Tariffs have started. Here’s the low-down. March 14, 2025

23:30And now we've got a different type of shock. It's a different character. It's of a different nature, but it's a different shock. And after Trump is long gone, there'll be other shocks as well. And I feel as though as bad as it is, the worst thing that we can do is start playing in this game. And I would try and encourage people out there, big business, small business, or just at the individual level as a salaried employee, it's a good thing to understand the nature of the world and its unfairness and its complexity and its out of left fieldness that you would want to have some anti-fragility built into your life in some kind of way.

24:10And what we have got to a stage now where if there's anything that's not perfect, we're in trouble and the government needs to do something about it. And I feel that's a very unhealthy kind of situation for us to be in. So what's going to happen in response to all of this? We're going to jump up and down, lobbyists are going to do their thing and we're going to, we're actually going, we're going to say it's really dumb all of this kind of stuff because it's interfering with what markets do, but let's interfere more to fix it. And it just, it's a very circular kind of thing, which I don't think ends up in a good place.

24:43and I'm not saying it's very easy to sort of sit here with the microphone at home, say, just do it, suck it up, sweetheart. But I am kind of saying that in a way because I think we sometimes need to be reminded of the fact that this has always been true. Go back 10 ,000 years, go forward 10 ,000 years. This is always going to be true. So what would I do? I think the term moral hazard really gained ascendancy in the GFC And I think that's the real key thing here is, well, we risk a massive moral hazard by assuming that any time something like this happens, we're just going to wrap people in cotton wool and help them.

25:25But the irony is that we actually don't help them. Well, we help them short term specifically, but at the long-term suffering of everyone else. And we're taking, I guess what I'm saying is, I'm all over the place here, but we've taken a really bad situation and it is a bad situation and it's a dumb situation and it's all of those things. But my bigger concern is how that multiplies out into an even worse situation as we try and fix the situation. And we try and fix the situation by employing tactics that got us into the situation in the first place. And it sounds really mean when you sort of say that.

25:58It's like, you know, these poor businesses that did lose real income, you know, over a couple, you know, I'm not celebrating in that and I'm not looking forward for their suffering. but I am sort of saying, for goodness sakes, people, like as an individual, a business, whether you're small or large, expect that kind of stuff, plan for that kind of stuff. If it wasn't Alfred, it would have been something else and you're out of business anyway. And if you're out of business, it's because you're not supplying a product or service that people value enough to pay for your price. And then the money will be allocated somewhere else to where it is.

26:30We have to let things take care of themselves. These are all just revealed preferences through the way that we act and the things that we buy and the things that we do. And if the only thing that holds this all together is by political decree, we are on a very, very slippery slope. So it sucks. Trump's an idiot. None of this is going to work. But let's not make it worse by doing the same kind of thing in reverse. Does that make sense? It absolutely does. It absolutely does. I'm probably a longish bow from where I started, which is I think there is some national interest at a social level in avoiding a short-term external shock that we can choose to avoid rather than saying, well, okay, China's doing the wrong thing or New Zealand's doing the wrong thing, America's doing the wrong thing on a short-term dumping.

27:16I'm not talking about tariffs in general at all. I'm not talking about subsidies. I'm saying if there's kind of one of those, hey, we used to sell widgets for a dollar a unit, we're being able to put a 50 cents unit at the moment, there's only going to do it for the next 12 months, we're going to put 15 widget factories out of work and 10 ,000 workers for the sake of saying - Why would we put them out of work? Why are we putting them out of work? Because of the dumping, because of the short-term. So think it through. So I hear what you're saying, but what I'm saying is if you can't handle a single fiscal period, one year of making a loss, then you kind of, it deserves too strong a word, but it's kind of like, well, what were you expecting?

27:53Now, let's play the counterfactual out. Let's say that pick on the Kiwis because it's always fun. Yeah, and easy. Because they're too, I like picking on Canadians, Like, not really fair, but you know we're not serious, right? Genuinely, they are some of my favourite people on the planet. And I definitely mean that. But anyway, it's still, it's fun. They start selling, they start dumping their widgets at 50 cents. Now, who is the consumer unhappy about that? What? My widgets are half price. I'm over the moon. This is brilliant. Like, do not stop doing this. Why are you stopping this? Someone is selling me something that I really like at half price.

28:30This is great. Now, the local competitors, they go, that sucks. Yep, it does. Competition sucks for you. That's the cut and thrust of it. However, we've talked about it a while back now, there was a name for it, some of these Japanese businesses that have lasted 500 years. Yeah, that's right. They've got fortress-sized balance sheets. It's like because stuff like this happens, if it's not that, it's a thousand other things. It happens all the time and they go, okay. So we're going to have to weather this storm. But sooner or later, by the way, if the Kiwis are dumping it, It's because they've overinvested, right?

29:00They're getting rid of inventory. They're probably getting rid of it below cost. So even though they kind of - Just quickly, just so the listeners know, that's what we mean by dumping. So dumping is not just sending some stuff over cheaply. It's not checking the price of Toyotas on the way over. It's deliberately selling stuff under cost. Yes. Sometimes for their own economic reasons. Occasionally, it's - Countries are accused of doing it as a national directive. China has been - Well, it's like China and other countries. But they have to shoot - It's a shoot yourself in the foot for some of any.

29:27So the Kiwis in our hypothetical example, it's sort of like, so you're telling me that you made all this massive overinvestment and you're getting rid of it at a loss. In other words, you're wearing it. Now, the consumer loves it. Yes. The dumper doesn't, I mean, I know that they're causing pain to their competitors, but they're not doing it and making money. They're doing it and losing money. So it's a really dumb strategy. Well, losing less than if they, well, actually, yes. I muddied the waters. The Chinese have been accused of doing it deliberately to corner markets in certain commodities and certain manufacturers.

30:03Sure, sure. So there's a national interest with a one-party government. I should have probably gone that. I was just saying that there are some where it had done deliberately. In other cases, the Kiwis are selling it to us because they're losing money but they're losing less if they have to literally take it to the tip and physically dump it. So they're going, well, I can't sell any more. The Kiwis have got enough widgets. Their cupboards are full of widgets already. We still have widgets left over. They're going to go off in a year's time. Yeah. What do we do? Well, we'll sell them to the Australians at pennies on the dollar.

30:29Why? Because it's better than throwing them. Zero. Right, exactly. It's better than zero. Yeah, yeah. But I mean, it sucks for them too. Yes. And they will stop doing it because no one can lose money forever. Even the Chinese, and too many people say, oh, it's a command economy, they can do whatever they want. No, they live in the physical world like the rest of us. They can't do it forever as well. So they might have a much bigger balance sheet to fund this loss-making exercise. Right. But sooner or later, that must run its course. It only gains strategic advantage. it's kind of like Uber's playbook.

30:58It's like, we're just going to lose a bunch of money as we steal market share, but then eventually we'll be able to lift up prices. And it did work, it did work. But often it doesn't work. And again, it feels, again, the sentiment and the intention is good, but the road to hell is paved with good intention. And my view is, is that when you get what might be considered an irrational actor doing these kinds of things under the purview of some longer term strategic benefit, which may or may not arrive, it's kind of like, yep, that sucks. It sucks for your local group. It just does. And, again, you always sound so heartless, but that is why you have resilience and capacity to wear that because if you don't, right, and your only hope of staying in business is by political decree, I'm just saying it's a very, very slippery slope because one of these things getting enacted, enacted, they kind of stick around.

31:54And it is all of us that suffer ultimately. Remember, you've got to, when politicians get up there and say, this is really bad, you've got to, you've got to think about the context and the framing of it. And I think the example of the widgets is a good one, because these experts are telling you it's bad. But when you step back and go, but my widgets are half price, like, it's like, there's cutthroat competition in the airlines and this and that and some people in Virgin are going to lose their jobs and we all get upset about it because we're empathetic people and we're not, you know, I'm trying to non-square word, we're not meanies.

32:30But the bigger picture is what? I'm getting even cheaper. I can fly across the country even cheaper. Great. This is what the system should do. We need people to get up. This is why I'm also more than happy for people to make squillions of dollars when they're successful in business. Because in a free and open and fair and proper real market, the only way you can do that is by delivering extreme amounts of value to people. It's like, so you're really rich. Yes. You got that by stealing or grifting or political favour. I'm the first person to pick up the pitchfork, right? You got that because you made everyone really, really happy.

33:10Like, good. Sam Walton at Walmart. Good on you, right? And so, but the flips, Charlie Munger, you can't have heaven without hell, right? And so, if things, you need people to take these risks to deliver this value and you need the potential for good reward for them to take that kind of risk. Whenever you try to get rid of risk, you know, it has these second, third, fourth order effects, these counter-actuitive effects that actually don't help any of us. And this is why the world is going in large part to such a dark place. It's because, again, we're all trying to do the right thing, but we're all, again, aside from some narrow special interest groups, we're all much, much, much worse off as a result.

33:58Right. And, again, I'm all over the place here, but the reason I raise moral hazard is look at what a rational business owner would do in the world the way it's structured now. Do I leave a bunch of cash on my balance sheet or in the bank? Well, it's like, well, it's just a cash drag. I'm getting a lower return on equity. I'm not as profitable. Or I could just pay myself a big bonus or give my shareholders a big fat dividend. We could all go out and buy Ferraris. And I was like, okay, I'm going to do that. But we do that at the risk of being able to be knocked over by the slightest huff and puff of the big bad wolf.

34:34And so you need this threat. you need this pain or the potential for pain to encourage all of us at the individual level right up to the very biggest, largest megacorps to act in a way that just when the crazy stuff happens is like we're okay, right? So I agree with all that. Two purists, right? Well, yeah, as an ideology and as a, I always say an extreme, I don't mean to say you're being extreme, but as a picture, I think that's absolutely right. I would suspect, and maybe I'm wrong about you, I would suspect there is some circumstance where you would say the damage being done to the individuals, to the businesses, to our productive capacity thereafter, to the people being put out of work for the sake of a short-term dumping exercise was too much to bear to not respond.

35:20I mean, in a perfectly free market, that's fine. If they were going to put a million Australians out of work and completely cripple four industries because they were dumping products for 12 months and I got to buy cheaper widgets, I would hope – maybe I'm wrong. I'd hope you would say, okay, that damage is too much to allow because, you know, it takes 15 years to get this restarted. Unemployment is going to be too high for 10 years. Yes, the business is a stupid not having enough cash. Let it fail. Many people had to work for a decade just so you can make an ideological point. But that doesn't say, yeah, yeah, genuinely.

35:52But that doesn't say we don't assist. So there's two separate things that you're saying, should there be some kind of a safety net? Yes, I strongly support that. I think anyone who's down on their luck, who can't put food on the table or roof over their head. I do not want people living on the streets. I'm more than happy for some of my tax dollars. You know, there but for the grace of God go I, right? And so it could happen to me. So in a stock market collapse, we could both be looking for work. 100%, 100%. So, but it's the support that you, it's the safety net that you give. So in those circumstances, let's say that the business, let's say the local widget industry dropped in half because of these actions.

36:30and that put a lot of people out of work. Well, those people who are out of work should be entitled in the way I would run the world. Yeah, they would be looked after. But let's not look after them by adjusting the industry dynamics themselves. Let's let the market do the market thing. And if someone falls out the bottom through all of these things, then let's look after them. So it's a question of where does the support come from? When the support comes at the industry level, We're adding distortion on top of another distortion, which again has those unintended consequences. So it's like with Wyella.

37:07It's exactly like Wyella. So a whole bunch of steel workers are going to be put out of work if we don't do anything. Great, let's not do anything. Am I saying let them live in the dirt and, you know, beg on the corner? No, absolutely not. I would love, I'd like to say we live in a country where we look after those that have the bad fortune. but let's not help them by propping up an industry that doesn't deserve to be propped up. That's what I'm saying. So I think too often people will say, make the arguments like, oh, you don't care about this. Like you say, dude, I care about the people. I don't care about the business.

37:42The business is a fiction. Don't forget the business is just a legal fiction that we have created, which a whole bunch of, it's just a way that we've organized a whole bunch of disparate people to come together and do stuff. Now, if that fictional entity, that fictional legal entity no longer exists, and then lose a second sleep. I don't care, right? Do the people, the hairless apes that are all walking around here, again, you've got to bring it back and remove yourself from all of these fictions that we create. Do I want them to suffer? No, I don't. And that's a really, really important distinction here.

38:14So does that help square the circle a little bit? Yeah, it does. I think we'll end up just disagreeing. I would suspect that for the businesses, the productive capacity of the country and those people who may get the dole but would probably rather, A, have work and be get paid higher wages. If we could invest and literally invest, and I think part of your concern is because of the way things are run, we end up coming down to the difference between I have an ideological view of if we did it well at work and you're like, well, we're not going to do it well, so let's not do it. We're not going to do it well.

38:40Like communism's great if we did it well, right? Exactly. That's exactly what it is. But I would, if I was dictator of Australia and I had hopefully the best of intentions and I wasn't there for my own nest, I would imagine there was a sliding scale on this one, which is how much do I have to pay to avoid how much damage for how long to who? And I completely agree with you on the business level. Yeah, and I agree with you. I think we're at the shareholders of the business, but I do care that if it takes us 10 years to restart a widget industry and a million people had to work for 10 years, I'm being a little bit of the extreme here.

39:10Sure. And we could save that by spending a million bucks or 10 million bucks or putting prices up. We're not even spending more money, we're just stopping people getting cheaper products. I reckon that's, as a dictator of Australia, that's an easy price for me to pay. And I agree if the actions you take are sensible, measured, temporary, which it won't. We'll see. Anti-dumping protections do come and go, to be fair. I mean, as much as polypsons don't deserve as much credit as I probably would like to give them generally, but we have absolutely had plenty of opportunities or plenty of cases in the past where anti-dumping protections have been put in place and then removed.

39:49Yeah. almost certainly imperfectly because nothing's perfect, right? But I think it's a little too cynical to believe that a one-off, for a very specific reason for a particular time, I don't think will always just be put in place and never taken away. But I also understand your pessimism or your scepticism given that - Cynicism, let's be real. Australian car manufacturers were supportive for 40 years to try and - And this is, by the way, back to tariffs again, right? Let's get back to that. We paid subsidies, which are effectively a tariff in reverse. It's the same thing. It's worse because the government doesn't collect the money.

40:19They use our money, but either way we're paying more for something. It's insane. We supported the car industry for 40 years. Absolute stupidity. What happened in the end, we went, eventually it'll stand on its own two feet. Eventually, and we took the money away. They went, oh, they went broke and went over. That's my point. So let's play our example forward a little bit more where we don't have any sort of industry-level protections and half the industry disappears and a million people lose their job. Now, a couple of things happen here. Those that survived are obviously the ones that had the better product, the better service, the more efficiency, the better, just better run.

40:51Or better balance sheets, by the way, and got through it. Yep. They just, they planned better. They were more efficient. That's why they survived. And so what we've done is we've rewarded the ones who have said, you know what, let's not pay out every last cent as a dividend. You know what, let's not pay ourselves ridiculous salary so we've got a little bit of fat here on the bones. You know what, let's invest in, let's invest money today at the expense of potential for extra profits and dividends. so, not profits, extra dividends, so that we can be more efficient and we can get the latest and greatest equipment.

41:24They're the ones that survive. The ones that don't survive, and it's terrible for the employees, I get that, but that's why we have the human level protection, not the business level protection. It's like, well, you weren't efficient. And then in a world where that's the social contract, that's the social contract, business operators go, we really can't run this thing right at the edge. And it creates the right incentives, whereas what we have done is we have built incentives around us like go, you mark my words, when the banks eventually get themselves into some trouble, it'll be everyone's fault.

42:01But there's absolutely everyone's fault and you and I are going to wear it as a result of that. And I would sort of say in a more sane world where the consequences of your actions are very real and more direct, you think about it a hell of a lot more, right? And you will forego some short-term benefits at the very – so you have that longer-term resilience. So you have that longer-term capacity. And we've always talked about the true value of a business is the lifetime of its future – all of its future cash flows. So here it's even sensible in that purely financial lens of what's better, to make more profit for five years but then go bankrupt in six or to make much less profit but then last for 100 years?

42:47I mean one is obviously much more valuable than the other. And so it's those unintended consequences that I worry about and the imperfect enactment of these policies, which, again, maybe I'm being cynical, but I would say more often than not that's the case, right? Things get introduced and they're very hard to wind. Everyone loves a handout. It's like tax cuts, right? We're going to cut your tax. Brilliant. Sign me up. I love that. I'm all for that. It's like, wait a second. and now we're spending more than we earn or I'm not getting the same service. Like everything has an impact here. And that is why we tinker with things, again, with the best of intentions.

43:28It's not a conspiracy here, but we tinker with things. If ever we tinker with things, we have to be super, super, super careful of those unintended consequences, of the second and third order effects. And I think history is pretty clear on the fact that, again, the road to hell has been paved with good intentions. People trying to do good things for right reasons, but just ultimately resulting in more pain than would have otherwise been the case. And I think just to bring it full circle, with everything that we've been discussing with terms of Trump and that, what have we seen? Canada's come back with their tariffs.

43:59China's doing it as well. You know, we're talking about it. No one is going to win here, you know, whereas it's like in a more sane, my version of reality, which is never going to exist, unfortunately, we'd still have these really difficult things that are thrown at us, but we would actually come out of it stronger and we'd be more resilient in it over the longer term by not getting in and tinkering. I suspect that's true. I suspect that's more ideological than I'd be, but directionally I think we're on exactly the same page, it's a matter of where we draw those lines. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

44:43you mentioned you mentioned the uh the retaliatory tariffs so let's move on because what we're going to talk about is kind of what what next right and we don't know i mentioned the beginning we won't make any forecasts or predictions but i will set it up by saying it is very very likely that if you put prices up for people we get higher inflation kind of almost by definition at least for the short term and again we can argue about whether inflation is monetary or or supply demand the reality is in the short term it's supply demand in the long term it's monetary but you've got to get, in the long run we're all dead, right?

45:10So it's kind of a question of what happens in the short term. You're so right. I just want to, before you go on, let's just spend a moment here unpacking that because the term inflation is very confusing. And so there's monetary inflation, which is we're inflating the amount of money in the system. Money printing for the sake of... Well, it's two forms of money printing. There's what the central bank does in terms of the base money but there's also what the commercial banks do. So whenever a loan is created, money is created, right? And that's most of the money there. So that's a monetary inflation.

45:44That is different from what you touched on there, or alluding to, was the inflation that might happen because there is less supply than demand. Now, I wouldn't even call that inflation. I would just call that prices going up. And I would call that prices going up in reaction to real constraints and demands within the economy. So I'm sorry to make that delineation there. But unfortunately, when you turn on the news or radio or whatever, everyone, if a price has gone up, it's inflation. Now, technically it's true, but if it's going up for underlying economic reasons, then good. If it's going up because we've just decided to create 50 ,000 million more shekels and we're playing Monopoly and the bank has gone a bit crazy and just started to throw out$800 every time you pass, go.

46:28It's a different character, it's a different nature and it's a different thing. It is. It's a subtle point, but it's what I want to make. I do think, and I understand your point, just in passing, I'll also mention I think people get too pedantic about the word inflation. Everyone in the English language gets bastardised as unrecognisable for its original firm, right? So, yeah, people say it's not really inflation because prices are just going up. It's like for 99 % of the population, it's like that's what inflation is, prices are going up. That's how I think about it. And I take your point. Inflation genuinely did start as a way to describe the amount of money in the system increasing.

46:59So you're technically and historically right. That's the right definition. Well, is it the right definition? My definition. Just the old definition, correct. Because just to play it through very quickly, let's say I'm making umbrellas and it's just been a drought for like 100 years. No one's buying my umbrellas because you don't need an umbrella because it's not raining. And then one day, it just, heavens open up and it rains and it rains and it rains and it rains. And I haven't, I've only got the, prices are going to go up, right? And I go, is that inflation? Well, if you want to label it inflation, but is it more a consequence of that I only had so much supply and the demand went through the roof?

47:30Actually, isn't prices going up really good? Because now all of a sudden it's like, I'm going to make some more umbrellas because the price is high. Like the cure for high prices is always high prices. And that's a good quote-unquote inflation. That's the inflation we must have to help coordinate our economic activity. If it's just gone up because all of a sudden everyone's doubled, like let's do the thought exercise. I wave my magic wand and everyone's bank balances doubles. Nothing else changes, the same stuff and services. and they're like, that price, prices are going up there too, but not in real terms and not in a way that is good.

48:04So there's a good inflation, if you want to call it that, and then there's a bad inflation. I think you're right. The point I would make is there's somewhere in between, which is when the average price goes up over time for supply-demand reasons. And so that's the bit where the aggregate price, and when we measure the inflation rate, we're effectively measuring the price of all the stuff. Some prices go down, even inflationary spikes. Some go up when there's deflation. So the individual product movements, you are 100 % right, the first example. The latter of just we've doubled everyone's bank account so therefore the price is going up.

48:36There is a bit in between, which is general supply demand. But why would prices go up on average over time through supply and demand? If that was true, then people would meet that higher price through extra supply. That's why I'm talking about short-term versus long-term. That was exactly my point. So in the short-term, the supply-demand imbalances lead to that. And we're going to see exactly this, right? We're going to see a tariff put on, which is an artificial increase in price, which is not going to be offset by anything else. The Yanks will try and make more steel domestically, but again, we've already talked about the fact they're going to make it for a higher price than the imported product.

49:10So we are going to see in America the price of steel go up. That is effectively constrained. It doesn't fit the supply-demand curve as we know it because it's artificially being screwed with. But effectively, so my point getting back, why I wanted to make that point was to allow for the monetary inflation reality rather than just pretend it was just short term because there is always that argument about what is real inflation. Over 10 years, absent government intervention, there is no supply-demand inflation on an aggregate level, right? It's all monetary by definition because we do change our circumstances.

49:42You mean the other way around. Without any intervention, it's all supply-demand inflation or price changes. Yeah. I mean, I meant tariff intervention rather than monetary intervention. Okay. You're right. Thank you. God, this stuff messes with your head. I hope you're on with us because we're so busy. We're a long time in. It's hard. So what I'm trying to say is in the short term, we are going to see, in my opinion, in fact, most economists opinion, prices go up, average prices go up across the US economy because of tariffs. Yes. And we talked about the$12,$88 left. You either buy less stuff or prices go up or probably both.

50:15Yep. Eventually, we'll sort itself out because, by the way, the other thing about inflation is we measure it year on year rather than over an extended period of time. So price got up 10 % this year. They don't go up next year. We say, oh, inflation's solved then, which is a whole other conversation we've kind of had in the past. So we will see inflation in the US in all likelihood. The US Federal Reserve, the Atlanta branch, I mentioned this before, is forecasting that that impact will lead to a recession. Why? Because people have got less money to spend, or say money spent on fewer things. So we have less stuff being created.

50:46It's effectively negative productivity. And that may, in the Atlanta Fed's view, lead to a recession over there. Now, that's not controversial, I don't think. You want to add something? No, the other dimension to that as well is that we, I always forget the exact number, but it's a much higher number than you imagine. But it's something like 20, 30-something percent, somewhere in that ballpark of employment is government-related. And you've got Elon and the Doge crew going through firing everyone. point, right? So you've got demand falling at the same time as prices are rising, which normally wouldn't happen, right?

51:17Because demand falling is lower prices, which is your point, the way this thing balances, except anyway, so it's stupid. But you're right, you're absolutely right. And that's the recessionary impulse right there. Higher prices, lower employment. It's a nasty combination. It's a terrible combination. And we're coming up with what they call stagflation. Let's talk about stagflation. Go on. Oh, sorry, I thought that's where you were going with it. I was going to move on to just one minute for us, but let's stop and talk about stagflation first. So we've had it before. And so stagflation is just this term which basically means we have usually, and it depends on your world view, but usually inflation is associated with stronger economic activity.

52:06Everything's running hot. Prices are running high. We're all feeling confident. Demand's actually a big supply. Demand is outstripping supply, right? So it's kind of like not a terrible thing, right, in a certain kind of way. Yeah, prices are going up, but we've all got more money in our pockets and we're all happy to sort of spend it. It's different when prices are going up, but the economy's not growing. And that's what they call stagflation. And it's sort of like, so we're just all getting poorer? Is that the bottom line? Yeah, that is 100 % the bottom line. And I think, I've been my view for a while, but I kind of think that's where we are headed.

52:40The way that things are sort of set up because the inflation that we have, I would argue very strongly, it's just like these things don't just appear. It really started back in, well, how far back do you want to go? But probably in the modern era, it really got underway with the GFC. We bailed everyone out. Let's just call a spade a spade. We just printed a bunch of money and we bailed all the bad actors out. And that didn't go into the real economy because all of that extra money just went into asset prices. So after what in any other place in time would have caused a Great Depression, which is what a lot of people thought, we actually had a property boom and a share market boom.

53:16Like, what? How? I was like, well, we just printed a bunch of extra money. That's what happened. And then we had COVID, right? Like, oh, what do we do there? Let's print a bunch of extra money. So, yeah, we got inflation, everyone. You know, like, surprise. Like, who would have thought it that we just, we printed up all of this stuff and we got a whole bunch of inflation. but not the inflation because the economy is just going gangbusters, a whole bunch of inflation because of this monetary interference. And, again, for the right reasons, and we can, let's not, but we couldn't go into whether that was the right or wrong thing to do.

53:47And I'll just say very quickly, whether you think it was the right thing or the wrong thing, it can still be the right thing to do as long as you take the appropriate subsequent actions. Which I never do. You give them the opiates to deal with the pain but then get them back off the opiates after the treatment's done, right? Like you're working. Methadone is great when you're trying to get off heroin, right? But you don't want to be on methadone for the rest of your life. But economically all we did was give the patient the – wow, I'm getting a bit darker, man. Giving the patient the heroin and then saying, I guess I'll keep giving it to you because if I take it off, you mightn't like that.

54:16Yeah, it's going to be a bit painful for a while. So either we should have done nothing or we should have done something, which is my view, but then dealt with it. We should have been taking money back out of the system almost before the pandemic was over because things had already started to recover. Which is, by the way, it explains our difference in worldview. It's like you're right, you're 100 % right, Right, but they never take the needle away, which is why we just don't give the needle in the first place. That's where we differ, I suppose. So I just, just to make that point. And then, again, it's hard because we all see nominally, we see prices as they are on the stickers, but it's just like what it actually means.

54:51And you've always, I think the most logical, sensible way, real world way to bring it back to what it means to you is forgetting about these digits that are in databases and on bits of paper and that. How much do I have to work? My time, my effort, my energy, do I need to expand to get the things that I want? And I think given all of these distortions that we have had and that were never, you know, undistorted to that earlier point, we are probably heading into a world of stagflation where it's like we had the inflation without the growth and which is just another way of saying we're all poorer.

55:25Yep. And you said forget the numbers. That's the right way to think about it, you know, metaphorically or intellectually. The answer, though, can be put in numbers which is largely just real incomes. Yes. And so real income is how much I earn effectively divided by the cost of doing stuff. And you're right. Whether I say my real income has gone backwards or I have to work an hour and a quarter for something I used to work an hour for, you're not wrong. It's different. You can approximate a number. And you see our chart, by the way, over the last, and this is Australia, has been awfully smashed.

55:58US and UK, real incomes kind of plateaued and started to grow again. Our incomes kind of hit high and just kept falling and falling and falling. We have been, I don't know if we're the worst G20 economy, but we're bloody awful. It's awful out there. It's just a different way to think about it. You're right. The more, what's the word? The more understandable way is to think about how many hours I have to work for the stuff I buy. That's the right lens. But you can get a, for those who are more mathematically minded, you can get a number which approximates that, which is just what's happened to real incomes.

56:26If my real income rises, I have to work less for the same thing. I used to work an hour for a can of Coke. Now I work 45 minutes for a can of Coke. That's a win, right? Yep. If your real income declines, you go from an hour for a can of Coke to an hour and a quarter for a can of Coke. So hang on, I'm working harder for the same thing or I've only worked an hour, I can't buy the Coke. I've got to buy the RC Cola instead and as much as that still increases my thirst, it's not quite as good. I'm worse off because of that. Yep, absolutely. Let's not get into it because it's a different segue. but there's the other forms of inflation, which are the shrinkflation.

56:58Yeah. And I haven't heard the term coined for it. Maybe I need to come up with a figure, but the qualityflation, which is another way to deal with inflation. That's true. You just make things with lower quality kind of stuff. Which is why I think a lot of we have seen in modern times, like things just get crappier and crappier. It's like it's a way to deal with the inflation. Yeah. What was my point there? You just want to define stagflation. So, yeah. So, that's stagflation. and you and I are 100 % on the same page. Real wages are what really matter. And this isn't a conspiratorial comment, but it is, and I don't know how else you do it because as a statistician, you have to deal with averages.

57:36You have to deal with aggregates. So you do it, right? And I don't, like some people take a very cynical view towards CPI figures. Not entirely unfounded, but I don't go that far. But I would say that, again, in the real world, what matters to you, dear listener? and you're out there living your life, your rate of inflation is different to my rate of inflation. Yeah, and your real income has changed at a different rate as well. Because, you know, and an economist might say that fuel and fruit is volatile so they exclude it. I don't exclude it because I can't exclude it. So there is, I would say, for a lot of people, regardless of what the ABS publishes, their real wages have probably gone down more than what the published figures have absolutely represented because we're not excluding these kinds of things.

58:20and for a lot of us the money that we're spending our money on, they just have – eggs have gone up, right? So, well, don't buy eggs. Like, okay, maybe I can exclude – maybe they're – you know what, you get a little bit too wonkish, I think sometimes economists – and I'm hesitating here because I guess what else do you do? And it goes both ways. They've got 2 ,000 different – Volatile doesn't mean they go up. It means oil prices sometimes come down because it's cyclical. So you're excluding it on both ends. Sometimes your inflation is less than the reported inflation on the same base or fruit and veg, same thing.

58:48So just like whatever life you live, right, whatever you had to work to get the things that you used to get, you're now working a lot more. Now we can argue the toss as to how much more, but that is the problem of our maybe climate change and then that is the problem of our age. Climate change. That is why Trump is in power. That is why the populist are in ascendancy. It's happened a thousand times throughout history. It's happening again. People get angry. And, again, you and I were talking off air. It's frustrating when privileged, older white men get there and say, what are you worried about?

59:26Unemployment's low, GDP is up. It was on Q &I. I mentioned it the other day. It was on Q &I the other night and some poor bugger just almost about to be turfed out of his house. And the politician is saying, well, no, the economy is going really well. And it's just like, screw you, buddy. Like you just, you were so divorced. Who cares about the economy? All we care about is what we see. And to have some expert tell us it's not that bad. And by the way, it's not that bad from their perspective because if you've got a lot of assets, inflation is still impacting you, but you've been sheltered from that by your asset price inflation.

1:00:02So when you look around and go, gosh, all my friends are still doing well. I'm still going to Japan skiing once a year. I'm still doing this. I'm still doing that. I may have cut back from twice to once, but, you know, I'm okay. You know, it's just like, and the people they associate with, the aggregate figures that they look with, their lived experience says, okay, it's not that bad. What are you whinging about? They don't see it from the person who has no way. The 32-year-old who's working their guts out can barely pay rent and you're just like, and then someone say, what are you worried about?

1:00:34The economy is doing well. It's just so egregiously out of touch. And then they wonder why, oh, we're not resonating with the electorate. Why not? The economy's going well. Like, you idiots. And someone will come in and tap into that in Australia. Yep. And they'll gain a lot of political influence because they get it. And the Democrats and Biden got turfed out because they didn't. My analysis of the situation is, and it's not a partisan thing, it's just like you completely missed it. You completely missed it. And Trump is a complete idiot, but he got that. He got that. And all these prescriptions are wrong and they're not going to work.

1:01:11But when people are desperate, they will go for the easy answer and he's given them the easy answer. And it wouldn't, in a world that was very prosperous with not much of a wealth gap, we would laugh at him. He would never gain political influence. The fact he's got political influence shows you how tough it is out there for the majority of people. Mate, I can't describe it. One difference I will make, it's just in language, you said give him the easy answer. I don't think he's given the easy answer. I think he just articulated the problems. Right. Yeah, that's fair. We've seen that in Australia with populist politicians.

1:01:42The results, I don't think anyone even necessarily, so many people said to me, well, okay, you might be an idiot, but he's worth a go because Biden's screwed it up. It's almost just I am the person who's saying the things you are thinking. Pauline Hanson had the same impact in Australia. 100%. It was just I see you're having these issues. And by the way, no coincidence that Hanson came around at a time of economic pain either. Always the way. I see your issues. I feel your pain. I'm thinking about you while they're ignoring you. That's all. Don't know about the solution. It's those people. Yeah, that's right.

1:02:11That's right. It's those people over there. I can put a face to it and I can, you know, I can give you somewhere to direct your anger. And by the way, you were right to be angry. You're casting your anger in the wrong direction because it is so hard to see. It is so hard. Even like when you're, you know, up to your eyeballs in it like we are, it's like I still, we had an hour chat before here, like going around in circles on some of these things because it's like it's so difficult to grasp. And, you know, it's easy if we were all just sitting around with all the spare time in the world to really think about it.

1:02:47Like most people are just dropping the kids off, paying the mortgage, going to the growth. I don't have time to be an economic expert, right? I just don't. And this person seems like they know what they're saying and it makes sense. Yeah, I think it's not going well anyway, so they're worth a go. Yep. It makes so much sense, doesn't it? It does, unfortunately. And the worst part of all that is the lack of responsibility from the adults in the room. Yes. It means that not only do the children get elected, but the people who voted for the children because they thought they may be better off are going to be worse off anyway.

1:03:19So it's the ultimate goal, right? It's the person who says, I'm 32, I might lose my house, okay, I'll vote for Trump. It's like, well, he's screwed you as well. And, you know, that's the ultimate irony and the ultimate tragedy, as you say. Mate, let's wrap this up. We've been gone for a while and we'll try and keep this brief-ish. See how we go. So we talked a lot about the yanks. We talked a lot about tariffs, talked a lot about subsidies, talked a lot about what's happening and why and what is likely to probably come from that, not as a prediction but as a range of, frankly, here's what we learned from history and here's what the theory and the maths and history would tell us.

1:03:48Let's go to Australia because we're sitting over here and we're looking at this going, oh, my God, I can't believe they're doing that, but also I can't believe they're doing that and we're going to get whacked by it. So, so far, we are going to get hurt by aluminium and steel tariffs. We may or may not be subject to agricultural tariffs. We are going to have an issue with selling stuff to China. China's a third of our exports and, by definition, a large part of our GDP and export earnings and, frankly, jobs and companies. We just talked about that stuff. So China gets hurt, we get hurt, just second-order impact stuff.

1:04:18Maybe things get worse, maybe they don't. Maybe there's no more directly in Australia. It's just whatever happens in the US just impacts the world economy because it does because the US is the largest economy and the largest consumer economy by miles. If you're the PM or the opposition leader, because we've got an election coming up in a couple of months' time, someone's going to have to make a decision in the next two months and then subsequent to that about how we respond. And I have a lot of opinions. I have a slight opinion on this one but not a strong one. There are two schools of thought and they generally kind of end up in this, you know, depending on who you listen to, it's either appeasement or it's being proud or it's, you know, limiting the damage or it's poking the bear, depending on which side you start on this one.

1:04:59On one hand, you've got people who say, look, it's rubbish, right? It's awful. It's ridiculous. Trump's an idiot. But he's done it. So we're going to have to cop it sweet. Let's not make it worse by poking the bear. Let's not make it worse by retaliating. Then they're going to retaliate to our retaliation. And if you're going to pick a fight with a schoolyard bully, you want to make sure you can beat him before you throw a punch. If he hits you, you can either say, ouch, and walk slowly away, or you hit him back and then wait for him to hit you again. And if you're not going to win the fight, that gets ugly pretty fast.

1:05:25On the other hand, if you're shown to be too weak and too appeasing, you're then seen as the easy target. Well, the bully stole the kid's lunch on day one and didn't know anything about it, so I'll come back on day two and steal his lunch again, day three, day four, and this is the easiest money I've ever made. Maybe I'll take the recess as well. Right? The easiest money I've ever made. Why wouldn't I keep doing it and why wouldn't I take more, as you say? Demand more tomorrow. You've got a dollar today, I want two bucks tomorrow. I was reminiscing with my just massive tangent. My sign about school lunch orders used to be coins taped to a brown paper bag when I was in school.

1:05:53Yes! Oh, my gosh. I know, right? You write the order on the brown paper bag. Now it's bloody absolute, God knows what. Anyway, massive tangent. What do we do, mate? How do you think about those two options? Neither of you or I are going to have to make that call. But, you know, it's nationally, our leaders are going to have to make a call. And frankly, I guess what I want to say worries me, but what do we do on this podcast? We try and help people understand some stuff. People listening are going to have their views right now and that will be reflected in how, you know, the polls that get done, the focus groups that get done about what we should do will impact the pollies.

1:06:24So it doesn't really matter what I think or you think or our listeners think because the pollies will do it. but the views we express will inform those opinions. What would you, if Albo called you tomorrow or Peter Dutton called you tomorrow and said, mate, trying to think about what we should do, you're a smart guy, you've got this Bitcoin thing, but other than that you're a smart guy. Sorry, I had to. It's late in the podcast, mate. It's been a while. You're a smart guy, Andrew. What do I do, mate? What do you suggest? What do you recommend? Don't do a damn thing is what I would do. Yeah. Again, for all the reasons I said before.

1:06:54Yeah, but look, I'm not saying you don't try diplomacy. I don't say that you don't talk tough. But, again, I'm just I worry about the unintended consequences. The easy reaction, and this is the action that plenty of places have taken, is they go, well, we're going to put tariffs on too. And, again, to your point, it's like, well, wait, that hurts me. That's the downside, right? Exactly. That hurts me. I don't want, no, no, no, don't make that. I get that we don't want to be pushed around and there's a pride issue here. But it's like by trying to talk tough, and by the way, you know, we could put 100 % tariffs on everything and the US is going to go, oh, did you do something?

1:07:35Like the amount that if you drew the pie chart of their export markets, Australia, you barely see the sliver, right? And we import a bunch of stuff from the US, but it's like from their perspective, it's nothing, right? So I wouldn't roll over like a good lapdog and go, oh, ha, ha, oh, you know, please sir, can I have another? Talk tough, do whatever I can, reach out, but I am not going to make it worse by doing the same dumb thing in reverse. I just think it's counterproductive. Again, we end up agreeing, mate. I think that's exactly right. Remember, tariffs are a tax on the people buying the products, not the people selling the products.

1:08:16So making US cars or bourbon or whatever more expensive for us just makes it more expensive for us. It feels good. But politically they'll do it because politically it's like, yeah, yeah, let's not let them push us around. But no one's actually saying, dude, you're going to pay more for this stuff and it's not going to stop things happening anyway. And they're still going to push us around exactly because we're not big enough to, yeah. So I completely agree with you. I absolutely understand the we've got to stand up to them. I don't know what we think. That's just pure ego. That's just ego at that point, yeah.

1:08:45Right, and what do we do by saying, Donald Trump, you're a bad man. Yes, I am. I'm going to hit you again. You're still a bad man. I'll hit you again. You're still a bad man. I mean, standing up to someone doesn't, you know, it makes us feel better that somehow we've done something noble. And I get that. There is something noble in saying I'm not going to let you whack me. You know, it's the, you know, die on your feet, not live on your knees. I get it. Yes. Probably dying on your feet is you still die, right? And economically and socially there are implications. There are costs that we have to bear under any circle.

1:09:12I'm with you. I would minimise the downsides rather than increasing the downsides just so we can say we told him so. But there's other things as well. Like, you know, we punch above our weight. We've got a lot of rare earths here. They're pretty important. Most of the rare earths come from China. China and US aren't getting along last time I checked. So they're strategic. You can be smart about it. Oh, oh, you want some lithium? Oh, isn't that interesting? Like it doesn't have to be maybe reversed. What's the term for it? There's a proper term for it. But it's just sort of like, well, we're adding an export tax on that.

1:09:47We're not paying, but we're going to charge you. more for that. Hey, that's a bit, that's a smart idea, right? It is until he does something else on top of that. This is where, you know, Canada, because Canada's done that, and thus far we don't know where this ends, but Canada said, well, if you've done that, I'll do this. Trump's like, okay, well, I'll double your tariffs then. And when you're still a little guy, it's like, all right, well, they've got to pay more for our lithium, but they're not buying any of our steel anymore and they're not buying any of our wine anymore. To your point, they matter more to us than we matter to them, and whatever that's the case, so what I would do, man, It's a question of degrees, isn't it?

1:10:20That's the thing. Is it a completely nothing or do you talk tough in certain areas, press some strategic events in some areas? It's the subtlety, the nuance that's going to be super, super hard here. Totally, totally. And we should be turning our attention elsewhere. Yeah. You know what Trump hates more than fighting back? Being ignored. Oh, yes. If you want to get to Trump, he's ignored. Okay, did he put tariffs on? Okay, fine. We're over here. We just negotiated a new free trade deal with Japan or New Zealand or Vietnam or UK. India is in the ascendancy, man. Like cozy up with those guys in a lot of – and here's the other thing.

1:10:55So I agree. The one point I would make though in regard to it is, again, let's not pretend that we – I think the politicians have a good role to play in framework agreements and the rest of it. Yeah. But stop – again, businesses will do this anyway because that's what they do. Like everyone, like, oh, gosh, we're selling less to the US all of a sudden. You don't need a politician to come and say, you know what you should do? You should seek out other markets. Thank you. Well, here I was going to do nothing. Of course, you're sitting there with all of your executives going, gosh, we need to figure this out.

1:11:34And why do we need to figure it out? Because our livelihood and our shareholders depend on it. That's why we're going to figure it out. So you're right, 100 % right. And I hope that the politicians do what they can to grease the wheels in terms of framework agreements. So framework agreements, tariffs and subsidies. Even things like, you know, Austrade does a great job of, like if you're a small business and you've got to, let's go with widgets because we're going to do it. You're asking you widgets to France, like I don't know anything about the French widget market. And yes, I could spend the money and time, but if there's a trade bureau out there who can say, actually, we have contacts in France, we have these, put you in touch with our embassy, you can absolutely, grease the wheels is exactly the right approach.

1:12:10I completely agree with that. That's the perfect phrase. Yep. Just don't throw a bunch of taxpayer money at areas that, you know, again, are going to be incentivising things that there's already a very, very powerful incentive to do these things anyway. Correct, correct. Sadly, sadly, I just, again, as a politician, your main goal is to get elected. Yes. And a lot of the stuff that we're talking about isn't, again, there'll be competing voices and there'll be one side saying, hey, we're going to do it really smart, we're going to do it this way. It won't be really obvious, but longer term it's going to be great.

1:12:44The other person, well, we're not going to stand for that. We're going to do this. I can't care a ribbon or wear some high vis if I don't actually make an announcement somewhere. And so we'll do it. We'll do it because that's the craven political kind of knee-jerk reaction and it tracks, it resonates, and sadly that's probably what we'll do. So here's what I would do is I would, again, I come back to where we first started with all of this is I can't control the craziness. I can't. I'm too small. but I can control my own situation. So again, we always end here. And this is the great thing about it because once you sort of get all this stuff, you don't have to pivot and change and restructure and re-weight.

1:13:23And it's like, I guess I'm just going to focus on really good quality assets. I'm not going to take on too much debt. And I'm going to make sure that there's a bit of padding there when not if, when something crazy happens. So I'm not turfed out on the street. That's what I'm going to do. I said to you before with the business, I know you like to joke with the billion dollars, you know, it's not a billion dollar business, but there's money that's sitting idle in the bank account. I could take that out tomorrow and buy a jet ski, but I'm not going to do that. I'm going to leave it in there because that's a prudent, sensible risk mitigating strategy to do.

1:13:59And I'm going to do it with my business. I'm going to do it in my life. I'm going to do it with my family. I'm going to do with all of these kinds of things. And that's what I would encourage people listening here to do is to, because that's all you can do. Don't buy into the BS of the politicians. You know, vote, make your voice heard where you can, but also structure things appropriately for yourself. When Andrew says you can take money out of the bank account and buy a jet ski, he means a jet plane, people. Just so we're clear. I'm very much talking about a second-hand broken jet ski. But Boeing is on speed dial.

1:14:29These rock bands have their 747s. I'm just saying there's a straw man one coming. Mate, I think that's a great way to wrap it up. I think you're absolutely right. The impetus is on, look, I've said and written a lot, the economy and I know it's about the economy and the investor. In this stage, you've made a broader point, which is more important, the economy and the individual. And there are two different things, right? There are things I will absolutely bang on about on the podcast or social media about policy changes that I think we sure shouldn't make. I am not relying on those policy changes being made.

1:15:02I desperately think we should. They're often, well, sometimes they're about me and what I want for me. Often they're about the fact I think other people outside are being let down across the board in different ways. So my view on the economy, my view on Trump, my view on whatever, is one way of thinking about this. It's absolutely valid and real and you should have your own views as well, particularly as Ram says when it comes to voting. When it comes to your individual circumstances, you need to have a separate brain on, right? So I think some of this Trump tariff stuff is – so back to the investing bit.

1:15:29I think the tariff stuff is ridiculous, right? I've said that many times. How am I changing my investing? I'm not because I'm a long-term investor and I have a horizon that goes out past Trump's presidency. Now, could he do some damage? Yes. Could it be bad? Yes. Is it likely that if I remain invested, I will do really well over the long term? Yes. So I can have those two views at the same time. And by the way, when he's gone, what, like, there's no risk in the world anymore? Right, exactly. You know, like, there'll just be another series of risks that we're talking about. Correct, correct. So, you know, have your view on the politics and the policies and the economy, make your voice heard, vote, protest, Just buy whatever you want to buy.

1:16:02Don't buy whatever you don't want to buy. One of the easy ways, by the way, to get back to the end is just buy non-American products, buy Australian made or buy stuff that comes from somewhere else because why not? If you as an individual listening now actually want to make your voice heard through your wallet, that's the easy way to do it. Now, it doesn't. I mean, it'll cost you. Oh, possibly. Because presumably you'd do it anyway if it was cheaper or better. The fact that you're doing it in the first place is it is cheaper or better from the US. So you have to actively say, I will pay more or have a lower quality, assuming that my default is the US.

1:16:34No one's buying stuff from the US because it's from the US. Correct. You're buying the iPhone because it's the iPhone, right? Made in China, by the way. That's the other thing. Yes. Well, it gets deep. Yeah, I mean, I used the example of whiskey on Twitter the other day. There's some great Australian, Irish, American Scotch whiskey. People drink bourbon because they've always drunk bourbon probably. Grab yourself a bottle of Bundy Red, which is like a bourbon-style thing. Try some Irish whiskey. Try some Australian whiskey. Again, you're right. You're going to have to pay for the privilege and maybe some people – you know, I've talked about this before.

1:17:03I buy, you know, some things made in Australia because I like to support the Australian manufacturer. Yeah. Maybe they're better, maybe they're not. That's a personal choice. But you would do it anyway if you liked – Correct, correct. Yeah. My suggestion is just look for the alternatives, look for the substitutes because they're probably there. A lot of it's habit. I drank Jim Beam when I was 17, so I still drink Jim Beam today. Okay, try something else. Maybe you don't like it, maybe you open a Jim Beam fine. But, you know, as a reason to say, what do I buy? What alternatives are there? You may well find that habit is, you know, and frankly, marketing is taking you a long way.

1:17:34Yep. All right. We are done here. Thank you for tuning through an hour and a quarter of Tariff Central. I'm not even going to promise to not talk about it next week because, frankly, the way the news breaks these days, there'll be another 14 tariff announcements between now and next Friday. We'll try to cover the same ground, though. We wanted to do an all-tariff, all-day chat just to kind of cover some of the big concepts, the big issues. We'll refer back to them rather than rehashing them. But they matter, right? and we wanted to kind of give you the benefit of... I feel like we scraped the surface still.

1:18:00Yeah. We could do it for hours, but we're not going to because... Yeah. I've got a job and you've got a multi-billion dollar business to run, so... We can't see any of that. He just gives that by himself, my friend. Hey, don't, especially not the second hand ones. Until Sunday, enjoy the first half of your weekend and full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener.

1:18:31The Motley Fool operates under Financial Services Licence 400691.