By Jim Inglis
The United States is in the throes of a populist revolution. The cultural and business norms of the past are being turned upside down. The Tariffs announced by the Trump administration change everything regarding America’s relationship with the rest of the world. This change in trading relationships combined with the imperialistic thirst for territorial expansion can only create fear and distrust in our neighbors, and allies. This beggar-thy-neighbor policy strikes at the goodwill that the U.S. exhibited in the past as the ‘shining city of the hill’ proving the importance of democracy, free enterprise, and free trade.
The idea of free trade rests on the assumption that; “You cannot get rich off a poor neighbor.” This enlightened concept has greatly increased the standard of living both here in America and throughout the world. Yet, it has been rejected by the Republican party that championed free trade in the past.
President Trump promised to reverse inflation on “Day 1” of his presidency. However, the opposite is happening. Peter Navaro, Mr. Trumps chief trade advisor, has set a goal to raise $600 billion per year in new tariffs which is in addition to the $100 billion in annual tariffs already set to fall on the car and truck industry. These tariffs are taxes that will dramatically increase the costs on a wide range of consumer and industrial goods. This assures high inflation. President Trump’s response to this inflationary crisis, quote “I couldn’t care less, because if the prices on foreign cars go up, they’re going to buy American cars,” Mr. Trump told NBC News. “I hope they raise their prices, because if they do, people are gonna buy American- made cars.”
Prices are not only based on costs, but they are more often a response to competition. If the cost of foreign cars increases, without a doubt, so will domestic new car prices and used car prices as well. So much for the promise of fighting inflation on “Day 1.”
The pro tariff argument is that these tariffs will generate $700 billion per year and bring manufacturing back to America. This is bad logic. You can have one of these outcomes, but not both as they are mutually exclusive. This is economic fact is ‘Econ. 101’.
Trade is a two way street. We can already see organized efforts at our current trading partners to boycott American products. This will be compounded by reciprocated tariffs by countries on American products. American manufactures and farmers will suffer. This is a lose/lose deal – not very ‘Artful’.
Wait there is more! A deteriorating international relationship not only impacts product movement but the service industry as well. Air travel on Canada-U.S. routes has suddenly plummeted by 70%. Many Canadians have winter homes in the U.S. making up 13% of all housing sales last year. Now they are selling! When our sporting events occur in Canada there is loud booing by the crowds. Our service industries will needlessly suffer.
While the government preaches that the current revolution will bring a ‘Golden Age’ to America, those with investments in the stock market seem to have a different picture of things ahead. The stock market has already experienced its worse quarter since 2022.
The middle class person in America is most likely to depend on their 401K stock investments to provide income for their retirement years. So now the American consumer can expect continued inflation while they watch their retirement investments plummet.
The most likely result of all this is that the consumer is going to simply run out of funds for discretionary spending. The American economy is driven by consumer spending, not manufacturing. This will lead to some version of either stagflation where inflation persist as employment falls, or to recession, or – God help us – to depression.
The textbooks tell us that the Great Depression of the 1930’s was exacerbated and sustained by the Smoot-Hartly Tariffs that triggered a global trade war significantly reducing international trade and leading to a collapse in global output. History does not always repeat itself but seems to rhyme!
So, where do we go from here? The next two years will be critical to determine the direction of the U.S. and world economies. Trump promises a ‘Golden Age’ as a result of his tariffs and taxation policies. The constitution of the U.S. gives the power over tariffs and taxation to the House of Representatives which is now held by a small majority of MAGA Republicans. Every member of the House of Representatives is up for election every two years. If these next two years bring inflation under control and manufacturing in the U.S. prospers, this will usher in a long term sea change in the U.S. and world economies. However, if the results of these changes have a decidedly negative impact, look for a possible Democratic party takeover of the House of Representatives and efforts to reign in detrimental trade policies. However, this assumes that the Democratic party has new leadership that can refocus on the economy and avoid falling into the woke rabbit hole that cost them so dearly in the previous election. There are lot of ‘Ifs’.
So, what does this mean to the construction and home improvement business in America?
The construction business is saddled with inflated material costs, scarce and expensive labor and high interest. There is not much light at the end of this tunnel.
The home center business is somewhat non-cyclical. The repair and maintenance portion of the business if fairly stable. However, the big ticket remodels are driven by home turnover so projects like Bath and Kitchen remodels will likely continue to suffer.
The Home Depot is North America’s largest home improvement retailer with stores straddling the United States, Canada, and Mexico. Tariffs and sanctions against Mexico and Canada will certainly compound The Home Depot’s challenges to adjust to the new Trump paradigm.
Buckle up folks – There are no guardrails on the road ahead.