Tax cuts: $200 billion
Federal spending: $100 billion
Profit repatriation: $500 billion
The estimated $800 billion from tax cuts and stimulus is far greater than his estimated worst-case scenario from tariffs of $120 billion, and this is a major fact holding the markets together.
Other market watchers seem to agree. Jan Hatzius of Goldman Sachs also told clients this week that, “We continue to believe the direct effects of the tariffs should be relatively minor for the US economy." He estimates that the result of all tariffs so far proposed "would lower the level of US GDP by 0.1pp compared with no tariff increases” and that the effect of tariffs are only a small share of corporate profits "to date."
It's that "to date" part that has gotten a large part of the investor base considerably more nervous. Mike LaBella from QS Investors noted on CNBC Wednesday that, "Bringing in an additional $200 billion in potential tariffs can quickly escalate to over a trillion dollars of trade-related tariffs that hit both China, the US and the European Union. This is a major issue that the market, up until today, has been completely neglecting.”
The commodity markets aren’t neglecting the threat. Copper is down dramatically in the past month on concerns over a slowdown in China and an increase in trade tensions.
The Federal Reserve, at its last meeting, was already nervous. "[M]any District contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity; contacts in some Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy."
The Fed said this a month ago (June 12 to 13) — a time when tariffs looked like only a remote possibility. What side of this debate do you think they will be on now that tariffs have become very real?