Western Standard - Trump's tariff game exposed

00:00:00.000 China's killing our canola, $45 billion gone, Western farmers bleed, Mark Carney silent,

00:00:14.240 made millions off Beijing's dime, he won't fight, he's Beijing's banker, not our prime

00:00:21.680 Minister.

00:00:45.920 Good evening Western Standard viewers and welcome to this special edition of Hannaford,

00:00:50.160 a weekly politics show. I'm Nigel Hannaford. It is Friday, April the 11th, and my guest today

00:00:56.500 is Peter Piovic, a Calgary-based senior portfolio manager at Wellington Altus Private Wealth Canada.

00:01:04.200 Welcome back to the show, Peter. Thank you, Nigel. Pleasure to be back.

00:01:09.200 Peter, we're doing this special edition because we're normally Thursdays, but we're doing this

00:01:12.920 special edition tonight, Friday, because thanks to President Trump this past week,

00:01:16.680 has been dramatic on the markets and a lot of people are frightened as somebody who looks after

00:01:22.600 other people's money you must have had your phone ringing off the hook this week so here's the one

00:01:28.860 thing everybody wants to know is there any hope nagel you know there's always hope and things are

00:01:35.440 not always as bad as they seem at least that's the way it seems to work out you know for me longer

00:01:40.420 term. But no, there's hope. And yes, the phones are ringing off the hook because anybody who

00:01:47.380 turns on the news these days, they'll get a very healthy dose of fear. So if you could put it in

00:01:55.800 just one sentence, do you buy and hold or do you lock in your losses now before they get any worse?

00:02:01.300 the first thing one needs to do as always is the case is is is remain calm and um sit down

00:02:09.700 and look at everything that is occurring objectively uh with as little emotion as possible

00:02:15.540 the way we see it uh is is that there is a lot of statecraft being employed by the u.s administration

00:02:24.260 and statecraft is is when essentially you don't show all your it's kind of like a poker game you

00:02:30.400 don't show all your cards as a politician or as an administration right up front.

00:02:34.560 You have an end goal and you want to achieve that end goal,

00:02:38.560 but you've got to be careful how you get there

00:02:40.080 because if you overexpose yourself on that path, you may get derailed.

00:02:46.360 So a lot of what you're hearing, a lot of the fear that you're seeing,

00:02:49.740 some of it's real, but some of it is meant to achieve a means to an end.

00:02:56.320 So we can definitely talk more about that.

00:02:59.140 Well, let's do that. 1.00

00:03:00.080 The popular narrative is that President Trump is an idiot and is like an out-of-control 1.00

00:03:04.160 bulldozer in world markets, or my more kindly way of putting it, that his laser focus on 1.00

00:03:10.180 what he thinks are America's best interest is doing untold and irreparable damage to

00:03:15.060 the rest of the world.

00:03:16.900 So, statecraft, China, bond markets, refinancing of the U.S. debt.

00:03:26.460 can you put all that together in a way that makes sense of what he has done in the last two weeks

00:03:32.900 first imposing uh extra tariffs and then taking them off for everybody except china which now has

00:03:41.200 is it 104 or 140 i it moves so fast i lose track of it you have to check your tweets every five

00:03:49.180 minutes to know what the exact number is you know for that moment um but uh no that that that is all

00:03:55.200 That is all statecraft. 1.00

00:03:56.480 So, you know, when talking to people, if I took the approach that, you know, Trump doesn't know what he's doing, Trump's an idiot and so forth, then I would probably become even more popular. 0.99

00:04:07.700 However, that may not be the case. 0.99

00:04:10.340 You see, you have to almost just rewind here and see, you know, what are they trying to accomplish and why?

00:04:17.320 So, you know, so first of all, and this is a very complex topic, but at the end of the day, the crux of the problem are deficits.

00:04:25.820 So a couple of deficits in particular, you know, one is the fiscal deficit.

00:04:31.000 So if you have a fiscal deficit of, say, $2 trillion on a $37 trillion debt, that would mean that the national debt is growing by $2 trillion a year.

00:04:43.840 And that is unsustainable.

00:04:47.640 That's just the end and the be-all of it.

00:04:50.120 It is absolutely unsustainable.

00:04:51.260 And then when you look at the interest payments on that debt now basically approaching, and if you extrapolate its growth rate, possibly exceeding $1 trillion a year by the end of this year, then you've got a real problem on your hands because now that starts to, say, exceed the budget of the U.S. military in terms of interest expense.

00:05:15.580 So that's one deficit that they wish to reduce.

00:05:20.380 And then the other one, which is contributory to that, would be the trade deficit.

00:05:26.000 And that's what we've been hearing a lot of recently in terms of the trade deficit of the U.S. to China and to the rest of the world, which is where the statecraft comes in.

00:05:36.460 So, Nigel, do you want to talk a little bit more about the trade deficit and how that might work?

00:05:42.380 Well, let's do that.

00:05:44.180 So the trade deficit and also the Department of Government Efficiency, and it does sound comically bureaucratic, but in actual fact, that's an agency of government with a limited span or sunset clause in it, and it is actually uncovering enormous and ridiculous expenditures.

00:06:03.140 again if you take your eyes off it for a day you lose it but the last time i heard they'd

00:06:09.880 identified something like a trillion dollars that is just foolish expenditure so are you

00:06:17.180 are you saying that taking the sum total of what the u.s administration is doing and not just being

00:06:27.040 focused on tariffs they are in fact seeking to save money in government and appear to be succeeding

00:06:35.440 that they have um that they are working on the trade deficit through tariffs

00:06:44.880 and that of course when you apply a tariff anything that does come in is revenue to the

00:06:49.760 the government. And then I recall that we were speaking a while ago about the import of gold and

00:06:57.920 the possible revaluation of gold as a way of reducing the severity of the national debt,

00:07:08.720 the total national debt. I think you use the analogy of if you have a house that's a million

00:07:15.000 dollars and you're worth a million dollars and you have a hundred thousand dollars in the bank

00:07:19.720 uh a debt of a hundred thousand dollars you don't worry too much but if the debt is a million and

00:07:24.440 the house is a hundred thousand then you've got every reason to be concerned so the so taking

00:07:30.840 all of these things together can you place the tariff actions within the overall u.s approach

00:07:37.720 and maybe rate how well it's working for them yeah so it's it's going to be too early to say

00:07:44.040 how well it works, although they've been in these similar places before, and similar policies have

00:07:50.100 worked historically, post-World War II, post-World War I, and also post-Civil War. Now again, it's

00:07:56.700 just important to almost kind of refocus on what the main goal is, and that is to reduce the deficit,

00:08:02.460 the fiscal deficit, and to reduce the trade deficit. So now going back again to the fiscal

00:08:07.500 deficit, you know, very simple, if you have a deficit, if you're running a deficit, say in your

00:08:11.460 household. And what does that mean? It means you're spending more money than you're making.

00:08:16.220 So how do you fix that? You know, it's difficult, but simple. Obviously, you need to make more on

00:08:22.540 one side, so increase your revenue. And you need to spend less on the other side, which is decrease

00:08:28.320 your expenditures. And that's exactly what the US administration is trying to do. So on the revenue

00:08:34.120 side, you already mentioned it, Nigel, you know, tariffs increase revenue. And, you know, currently

00:08:40.760 they're targeting anywhere from $300 billion to $600 billion of increased revenue through tariffs.

00:08:49.140 And then on the expenditure side, you already mentioned Doge. So that's one way they're trying

00:08:55.840 to reduce the expenditure. But then the other way is going to be to reduce the interest expense

00:09:01.300 that I referred to earlier. And how do you reduce interest expense? And there's really only a couple

00:09:06.400 of ways. One is to reduce the national debt, which they're nowhere near accomplishing at this point

00:09:13.260 in time. They'd be happy if they can just reduce the deficit before they could even begin to think

00:09:18.480 about reducing the debt. But if they can get interest rates down, so if they can somehow get

00:09:25.800 interest rates down, which they have been coming down, and when I say down, I mean, and when I say

00:09:31.020 interest rates, I mean the bond market. You see, the Federal Reserve tracks the two-year

00:09:36.360 treasury bond as one of its main targets in terms of how to set their overnight interest rates.

00:09:44.200 And currently, that two-year treasury bond is hovering just under 4% and has been trending

00:09:50.600 downward now for weeks. So one of the ways, one of the reasons it's been trending downward,

00:09:56.960 ironically, is all this uncertainty that we've been seeing. So in a very strange way, and this

00:10:02.860 now again goes back to statecraft, in a very strange way, all this uncertainty, all this fear

00:10:08.280 and so forth that we've been seeing is bringing down interest rates in the bond market. And as

00:10:14.380 those rates come down, when treasury bonds come due, and the US government needs to renew those

00:10:21.740 treasury bonds, and there's trillions that need to be renewed this year. They've six trillion in

00:10:27.520 June, and there's more towards the end of the year. Those bonds get renewed at a lower interest

00:10:33.100 rate. And when they get renewed at a lower interest rate, the US federal government saves

00:10:38.040 money. When they save money, they reduce that fiscal deficit. So is that an accident or is that

00:10:46.720 planned. Well, if it's not an accident, then Trump is obviously a superior intellect to most of us

00:10:55.260 because sometimes it's hard to follow, even when you have it explained to you. Especially in the

00:11:00.100 last couple of days, there's been quite a few articles, mostly from the left-wing media,

00:11:05.640 emanating from the United States. Like I noticed that the lead article on this yesterday on the

00:11:10.340 National Post came from an American author. I don't know where they stand politically, but they

00:11:16.140 certainly were delighted to write that Trump had blinked when he suddenly removed these tariffs.

00:11:24.480 And I've had the argument advanced as recently as yesterday that, in actual fact, bond rates

00:11:29.080 are going up. So just because of those uncertainties and the different things we're being told,

00:11:34.060 are bond rates going up? You just said they were going down. That sounds better.

00:11:39.760 And did Trump blink? Okay. So just to answer the question on bond rates, first of all,

00:11:45.540 it depends on the time frame you're looking at.

00:11:47.960 Did they blink up this week?

00:11:49.840 Short answer is yes, slightly,

00:11:52.260 but they're still quite significantly down

00:11:54.300 from where they were last month and in February.

00:11:57.280 So nothing ever goes up or down in a straight line.

00:12:00.420 It goes up, it goes down, it goes up, it goes down.

00:12:02.980 So you have to look at the overarching trend

00:12:06.000 and the overarching trend is down

00:12:07.800 until proven otherwise.

00:12:10.100 But at this point in time, it's still down,

00:12:11.860 although this week, yes, it did tick up.

00:12:14.560 So then back to statecraft. So, you know, once again, it'll be very popular if I, you know, said that he blinked. And who knows, maybe he did blink. But here's the thing that I've been thinking about for several weeks now with respect to these tariffs.

00:12:30.700 So let's just kind of back up again and take a bird's eye view of the trade deficit, first of all, which is one of the reasons we're going to tariffs.

00:12:42.440 So if you look at, if you just look at goods and not services, the U.S. trade deficit to the world is something like $1.2 trillion, which is, by the way, is a colossal number.

00:12:57.380 Now, if you include services, because the U.S. does a lot of services, that number drops probably from $1.2 trillion to somewhere around $800 billion.

00:13:09.360 It's still a very, very big number, even when you include services.

00:13:13.420 Their trade deficit to China, on the services side, the data is really not clear.

00:13:19.640 It's very poor data on services with respect to China.

00:13:22.660 But on the good side, it's a little bit more clear.

00:13:25.040 it's probably just a little bit under 300 billion dollars so so net net if you're looking at goods

00:13:31.000 about one quarter of the u.s uh trade deficit um is with china and then three quarters is with the

00:13:39.340 rest of the world so and china is also um you know the uh the competitor let's just say to the u.s

00:13:47.260 with respect to economic and political power.

00:13:50.940 So I've always suspected that really the main target

00:13:55.380 in these so-called trade wars really is China

00:13:59.120 and always was China.

00:14:01.180 Sure, everybody else is involved as well,

00:14:04.360 but if you start with tariffs on everybody

00:14:08.420 and then you slowly reduce those tariffs

00:14:12.540 on most countries with the exception of China,

00:14:15.940 you might what might be happening here is you might be left with essentially uncovering the

00:14:22.180 the main target all along and and that could be an element of statecraft right there well that

00:14:28.280 okay so because I'm old I remember this happening in real time but back in the in the last century

00:14:37.800 at the at the end of the 80s at the end of the Reagan area it was deemed that it would be a good

00:14:43.160 thing for the world if china were brought which had been sort of excluded from a lot of things

00:14:49.080 was actually brought into the mainstream exposure to the the world trade uh organization and

00:14:56.840 international trade would be good for them it would raise their raise their hopes raise their

00:15:01.960 standard of living they would become more peaceful and less dangerous and as it was written so it was

00:15:07.080 done. Well, they didn't play by the rules. This is the sort of the conservative view of history

00:15:14.360 here. Obviously, if you're a leftist, you won't think like this. But the Chinese didn't play by 1.00

00:15:18.760 the rules and instead, aided by unpatriotic business owners in America, they offered

00:15:25.160 America offshore production to China and is now in a vulnerable position, both militarily and

00:15:31.640 economically and president trump was saying has decided that he is going to do to china what

00:15:38.680 reagan did to the ussr with star wars and tariffs are part of it and so are the other things that

00:15:45.400 we were talking about so there you are there's a there's a sort of a little potted history

00:15:51.000 uh and an explanation for all things uh which may be completely wrong but is there any truth in any

00:15:57.720 of it there the short answer is there may be uh truth truth in that we don't know yet but certainly

00:16:03.720 we'll be paying attention to how that progresses uh over time and but let's back up again and just

00:16:08.360 say how we got here um you know why did uh the united states offshore production uh to china

00:16:14.440 you know back in the day let's call it in the 70s and the 80s uh to start and there are many reasons

00:16:20.280 uh but one of them was um you know in the united states we had very high inflation like very very

00:16:26.520 high inflation, which led to very high interest rates, which were causing all sorts of problems.

00:16:32.920 You may remember that. I was pretty young at the time, but even I remember that as it was occurring.

00:16:39.960 Kissinger and the US administration at the time had this grand idea with costs. It was

00:16:47.400 no idea is not without consequence. The idea was essentially to export the inflation outside of

00:16:55.320 the United States essentially to China by exporting production of goods and factories

00:17:03.480 and manufacturing and so forth outside of the United States to China in the effort to bring

00:17:08.760 down interest rates by bringing down inflation. And to a large degree, it did work. And again,

00:17:16.920 just a quick little mechanism. Obviously, if jobs are being exported overseas, there's less

00:17:22.440 money in the US system after that is complete, which means less demand for goods and services

00:17:30.660 as there's less money to chase those goods and services. Furthermore, if China is exporting

00:17:36.720 goods into the United States, that means we are exporting money outside of the United States

00:17:41.740 and Canada. Canada wasn't all that much different. And when you export money out of a country,

00:17:48.960 That means that wealth is essentially being taken out of that country and sent over to the exporting country, in this case, China, which long, long, long term makes the Chinese obviously very wealthy and slowly but surely, you know, makes, you know, the average middle class American poor over time. 0.73

00:18:08.120 So that is what Trump is now targeting because fast forward now several decades, what has occurred is essentially too many, there's too many people in the United States that are not doing well as a result of all this.

00:18:23.840 They don't necessarily have as many good quality, high paying jobs as they would like.

00:18:29.880 And there's now a concerted effort to bring that production back into the United States, to bring those jobs back into the United States.

00:18:37.300 and then to have more wealth accumulate

00:18:40.960 and reinvigorate the middle class,

00:18:44.240 which I don't know if that's maybe being communicated

00:18:46.940 as well as it should be.

00:18:49.580 But if you definitely listen to and read

00:18:53.420 the actual policy of the U.S. administration,

00:18:56.340 that does appear to be their goal,

00:18:58.280 which by virtue means that the trade deficit

00:19:02.740 needs to come down.

00:19:04.500 And tariffs are a tool to achieve that means.

00:19:07.300 you it's complicated button it is complicated and you know well it is it is and i i the purpose of

00:19:17.480 this discussion is actually to be helpful to people who are trying to look at their own lives

00:19:24.260 make their own decisions and think what's going on how is this going to affect me

00:19:28.200 am i going to be living on the street now let's just talk about inflation as it affects us today

00:19:38.580 april you know 2025 if a person is thinking about making a large investment whether it's

00:19:47.960 in a motor car or a home renovation or whether they're moving thinking about moving house

00:19:52.740 all the big decisions that people have to make they know what the price is today

00:19:58.260 do you think inflation is something that they need to be concerned about if they were needing

00:20:06.500 to make these purchases in the next year a short answer is no nigel um so which i know is again a 0.65

00:20:14.600 contrarian opinion uh to what is typically being disseminated you know uh you know by a lot of

00:20:20.320 pundits in the media, and I'll explain why. So you have to, again, back up and see how do tariffs

00:20:28.040 historically, how have they worked with respect to inflation? Obviously, if taken at face value,

00:20:35.800 it would make complete sense that tariffs would be inflationary because you think, well, if you're

00:20:40.600 tapping, adding a 10%, 20% tariff on something, surely the price of that item must go up. And

00:20:47.780 And surely if that happens everywhere, it's inflationary.

00:20:50.840 But wait a minute, you just need to back up just a bit and look at the totality of circumstance.

00:20:56.940 So let's just say we're talking about a 10% tariff.

00:21:00.980 So historically, if you look at how this has worked in years past, because, you know, we've had tariffs forever.

00:21:07.720 You know, in one way, shape or form, we have a lot of experience with tariffs and how they ended up working.

00:21:12.420 So on a 10% tariff, typically the consumer does not absorb the totality of that increase.

00:21:24.280 So you might say, and these are rough numbers because it can be different in different circumstances,

00:21:30.800 but possibly two, two and a half percent, let's just say a quarter of that 10% tariff

00:21:35.500 is a one-time price adjustment to the consumer, which then begs the question,

00:21:41.160 what about the other three quarters, the other 7.5%? Well, there's typically and very often a

00:21:48.120 foreign exchange adjustment, which the foreign exchanges will adjust to reduce the impact of

00:21:54.940 that tariff. Next, the supplier typically will absorb some of that tariff, sorry, the exporter.

00:22:02.820 And then the importer will also absorb a portion of that tariff. And even if you look at a 10%

00:22:08.780 tariff and say well even if it's only two two and a half percent or so that's still that's still an

00:22:14.540 increase but wait a minute you have to look at the definition of inflation for something to be

00:22:19.500 inflationary that inflation has to be perpetual and it has to continue rolling forward meaning

00:22:26.540 that you have to continually get a price increase on that product for that reason and that's not

00:22:33.340 the case in this and in this instance um it's a one-time price increase so the price goes up

00:22:38.860 one time one day one month and then that's it unless tariffs go higher then that then that

00:22:44.620 changes the equation a bit but if it stays static at that point time that's just the so-called new

00:22:49.820 normal um it doesn't necessarily progress from then on um for inflation to be progressive it

00:22:56.540 needs it needs to continue um and then and then the flip side of that as well is because again

00:23:02.540 this is this is complicated stuff um the you know the there's demand destruction when the price of

00:23:09.820 that item goes up so for example if we're talking grapes and the price of grapes goes up to a price

00:23:15.020 that maybe you or i just you look at that price and we go you know i don't need those grapes that

00:23:19.260 bad um but hey those blueberries are on sale so i'm gonna i'm not just not gonna buy those grapes

00:23:24.220 i'm gonna buy this group those blueberries but what happens if everybody that's walking by the

00:23:28.940 the grape aisle does the same thing and says, yeah, I'm going to pass on the grapes.

00:23:33.280 The price of those grapes will actually come down, you know, at, you know,

00:23:37.820 kind of back to where the consumer is actually willing to buy those grapes at.

00:23:41.260 Otherwise, substitution occurs.

00:23:44.020 And beyond that, even if the price did perpetuate higher,

00:23:47.760 eventually we might just figure out ways to grow grapes more locally,

00:23:52.280 say in Kelowna, for example, and avoid the tariffs outright.

00:23:56.740 Yes, you look like you might have vineyards behind you, actually.

00:24:04.500 Yes. Well, I mean, that's certainly the way that they taught me economics at university.

00:24:10.500 In practical terms, I'm still waiting for the price of Marmite and certain other British 1.00

00:24:14.500 specialties to come down in just the way that you have described, and I will take hope from

00:24:21.460 what you've just said. It's just theoretical, of course.

00:24:24.980 Yeah, life happens. You in the past recommended hard assets. Do you still recommend hard assets

00:24:35.700 for people who are looking for a safe place to put their money?

00:24:38.820 Yeah, no, absolutely. You mentioned earlier about the potential of gold becoming something bigger,

00:24:45.620 possibly in this financial system. And that's always been the case. And that's still the case

00:24:50.340 today. For example, we talked about trade, we talked about deficits. At the end of the day,

00:24:59.460 the goal is to reduce the deficit, to manage the debt better, because if it continues on,

00:25:05.860 then the interest expense simply gets too high in the long run, and that could lead to a far,

00:25:10.580 far worse situation than we see currently here today. As much as none of us particularly like

00:25:17.220 what's happening. The reality of it is there is an effort to fix certain problems that exist in

00:25:24.900 the system, the financial system, to avoid a much larger problem down the road.

00:25:30.980 And one of the ways to fix this, so to speak, is gold at some point may, we don't know,

00:25:39.620 we don't know for sure, but it may play a much larger role in the financial system.

00:25:44.700 It's already a reserve asset at multiple, you know, multiple central banks around the world and Treasury departments.

00:25:52.780 If the debt situation at some point becomes a little more untenable, let's just say, one option is always going to be to simply take those take that gold that's sitting on the balance sheets of different central banks like the U.S. Federal Reserve or the Treasury Department and revalue it at a higher price.

00:26:12.580 And if you revalue it at a higher price, then all of a sudden the debt that that country has may not seem so big in relation to the value of gold that's being held in reserve.

00:26:25.800 So for that reason and many other reasons, we've always held a broad-based portfolios that yes, have equities, stocks, yes, have fixed income bonds, cash and cash equivalents for liquidity.

00:26:41.400 and then some precious metals, mostly gold,

00:26:44.940 possibly a little bit of silver and other commodities as well

00:26:48.180 to round up a much more balanced mix

00:26:50.840 that's able to weather a wide variety of storms

00:26:55.760 better than if one had only equities alone.

00:26:59.720 Peter, that's a beautiful segue to the word from our sponsors

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00:27:40.320 Peter thank you very much for your insights today they're always valuable and for the Western

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Western Standard - April 12, 2025

Trump's tariff game exposed

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