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 (00:35):
John, how are you doing?
John Norris (00:36):
Sam, I’m doing okay—certainly better than I should be doing here on what you just called Obliteration Day. That’s right, the day after—
Sam Clement (00:44):
Liberation Day. That’s right. It’s a big day for a lot of people.
John Norris (00:47):
So we could have talked about anything this week that we wanted.
Sam Clement (00:52):
It’s just hard not to talk about it.
John Norris (00:53):
It’s hard not to talk about tariffs, and I feel like we’ve talked about them ad nauseam—not just on this podcast, but with clients. I give a fair number of public presentations, and people are constantly asking me about tariffs. But when you look at what’s going on in the markets, and I’d argue the increasingly fragile state of the U.S. economy, you have to wonder: Is there really a thought process behind all of these tariffs, or is it just about being a bully?
Sam Clement (01:25):
Well, part of what we’ve talked about is that it’s kind of emotionally charged—or driven.
John Norris (01:32):
Well, it certainly is.
Sam Clement (01:33):
And I think that’s still where a lot of this is coming from. There’s this broad theory—or hope—that it sounds great to get other countries to pay revenue instead of our own citizens. That sounds phenomenal.
John Norris (01:49):
Yes, it does.
Sam Clement (01:50):
I love it. In fact, I would love that. But the execution of that through tariffs—does it really work that way?
John Norris (02:03):
Well, we know how tariffs work. And the answer is: no.
Sam Clement (02:05):
Right. And so we’re tiptoeing this line. Part of it is negotiating—how much of this is set in stone, and how much of it can be walked back? There’ve been cracks and openings indicating some of it can be reversed. But the difficulty is that it’s just so unknown. And clearly, the market was shocked by the severity of it yesterday. There’s no way the market would have been up three-quarters of a point going into it, then dropped 3% to 6%—depending on what you looked at—if it wasn’t surprised.
John Norris (02:40):
Well, I would tell you that—and we still officially feel this way—that the tariffs that had been announced, threatened, and now implemented, are largely negotiation tactics to get whatever the president may or may not want. However, I think most people probably felt that way until yesterday. Now, it really does seem like maybe he really is trying to raise revenue. Maybe he is trying to onshore all this production…
Sam Clement (04:36):
Well, at the end of the day, investing is really about buying promises of future cash flow. That’s all it boils down to. The premium you’re paying is tied to your confidence in that promise. That’s why companies with stable earnings or strong projections can command higher valuations—even if the earnings are far out in the future. But with less confidence, you’re willing to pay less for what might happen down the road.
John Norris (05:12):
And so that’s what’s going on throughout the markets today. I’d be shocked if we didn’t see a noticeable drop in business and consumer sentiment. People are worried things are going to cost more—both for consumers and for businesses buying inputs. And when that happens, people don’t want to spend money—or they front-load their spending, meaning that by next month, they’re cutting back no matter what.
Sam Clement (06:12):
We’ve talked about how this can become a self-fulfilling prophecy. Everything might be fine, but if people *think* a recession is coming, that can lead to an actual recession.
John Norris (06:23):
If a recession is largely a contraction in spending—then yes.
Sam Clement (06:24):
Exactly. If people expect a downturn, they start spending less. Well, there you have it.
John Norris (06:34):
You’re just trying to get ahead of the curve.
Sam Clement (06:36):
But you end up starting the snowball. That’s where consumer confidence comes into play—especially when so much is unknown right now.
John Norris (06:46):
I’ve got to think there’s some method to the madness. One hopes there is. Some of it doesn’t seem quantifiable, and the calculations seem odd. You mentioned that even the Swiss were baffled.
Sam Clement (07:06):
Yeah, they called it incomprehensible.
John Norris (07:08):
So if I’m in Japan or another country that just got hit with unexpectedly large tariffs, I’m thinking: “Sure, the U.S. is important to my market—but my market matters to me too.” Why would I care about U.S. workers when shifting production to the U.S. puts people in my own country out of work—whether it’s in Japan, Poland, or Vietnam? I’m not sure Washington fully understands the ripple effects. Everyone will try to work out deals, sure—but Vietnam with a 46% tariff? They’re not going to say, “Okay, we’ll just move all our operations to the U.S.” Vietnamese people need jobs too. That’s what I don’t think the administration fully grasps.
Sam Clement (08:10):
And the way they calculated it—we’ve talked about this before—but it’s basically based on the other country’s net exports to the U.S. Obviously, Vietnam exports a lot more to us than we do to them.
John Norris (08:27):
I think we’re running a pretty massive deficit with them.
Sam Clement (08:29):
Exactly. Say we import $150 billion and only export $10 billion—that’s a large deficit.
John Norris (08:38):
Right.
Sam Clement (08:38):
And that’s where they’re getting these 80–90% figures from. It’s directly correlated to how much of an export-driven economy they are. The math lines up with that equation. I even saw their deputy press secretary release it—filled with Greek letters—to make it seem more complicated than it really is. But that’s what it boils down to.
John Norris (09:05):
If you want to confuse someone, just throw in a bunch of Greek letters. But you’re right. There doesn’t appear to be any thought given to whether Vietnam might have a comparative advantage—or whether the U.S. even produces things Vietnamese consumers want. I’m not saying the playing field is level. It isn’t. There’s a lot of protectionism out there, and now we’re joining in. But we didn’t end up with this massive trade deficit *just* because everyone else is trying to screw us.
Sam Clement (09:44):
And something missing from the conversation is that we are the global reserve currency.
John Norris (09:49):
Yes.
Sam Clement (09:50):
That’s a massive comparative advantage.
John Norris (09:54):
Yes.
Sam Clement (09:54):
So if I’m one of these other countries—why don’t we make *you* the global reserve currency?
John Norris (10:02):
That…
Sam Clement (10:02):
I get they might not want to.
John Norris (10:05):
That might be a topic for another time.
Sam Clement (10:07):
But there are pros and cons on both sides—being the U.S. or being a smaller export-driven country. And we have to ask: do we want to be competitive in all of this?
John Norris (10:21):
Not in everything. I mean, ask people in the Deep South if they want to go back to working in textile mills. Most would say, “No thanks.” That wasn’t great. Same for working in cigarette factories in the Carolinas like they did back in the ’30s and ’40s. A lot of that manufacturing is done overseas now—and we’re not getting it back. And if the administration’s goal is to ramp up domestic manufacturing employment, even if jobs do return, they’ll come back with automation and tech to keep labor costs down.
Sam Clement (11:26):
We’ve talked about this—painted with a broad brush—but we export high-margin stuff and import low-margin stuff.
John Norris (11:36):
Yes.
Sam Clement (11:37):
So in some ways, that gives other countries a bigger weapon when it comes to tariffs—they can hit our high-margin industries harder.
John Norris (11:49):
Right. Take textiles, for example. What are the margins on textiles?
Sam Clement (11:54):
Five percent?
John Norris (11:55):
Yeah, so there’s not a huge return. So who’s going to want to onshore production and try to maintain a 5%–10% margin? It’s a tough ask. Now don’t get me wrong, our trade representatives didn’t do a great job protecting us when we negotiated some of these deals. Sure, I’d like to see some of those jobs come back. I’d love to shrink our trade deficit—but at what cost? Do we run the entire economy into the dirt to do that? Or should we go about it more subtly?
Sam Clement (12:36):
Exactly. Or do we focus on things we can control? Any manufacturer will tell you—the EPA is on their back, OSHA comes in, and regulations are everywhere. Just try opening a business here—it’s a maze.
John Norris (12:58):
Right. A lot of the emotion around this comes from towns that lost their economies when a single industry left. That’s frictional unemployment. It’s painful, and we all know towns in Alabama or the Carolinas where this happened.
Sam Clement (13:28):
One industry towns—they did it well, then it left. But unless we solve frictional unemployment, trying to bring those industries back won’t fix the underlying issue. Ideally, we’d bring in new industries—like tech—and reduce the friction that way. But when we offshored, we basically imported deflation.
John Norris (13:59):
That’s what I was going to say. Around the time we started running big trade deficits, we also got a flood of cheap goods. We used to make all the TVs here—they were crazy expensive. Now, TVs are practically disposable. If we still made all this stuff domestically, it would be far more expensive—and we wouldn’t have accumulated all this “stuff” as a society. That said, should we protect some industries? Sure. But throwing tariffs around like this will absolutely inhibit trade.
Sam Clement (14:58):
Do you think this changes the long-term direction for some of these countries? Germany, for example, has had an explosive recovery. Does this encourage countries to focus more on internal growth and less on the U.S.?
John Norris (15:22):
That’s a great question—and yes, I think it does. Countries like China, Germany, even Canada or Mexico—they’ll do what they can to ease the short-term pain and placate Washington. But long term? Germany would be smart to pivot. China too. The U.S. market is big—but there are others. So I think marginal exporters in Europe will focus more on domestic or regional growth, or even the Middle East, rather than relying so heavily on the U.S.
Sam Clement (16:48):
Yeah. And going back to our earlier point—investing is about confidence. That applies to companies too. Do you build a $1 billion factory in the U.S. just to avoid tariffs, if in two years the administration changes and the tariffs go away?
John Norris (17:09):
Right. Like a German car manufacturer—say BMW. Do they expand in Spartanburg or shift away from Puebla, Mexico? Do they make a billion-dollar bet when there’s a high chance policy shifts again?
Sam Clement (17:54):
Exactly. And that midterm “blue wave” possibility could stall or reverse all of this very quickly. Companies make 10-, 20-, 30-year investment decisions—they can afford to wait out a policy swing.
John Norris (18:31):
Especially if “waiting it out” means just holding off for a year and a half.
Sam Clement (18:33):
Exactly. Maybe they pass on some cost, take weaker earnings for six quarters, and ride it out.
John Norris (18:46):
So that’s what’s happening. Foreign firms and investors understand our political system. If Democrats take back Congress—or the White House in 2028—these tariffs may not last. Are you going to make a billion-dollar decision on something that might disappear next year?
Sam Clement (19:40):
Some of them cost more than that.
John Norris (19:41):
Exactly. And you can’t even build these facilities in two years. So for me—shrinking the trade deficit? Good idea. Leveling the playing field? Good idea. But have we done the math? Have we examined our own policies to reduce labor costs here before throwing impediments on global trade? Investors are asking these questions. The Dow is down 1,400 points today—this isn’t just me or you, Sam. It’s global.
Sam Clement (21:02):
And in the meantime, people are saying: “I’m sitting this one out.” They’re pulling money off the table because it’s unclear what success looks like—or what the next two or three quarters will look like.
John Norris (21:19):
And in the meantime, people are happy parking their money in T-bills or money market accounts—just waiting it out.
Sam Clement (21:21):
Not an abnormal reaction.
John Norris (21:34):
Not at all. And I’d imagine people in the administration are surprised by how the markets have reacted today.
John Norris (21:40):
Alright, everyone—thank you so much for listening. We always love to hear from you. If you have any comments or questions, drop us a line at . You can also leave a review on the podcast platform of your choice.
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Alright, with that being said—Sam, I’ll give you one last chance to talk about the Federal Reserve and just how silly they were today.
John Norris (22:21):
Any famous last words, Sam?
Sam Clement (22:22):
That’s it for today.
John Norris (22:23):
Same here. Take care, everyone.
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