NEWS
What Happened Last Week
President Trump signed an Executive Order declaring a national emergency regarding unfair global trading practices that have arbitrarily decreased the US’ ability to produce domestically.
Reciprocal tariffs (ad valorum duties) were announced starting at 10% and increasing in the near future to specific rates customized to certain nations, depending on the tariff and non-tariff barriers each places on trade with the U.S.
Each tariff will remain in place until the respective country meets the demands for fair trade practices, which are listed extensively in the Executive Order.
The US trade deficit remained elevated in February as companies accelerated imports ahead of tariffs, importing in anticipation of rising prices. This deficit is likely to decline significantly in Q2, now that tariffs are largely in effect.
Private sector disposable income (income after taxes) rose 3.2% from a year ago. Compare this with inflation in the Consumer Price Index (CPI) of 2.8% since a year ago.
The U.S. economy added 228,000 jobs in March, far exceeding what was expected at 135,000.
Unemployment ticked up from 4.1% to 4.2%, still in the normal range of what is considered full employment.
How I See It
We’re watching America wrestle with a sort of economic paradox.
Any economist will tell you that global trade makes everyone better off. That’s because different nations have different resources and different strengths, whether it’s due to culture, resources or other characteristics of geography.
Free trade saves everyone time, and therefore money, because of this efficient division of labor.
Economists know this. President Trump knows this.
But economics is not the only subject that matters in the interest of a country. Of course, so does national security.
Let’s bring this around to a personal finance example for comparison.
Any good financial advisor is going to encourage an emergency fund. That is typically a savings account that holds enough to pay for 3-6 months of living expenses in case of a job layoff or other emergency.
Same goes for emergency preparedness on a very physical level. Emergency preparedness involves having a ready supply of necessary items: mainly medicine, shelter, food and water in case worst comes to worst.
Here’s the question.
In our day-to-day lives, does an emergency fund in a savings account earn the highest return on our money? No.
Could we spend our money on something more useful today than extra water and food in preparation for an emergency? Yes.
But that’s not the way to have sustainable well-being. It only lasts as long as it lasts…until there’s an actual emergency. Only then, when it’s too late, do we wish we had made the investment to prepare.
While I’m not privy to every detail that the Trump Administration is dealing with in regard to these decisions, and I don’t know what they will mean for the immediate future, it is quite clear why they are being implemented.
Russia invaded Ukraine, the deadliest European conflict since WWII. Hamas and Israel have gone to war. US relations with China have soured since the days COVID unnecessarily wreaked havoc on the world. And until now, there have been whispers of de-globalization that reduces trading relations largely into two or more trading BLOCs among countries who share interests, belief systems and values.
President Trump’s Administration believes that the US absolutely must be independently able to produce military equipment and sufficient food supplies to protect and sustain the American people without requiring dependence on foreign nations.
Ukraine has offered a recent example of a nation that cannot manufacture its own military equipment with sufficient speed when left to itself. America does not want to find itself in such an emergency situation, especially as global tensions with Russia, China and the Middle East have escalated in recent years.
The relative success Russia has had against Ukraine is a stark wake-up call to what remains possible in the present day.
The COVID crisis also offered an example of how too much reliance on foreign countries can affect the US negatively in times of emergency.
In short, managing global trade is a balance between efficiency and security.
There’s actually nothing wrong with a trade deficit. Trade deficits happen. Money flows out of the US. But US dollars get deposited in foreign banks, and those banks buy (guess what) US Treasuries to earn interest on those deposits until the time they’re needed again.
So the money flows back into the US government. No harm done.
But it’s trade imbalances to the extreme, due to unfair practices, that do create a problem. It’s like a muscle that goes unused. Too much imbalance weakens certain sectors of the US economy to such a degree that we lose our preparedness for a global or domestic emergency.
And that’s the reason for this national emergency recently declared by the President of the United States.
Whether it successfully does the job it’s intended to do or not is up for speculation. No one knows or can know at this point. But the logic behind why it’s being done is not about economic efficiency. It’s about national security.
In the end, this policy shift isn’t about getting the highest return—it’s about being prepared. Like an emergency fund, it may not be efficient in the short term, but when a crisis hits, national sustainability matters more than short-term performance.