Listen to the full episode here.
John Norris (00:30):
Well, hello again, everybody. This is John Norris at Trading Perspectives. As always, we have our good friend, Sam Clement. Sam, say hello.
Sam Clement (00:39):
Hey, John. I hope you’re doing well.
John Norris (00:40):
Well, I’m glad to hear that because a lot of people out there are very anxious about that dreaded “T” word—by that, I mean tariffs.
Sam Clement (00:48):
And it has really ramped up over the last week.
John Norris (00:52):
We’ve been talking about tariffs since the election in 2016, but, like you said, it’s really ramped up recently.
Sam Clement (01:00):
And the reaction seems to be similar to what happened the first time around. That’s what I keep bringing up—we know how this works. Nothing is really different so far. It’s a negotiation. Things are on the table, then off the table. They’re on the table for one country and off the table for another. It’s changing every day—almost by the hour. We get updates midday that move markets in one direction, and by the end of the day, we get something else that moves them right back. It’s just a rollercoaster, and right now, I feel like you just have to hold your breath, grit your teeth—whatever phrase you want to use—and just get through it.
John Norris (01:42):
Well, I’ve got to tell you, we’ve been through this before, and, to my recollection, it didn’t cause the level of angst we’re seeing now—especially with the tariffs on Mexico and Canada. It seems to be creating a lot of uncertainty and unease. Investors have driven the stock markets deep into the red over the past couple of days. I think all this uncertainty, unease, and panic makes tariffs a convenient scapegoat. But I also believe there’s already significant discomfort about the direction of the economy, and tariffs are just making a potentially bad situation a little worse.
Sam Clement (02:28):
Well, and we’ve talked about the expectation that volatility would normalize—which really just means an increase in volatility, given how little there was last year.
John Norris (02:35):
Last year, there wasn’t much volatility at all.
Sam Clement (02:37):
Exactly. You could put your money in the market and just watch it grow.
John Norris (02:41):
We talked about this morning—if you had taken a week-long vacation during that whole Japanese yen carry trade situation (if that was even the real reason for the selloff), you basically wouldn’t have seen any drawdowns, or at least it would’ve felt that way. So when we talk about a “normalization” of volatility, we’re really talking about an increase compared to the past 12 months. And maybe that’s part of it—people seeing what has happened over the last year and reacting more quickly.
Going back to the first round of tariffs in the first Trump administration, the current volatility is centered around Canada and Mexico. By my recollection, the near-bear market in late 2018 was almost exclusively about China. That seems to be the difference now. China is also getting some additional tariffs, but there are exemptions—like if a product is shipped directly to the consumer, it isn’t tariffed. There’s still a lot to be determined about how this will all shake out. And honestly, things could have changed in the time since we started recording this. Someone like Xi Jinping, Trudeau, or Trump could have made a comment that shifted expectations entirely.
John Norris (03:58):
Well, I think you bring up a great point. What’s interesting is that tariffs didn’t seem as problematic when we were dealing with China. People didn’t feel as negatively about them back then. But now, because we’re dealing with Canada and Mexico—two countries that share massive borders with us and are theoretically our allies—it feels different.
That being said, when you really examine how the global economy operates, are the playing fields as level as American trade negotiators would want them to be?
Sam Clement (04:31):
Probably not. But there are pros and cons to being in a position of economic authority, having the global reserve currency, and other factors. I’m not sure we necessarily want or even can achieve what some people consider a “level playing field.” A truly level playing field would mean giving up the global reserve currency status. If we did that, there would be trade-offs—and we have to accept those trade-offs to maintain our position.
John Norris (05:01):
I think what makes this so distasteful for many people is the perception that the U.S. is using brute economic force—essentially saying, “You’re going to play by our rules, or else this will happen.” And those rules are subject to change at any moment.
Some might see that as bullying, and in some ways, it might be. But, honestly, the U.S. has been relatively restrained in this regard. There are plenty of people around the world who would argue we’re already acting like a bully, but with this, it’s very direct—telling Ottawa and Mexico City exactly what they need to do or face consequences.
If I were Canadian or Mexican, I’d be furious. I mean, I’d be thinking, I thought we were allies.
Sam Clement (06:00):
And that frustration is evident. We’ve seen vocal criticism from Canadian political leaders across the spectrum. The Conservative Party in Canada even said that Trump and America “stabbed their greatest ally in the back.” So, it’s not just Trudeau’s party—it seems like a sentiment shared by most Canadians. It feels less like a political issue and more like a national one.
John Norris (06:39):
We’ve been talking about tariffs so much—on client calls, in webinars, and even on local TV. It’s surprising we hadn’t done a podcast on it until now.
People often ask me about the trade war with Canada and Mexico, and I tell them: This is a trade war we can win. And frankly, it’s not a fair fight.
If you look at the trade numbers, Mexico’s total imports and exports account for over 40% of its gross domestic product (based on IMF forecasts for 2025). That means over 40% of the Mexican economy is dependent on trade with the U.S. Canada is in a similar position—about 35% of its economy relies on trade with the U.S.
In contrast, if you combine all of our trade with both countries and compare it to the estimated 2025 U.S. GDP, it only accounts for about 5% of our economy. That’s how massive our economy is and how reliant Canada and Mexico are on trading with us.
For them, this isn’t just important—it’s critical. For us, it’s significant but not devastating.
Sam Clement (08:19):
So it’s really a game of chicken, and we’re the much bigger chicken.
John Norris (08:24):
Exactly.
Sam Clement (08:25):
The curious thing, though, is when you think about energy. I think the average person, if asked where the U.S. gets most of its energy from, would probably say the Middle East.
John Norris (08:41):
They’d probably say Saudi Arabia—which is completely untrue.
Sam Clement (08:44):
It’s actually Canada.
John Norris (08:45):
That’s right. The majority of the oil we consume that we import comes from Canada.
Sam Clement (08:49):
And surprisingly, we don’t import as much from Mexico as you might think.
John Norris (08:55):
No, not really. And the type of oil we consume and refine here isn’t primarily the light, sweet crude from West Texas.
Sam Clement (09:04):
Exactly. The oil we produce domestically is often exported because it’s better suited for certain refineries abroad. Meanwhile, we import heavier crude from places like Venezuela and Canada because that’s what many of our refineries are designed to process.
John Norris (09:12):
That’s right. Our biggest import from Canada, by far, is crude oil. Our biggest import from Mexico? Vehicles. So we’re talking about two very different trade relationships.
Sam Clement (09:41):
And when you look at how the leaders of these countries are handling the situation, it seems like Xiomara Castro in Mexico is handling it better than Trudeau in Canada.
John Norris (10:16):
That does seem to be the case. From what I’ve read, Castro has done a much better job in discussions with Trump, explaining Mexico’s perspective. As a result, Trump actually postponed the implementation of tariffs until April 2nd.
On the other hand, Trudeau’s approach seemed more reactionary—kind of a tit-for-tat response. I understand why he did that—it’s a knee-jerk reaction. But Castro appears to be taking a more strategic approach. Even Trump complimented her, which is significant given how different their worldviews are.
Sam Clement (11:06):
We’ve seen this before with CEOs and business leaders. Some know how to present things to Trump in a way that makes him feel like he’s winning. Tim Cook at Apple did something similar—announcing a $500 billion investment in America, but when you dig into it, it was mostly spending Apple was already planning. It wasn’t really new investment.
John Norris (11:47):
Exactly. It’s about deal-making, letting Trump save face, and moving on to the next issue.
Sam Clement (12:36):
So looking ahead—if April 2nd arrives and these tariffs actually go into effect—what do you think the impact will be? How long do you think they’ll last? And what does this mean for the U.S. consumer?
John Norris (12:52):
Well, it probably means higher prices, at least in some cases. That’s a given. Companies will try to absorb some of the cost, but some of it will be passed along to consumers.
Sam Clement (13:02):
But do you think it’s going to be the doomsday scenario that some people are predicting?
John Norris (13:06):
No, I don’t. But the timing isn’t great.
Sam Clement (13:09):
That’s the key—it’s coming at a bad time.
John Norris (13:12):
Exactly. My niece in Atlanta was being hyperbolic when she asked me, “What happens when avocados cost $20 apiece?” And I told her, “Well, don’t buy them.”
People are freaking out over potential price increases, but no one is forcing you to buy these products at higher prices. There will be alternatives. Prices might go up, but businesses will likely share the burden—importers, manufacturers, and consumers will all absorb a portion. The idea that consumers will bear the full 25% tariff cost is unrealistic. That assumes all goods are perfectly inelastic, which simply isn’t the case.
And I also don’t think these tariffs will last long. Canada and Mexico cannot afford a prolonged trade war. Their economies are too dependent on the U.S. They cannot wait us out.
Sam Clement (14:19):
If the tariffs last, it would undoubtedly cause a recession in those countries.
John Norris (14:23):
A severe one.
Sam Clement (14:25):
That’s the real game of chicken. Even with our reliance on Canadian crude, we could win this if we really wanted to. But again, it’s coming at a bad time.
John Norris (14:41):
Right. We talked last week about how the lower-income U.S. consumer is already struggling. I mean, you sent me that Wall Street Journal article about how even the company that makes Great Value brand products is seeing a slowdown in demand.
Sam Clement (14:56):
Exactly. That’s concerning. The people buying those off-brand products are not high-end consumers.
John Norris (15:01):
No, they’re not. So if those consumers are opting out of even the budget brands, that suggests they’re cutting back in ways we haven’t seen before.
Sam Clement (15:12):
That’s the point—they’re not just switching to lower-cost alternatives; they’re buying less food altogether.
John Norris (15:16):
Which is scary.
Sam Clement (15:23):
It is a little scary. If people are already opting out of Great Value, they’re opting out completely. Now, add additional price increases from tariffs on top of that, and it’s bad timing.
John Norris (15:37):
Even if these tariffs don’t directly impact prices much, I don’t think the average American voter is going to blame Trump.
Sam Clement (15:46):
Why not?
John Norris (15:47):
Because he’ll frame it as “We’re fighting for fairness”—whether that’s true or not. Many voters, especially those who feel the system is unfair to them, will back him. We talked last week about how a large portion of Americans don’t even have exposure to the stock market. There’s a significant overlap between those people and those who feel like they’ve been treated unfairly by the system.
If Trump positions this as “We’re standing up for the American worker,” a lot of people will support it—even if it causes short-term pain.
Sam Clement (17:26):
And we’ve already seen wholesalers stock up in anticipation of tariffs.
John Norris (17:30):
Right. The U.S. saw a massive spike in wholesale inventories in January. The trade deficit for that month hit an all-time high, following a huge deficit in December. February’s deficit will likely be high as well, which will pull down first-quarter GDP.
Wholesalers are front-loading their purchases, expecting tariffs to raise prices. If the tariffs don’t actually happen, they’ll have to sell off that inventory at discounted prices.
Sam Clement (18:20):
That could be really interesting.
John Norris (18:21):
It could create some unexpected price fluctuations.
Alright, well, thanks, everyone, for listening. We always love hearing from you, so if you have any comments or questions, drop us a line at , or leave us a review on your podcast app of choice.
If you’re interested in more of our insights, visit oakworth.com—O-A-K-W-O-R-T-H.com—and check out our Thought Leadership section. There, you’ll find links to past episodes of Trading Perspectives, our weekly newsletter Common Cents, our quarterly publication Macro & Market, and research from our financial advisory team, led by Mac Frazier.
Alright, Sam, anything else today about tariffs and their impact on the American consumer?
Sam Clement (19:17):
We’ll just have to see what happens.
John Norris (19:18):
Indeed, we will. Alright—that’s all I’ve got for today. Thanks for listening, everyone. Take care.
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