-subtracting “roll-ups” where private equity swoops on local small businesses and creates a gigantic bureaucratic blob, in which service goes to pieces and small proprietors are nowhere to be found. As Austrian economics teaches us, a lesson that must be relearned in every cycle: when interest rates are low for a prolonged period (let alone held GOSPLAN-like at artificially low levels by the Fed) massive bloats of misguided investment appear and must thereafter be liquidated.

This cycle has been exceptionally prolonged, with exceptional overvaluation; consequently the liquidation will be painful and involve bankruptcies in many areas. As Andrew Mellon advised in 1929, we must “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate” to purge the excesses – the poor farmers currently have enough to worry about, but we can certainly liquidate their subsidies as well as much of tech. It is to be hoped that current policymakers will avoid the horrible errors of Mellon’s boss President Hoover, and get the liquidation over quickly, as Mellon himself did in 1920-21.

Provided it is not accompanied by foolish statist policy, as in 1929-33 or 2007-09, an asset liquidation need not be bad for most Americans. Asset prices have soared to unsustainable levels in the last 30 years of loose money, incredibly enriching the top 0.01% but doing little for the rest of us, whose assets are limited to maybe a mid-level house outside a big city and a modest portfolio that is locked in a 401(K) or similar arrangement.

This is foreign territory to the average big-city journalist – a National Review anti-tariff commentator, hysterical as are all Whiggish commentators currently, moaned about the effect of the market fall on those with defined-benefit pension plans. He failed to notice that defined benefit plans, the old-fashioned sort, put all the investment risk on the company (or government) providing them and leave the participant risk-free. Thus, unless the company or government goes bankrupt (which some state and big-city governments may well do in the next decade) the participant has no exposure to the market. Defined-contribution plans, the sort which most of us have, are the ones at risk to market movements over the long term.

Other Trump policies will offset the effect on ordinary people of any asset price rebalancing. Stopping dead the flow of low-value illegal immigrants enormously improves the life possibilities for ordinary Americans, as demonstrated by March 2025’s job numbers, which showed 329,000 job gains for the native-born from February, more than the 228,000 overall jobs increase. Removing regulations, both the idiot “climate change” restrictions and regulations in general, will hugely increase our living standards, without appearing in official GDP figures. News this week of the elimination of regulations that had emasculated dishwashers and showers was just one example of these life enhancements.

When in 2023 Trump first proposed a flat 10% tariff, I supported it. In general, the U.S. Treasury desperately needs the revenue (DOGE is great but won’t eliminate a $2 trillion deficit) and it makes no sense to tax incomes at 40-60% and trade not at all – the Whiggish argument for free trade in this respect is rubbish, given modern government sizes. There have been two periods when an economic hegemon maintained more open markets and much lower tariffs than its competitors: Britain in 1846-1914 and the United States from 1991 until last week. Both periods ended with the hollowing out of the productive capacity of the hegemon economy, slowing productivity growth, excessive financialization, and the concentration of wealth in a very few pretty unattractive plutocrats. A balanced system, with much smaller government and lower tariff rates like the Doughfaces’ Tariff of 1857, is optimal – a few weeks ago I discussed the beauties of the Doughface economy.

The current world trade system, with its ultra-low corporate tax rates, infinite Third World sourcing and ability to domicile “intellectual property” in tax-free jurisdictions, seems expressly designed to provide a gigantic tax haven for Apple Inc (NASDAQ:AAPL) and the big pharmaceutical companies. The free traders moan about possible price rises in the top-end iPhone 16, an educationally damaging product already tangentially responsible for the week-long “Signalgate” debacle and bought only by the richest and silliest of citified yuppies rather than by non-metropolitan ordinary people. If Apple must locate manufacturing in the United States and pay full U.S. taxes it will reduce its workforce through automation and find its prices can be maintained with its profits only marginally reduced, since its current gross margin over variable manufacturing cost (excluding “intellectual property” slush funds) is far above 50%. (Subsequent Note: The Administration cancelled tariffs on cellphones, routers, etc. late Friday night. This decision is an utter disgrace – the tech sector is overblown, riddled with tax exemptions and most able to bear the cost of tariffs, whose revenue is desperately needed. I hope it is reversed.)

Incidentally, I own a few long-dated Apple put options; if you want to protect yourself against further stock market declines (which I think very likely) long-dated puts (January 2027 or longer) are a good tool, but on the indices QQQ and SPY rather than on individual stocks (I own some QQQ puts also).

There are three criticisms made against the President’s “Liberation Day” tariff plan: the rates are too high, they were arrived at haphazardly and they were imposed by Presidential fiat, without waiting for Congress to design a tariff schedule.

Trump’s tariffs as announced are not especially high and are likely to be reduced by negotiation with the countries whose imposed rates are highest. Certainly the 10% flat minimum is not too high; indeed I would suggest that all international trade outside a currency bloc such as the euro be subjected to a 10% tariff, because in a world of floating exchange rates, ephemeral “Ricardian comparative advantages” are created every time the FX market throws a tantrum.

The algorithm by which the tariffs were calculated based them on the Ricardian imbalance (trade deficit) of the U.S. with the country concerned. This is sensible, because it pinpoints countries and blocs such as the EU whose non-tariff barriers are especially severe; such barriers are in many cases equivalent to an infinite tariff. The overall level of Trump’s tariffs is certainly not “higher than Smoot-Hawley” as several media madmen have suggested. Trump’s tariffs before the 90-day moratorium averaged 24-27%, whereas Smoot-Hawley tariffs averaged 59% and the Dingley Tariff, a more successful enactment in 1897 under President McKinley, averaged 47% over its life and was responsible for more than a decade of rapid U.S. economic growth. Except for China, Trump’s tariffs are reasonable and his base 10% tariff on all imports should be universal and rigorously enforced forthwith.

As for the 145% tariff against China, that country has already announced that it is prohibiting the exports of seven rare earth elements (in which it has a near-monopoly) to all countries, not just the United States. This tariff dispute will allow the West to rebalance the innumerable “unequal treaties” and equally unequal other agreements its foolish predecessors have negotiated with the Communist behemoth. Centrally planned economies do not deserve trade agreements.

Simply seeking Congressional approval prevents the possibility of a meaningful tariff negotiation with trading partners in a reasonable timeframe. Even 100 years ago, Congressional tariff setting involved monstrous log-rolling. Today, with external money far more important in Congressional elections, the Senate filibuster in a a highly partisan atmosphere and media-thirsty perpetual defectors like Rep. Don Bacon (R-NE) prevalent in the tiny Republican Congressional majority, there is zero chance of getting anything sensible passed at all, and certainly none of holding a coherent negotiation with trading partners. The main danger is that some deluded coalition of Democrats and fanatical Never-Trumpers will pass a resolution taking away the President’s power to negotiate; hopefully the Presidential veto will stymie any such nonsense.

There are plenty of precedents for Presidents imposing even more major changes than this tariff schedule by Executive Order. FDR’s Executive Order 6102 of 1933, taking the U.S. off the Gold Standard and prohibiting the private holding of gold was one such example, upheld in 1935 by a Supreme Court whose “conservative” majority disgracefully wimped out. At least Trump does not set tariff rates in his underwear using lucky numbers, as FDR set the gold price daily for eight months in 1933-34.

President Trump’s tariffs have led us into a new world. For ordinary American citizens, it is likely to be a much better and richer one.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)