#181 - Trump’s Tariffs: A Temporary Negotiation Tool or Permanent Fixture?

Looking beyond the rhetoric and posturing, I’m betting that President Trump’s 2025 tariffs are not really about economic protection, but are rather a strategic poker play in a multi-prong negotiation with foreign trade partners.  In 2018, Trump imposed similar tariffs but strategically waived or adjusted them once concessions were secured. The 2025 tariffs, I believe, will follow the same playbook: apply economic pressure, use it as a bargaining chip, and negotiate better deals for the U.S. However, by targeting key materials like steel, aluminum, and lumber, Trump is applying pressure on trading partners to extract better trade terms and achieve key policy goals, while accepting near-term domestic costs across multiple industries…. such as real estate construction and development.

I am hopeful that these will be tactical and not structural in nature.

In early 2025, the administration enacted 25% tariffs on steel and aluminum imports from all countries and extended 25% tariffs on Canadian and Mexican imports, including essential construction materials like lumber, steel, and cement. As a structural policy, tariffs are designed (in theory) to protect U.S. producers and lower the competitiveness of foreign manufacturers… but in reality tariffs immediately raise prices for consumers regardless of where they buy while protecting only a small portion of American jobs and industries.

Beyond driving inflation in certain key input costs, there are fears that tariffs could be the initial domino to fall in an overall shaky economy, triggering a broader economic slowdown due to where we are in the economic cycle. Markets have reacted, unsurprisingly, quite negatively towards the tariffs given the rising uncertainty around the longevity behind the protectionist policies.

Based on the known pain that certain industries will experience in the short term, the question becomes whether the administration is truly charting a structurally different course with economic policy or if this is a negotiation tactic, nothing more nothing less.

I believe the tariffs are tactical and short term for one simple reason. America and its politicians don’t really want to reindustrialize, they just want to even the playing field when it comes to global trade. Ask yourself a question - do we really want to bring back more low wage factory jobs? Is this the game we are trying to win? This is a question I don’t think most folks have explored thoroughly.

To reindustrialize would mean something completely foreign to Americans today.

Check out Balaji’s take on reindustrialization Twitter:

TLDR - do American workers want to compete with Foreign workers when it comes to laborious, hard, factory work? My initial response is no. The administration is not naive to this - once a nation deindustrializes, it moves up the value chain and generates more technological innovation where most of the value is created. They do not intend to bring us back to the early 1800’s. They just want to make the Foreign trade partners pay their ‘fair share’ to access the richest market in the history of mankind. This is precisely why I believe the tariffs will be more of the same - tactical, not structural, in nature - until Trump achieves his aim.

Let’s just hope tactical poker play in economic policy doesn’t leave behind too much economic roadkill.

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I’m curious - besides contractors and developers - what are you seeing on the ground as it relates to tariffs or anticipated price increases due to tariffs? Also, what is your opinion - are these structural and long term in nature or mere negotiating tactics? REACH OUT and let us hear your opinion.

Dive deeper on tariffs:

CoreLogic, Will Trump Tariffs Harm Home Affordability? (Link) 

Construction Dive, Trump’s new tariffs add pressure to construction pipeline (Link)

PBMares, Tariffs and Their Impact on the Real Estate Industry (Link)

J.P. Morgan Private Bank, Tariff Implications for Investors (Link)

Reuters Graphics, What happened the last time Trump imposed tariffs on steel and aluminum (Link)

Investor’s Corner

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What the Trump Administration Must Do Instead of Revenge | Peter Thiel (Link)

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Li Lu - masterclass on value investing (Link)

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Bill Nygren - A Modern Approach to Value Investing (Link)

Tariff Cheat Sheet - Wall St Engine (Link)

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Politics and Philosophy Corner

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Foreign Minister Sergey Lavrov’s interview to the US bloggers, March 12, 2025 (Link)

Charts of the Week

Source: Bloomberg Finance L.P.; J.P. Morgan Wealth Management. Data as of March 13, 2025.