Tariffs, Timing the Market, Collecting Tariffs, China vs. US Trade War, Certificate of Deposit (CD), Screws and Fasteners, Gold, Mercedes & Inflation Report

Why I’m so excited about the tariffs

You may be thinking I’m a little bit crazy or blind to what is happening now, but I really wish people would be a little more patient and give this a few months to see the benefits. I want to remind people that the path we were on could’ve led to a collapse just like the great Roman Empire in 476 A.D. The United States in 2024 helped other countries grow their economies by sending them over $1 trillion in trade, not even close to fair trade and that is money we will never see again.

Also in 2024, we saw our national debt climb to $35.5 trillion, an increase of roughly $2.5 trillion dollars in just one year! If that continued for the next 10 years, we would have debt of nearly $60 trillion, which would be unsustainable. Let’s not even talk about the interest payments on a debt level that high. What is already starting to happen is not the foreign countries, but rather the foreign companies themselves want to continue to be profitable and understand they must produce and be located in the United States. Companies like Siemens from Germany, Taiwan semiconductor and Foxconn along with others have already made huge financial commitments that will benefit their companies and also our country as well. As the days, weeks, and months pass along, I believe you will be hearing about more companies coming to the United States.

I believe immigration will also change because we simply do not have enough workers to fulfill all these new jobs. This could lead these foreign companies to bring their workers along, which would make them part of the US consumer base that buys houses, cars, and simple things like go to the grocery store and go out to dinner and even get haircuts. This is quite a bit different from the problems we have with immigration now as it has become a big burden on the US economy. I believe this would create a major win for our country, please be patient!

Good luck if you are trying to time the market

If you have sold out of strong companies at good valuations during this market pullback, I believe you have made a huge mistake. As I have said there will be positive news that comes about and moves the market higher, which then leaves you with the question of what do you do now? Get back in? Wait for it to pull back? These trading mistakes can cost you immensely in the long run. I was surprised to see that going back over the last 20 years, seven of the top 10 days in stocks came within a two-week period of the worst 10 days. Which means many people that sold during the worst 10 days likely also missed those great days and the eventual recovery.

A great example showing how quickly the tide can turn came on Wednesday after the announcement that there will be a 90-day pause on the full effect of tariffs since more than 75 countries have contacted US officials to negotiate a solution. There was also news that there is an “on the water clause” for cargo entering the US ports. This means any cargo “loaded onto a vessel at the port of loading and in transit on the final mode of transport on or after 12:01 a.m. EDT April 5, 2025, and before 12:01 a.m. EDT April 9, 2025, and (2) are entered for consumption, or withdrawn from warehouse for consumption, before 12:01 a.m. EDT on May 27 2025, are subject to the 10% additional rate in lieu of the country-specific rate of duty.” This is important as it will give companies more time to plan for elevated tariffs.

These announcements led to a huge gain in stocks with the Dow climbing 7.87% on the day and the S&P 500 climbing 9.52%. The thing that surprised me was many companies that have China ties also rebounded substantially, but the tariff charged to China will be 125%, effective immediately. I’d be careful buying the dip here on all companies, but the important point I want to show is that the tide can turner quicker than you think!

How does the United States collect tariffs?

It is quite the system and it’s not as simple as a country/importer sending a check to the United States. The US doesn’t do the calculation for every shipment that comes into the country. No matter how it comes in, if it is by truck, plane or ships the country doing the importing is the one that calculates the tariffs and sometimes they use what are known as customs brokers to do the calculation for them.

It may surprise you that it is somewhat on the honor system. Before a shipment approaches the border, the importer or the customs broker files electronically the paperwork and says what they are bringing and how much they owe. When the ship pulls into port, the information is reviewed by customs agents before they allow the goods to be unloaded and released. It is kind of like when we file our tax returns. It is on the honor system that you put in all the correct information and just like you may be audited on your tax return, customs do perform random inspections to verify what is being brought in and that the tariff amount is correct. Importers have an account with customs and pay the duties to them. If they use a licensed customs broker, then that broker would make the payment.

After all this is completed, whoever imported the goods has 10 days to pay the duties. The penalties are pretty hefty if the importer does not pay within 10 days as they will be hit with admin fees, interest, and other penalties along with the biggest concern which would be suspension of deliveries to the United States. I would definitely say it is in the best interest pf these importers to pay the United States customs within 10 days.

China may look at other avenues to hurt the US in this trade war

I’ve said this before, but the tariffs on Chinese goods hurts them more than their tariffs on our goods. The simple math on it is the U.S. exported $143.5 billion of goods to China in 2024, while importing products worth $438.9 billion. Trade is way more important to their economy considering the fact they are a net exporter and a large one at that. In 2024, China exported roughly $3.58 trillion worth of goods, while importing just $2.59 trillion worth of goods for a surplus around $1 trillion. This makes trade a huge part of GDP as net exports contribute around 20% of GDP.

The US on the other hand is a net importer so our trade deficit actually subtracts from GDP. What else can China do to harm the US? China did issue an alert warning its citizens of the potential risk of traveling to the US and attending schools there. Although there were approximately 1.6 million Chinese tourists that visited the US in 2024 and more than 250,000 students enrolled in schools, I don’t see this advisory as too problematic especially considering there was an estimated 77.7 million people from other countries that visited the US in 2024. The big concern people have is China selling our debt to drive up borrowing costs.

I was disappointed by an article that said China could crush our housing market by selling mortgage-backed securities. Seemed a little dramatic to me considering foreign countries only owned 15% of the total outstanding mortgage-backed securities. Top owners did include China, Japan, Taiwan, and Canada, but I don’t see those other players selling at this point in time to harm US markets. It appears China holds just around 2-3% of these mortgage-backed securities and has been selling them over time with holdings down 8.7% year over year in the month of September and down 20% by the start of December. Even looking more broadly at U.S. treasury securities, China owned just $760.8 billion as of January 2025, which would represent about 2.2% of the total U.S. federal debt.

Be careful falling for click bait, as I don’t believe China has the ability to “crush” our housing market. It would likely cause interest rates to increase slightly, but an outright crash would be extremely unlikely. Overall, while this trade war may hurt us, I still firmly believe it will have a far larger negative impact on the Chinese economy!

Why You Should Never Buy a Certificate of Deposit (CD) Again

For decades, certificates of deposit (CDs) have been a go-to option for savers looking to earn a little extra interest while keeping their money safe. However, in today’s financial landscape, CDs have become nearly obsolete, offering little to no advantages over more flexible and higher-yielding alternatives. One of the biggest drawbacks of CDs is their lack of liquidity. When you lock your money into a CD, you typically agree to keep it there for months or years. Withdrawing early results in penalties, often forfeiting several months' worth of interest. High-yield savings accounts, on the other hand, offer similar or even better interest rates while allowing you to withdraw funds at any time. Many online banks now offer savings accounts with yields that rival or exceed CD rates, giving you the best of both worlds: competitive returns and unrestricted access to your money. Another option is U.S. Treasury Bills (T-Bills) which are one of the best alternatives to CDs, offering higher returns with even greater security. Backed by the U.S. government, they are virtually risk-free and often yield more than CDs of similar durations. Additionally, T-Bills offer tax advantages, as the interest earned is exempt from state and local income taxes—something CDs cannot provide. Money market accounts provide another strong alternative to CDs. They often have rates similar to or higher than CDs but come with added flexibility and liquidity. Additionally, money market funds that hold federal or municipal debt come with some tax-exempt income as well. CDs may seem like a safe, simple choice, but in reality, they are an outdated savings vehicle that rarely makes financial sense anymore. Whether you choose a high-yield savings account, T-Bills, or money market funds, there’s always a better alternative that offers higher returns, more liquidity, or better tax advantages.

Even a little screw is getting hit with tariffs

You probably don’t even think about all the screws and fasteners that go in so many different products. We have said many times that there’s a much bigger range of import products that are going to have tariffs placed on them when compared to 2018. This time around, the plan with tariffs is to hit it fast and hard and hopefully it will be over in a few months and not drag on for years.

Some manufacturers were smart including a company in Michigan called Great Products as they switched most of their screw imports to Taiwan in late 2018. The company uses about 17 million screws a year as they build parts for appliances. They imported about three million screws last year and made about 14 million screws themselves. Even if a company can make the screws themselves, they will still find themselves paying higher prices for the steel and aluminum to make those screws.

At the current time there seems to be no easy answers for many companies. It will be interesting to see how companies adapt to this environment as I do believe these trade wars could last several months with China in particular dragging on longer.

Gold is currently a hot commodity

According to Morningstar, over the last couple of months, investors have put about $11.4 billion into gold ETFs. The funds are on pace to have the highest monthly inflows since July 2020. If that year rings a bell, that was during Covid when fear was high. Fear is once again running high and unfortunately investors generally chase returns and get stuck buying investments on the high side.

Looking in the rearview mirror, gold is up 57% over the last couple years and people are even selling their cryptocurrency to buy the precious metal as it is hitting all-time highs. Over the last 50 years, gold has compounded at roughly 8% per year. That compounded return has increased because of the recent rise in the price of gold. Maybe gold will go higher and maybe it even hits $4000 an ounce. No one really knows but the problem is if you’re buying gold now you are really helping push the price higher and what happens if in the next let’s say 3 to 6 months the tariff war is over? More than likely, what drove gold up is fear and if that fear subsides you’ll probably see a decline in gold prices.

Investors who chase excitement on anything whether it is gold or the next hot stock, generally don’t see the returns last. In modern times I never really got the idea of buying gold because of fears over things collapsing. You can’t eat gold, you can’t make clothing out of gold, there’s not much you can really do with it. If you think it would be the new currency, remember gold was used as a currency back in 550 BC in a country called Lydia, which is now part of Turkey. I’m sorry, but do you really think you’d be driving to the gas station to fill up your car with gold or go to Albertsons to buy food with gold. The only reason people buy gold is the fear and the speculation that it will go higher. If it makes you feel good to buy some go ahead and do it, but long-term you’re not going to have the best returns. And don’t forget about the selling commissions on gold are very high, somewhere between five and 10%.

This is not a good time to buy a Mercedes

You may have been dreaming about getting a beautiful Mercedes-Benz and you’ve finally reached the point that you’re going to pull the trigger. Well, you may want to wait a little bit longer because they’re going to be hit pretty hard with the tariffs. In 2024 Mercedes shipped roughly 324,000 vehicles to dealerships throughout the United States. This includes the popular GLE and GLS models, which have been helping fill the appetite for Americans desire of luxurious SUVs.

You may be thinking they won’t be hit with tariffs because they have an assembly plant in Alabama, but only 1/3 of the 324,000 vehicles that were shipped to the dealers were made in the Alabama plant. You may now be thinking the ones built here won’t have tariffs on them, right? Wrong! Unfortunately, Mercedes-Benz ships from Europe engine sand transmissions, which will be hit with the 25% tariff. It is expected to cost Mercedes about $1.7 billion.

A big concern for the business is they are not in a position like Ferrari where they can pass along the full tariff onto their customers. They are stuck in the middle because they are not as big as Toyota where they can shift assembly of vehicles to different parts of the world, but also can’t increase price as easily as an elite supercar like Ferrari or Lamborghini. So if you’re thinking of buying that Mercedes, you may have to hold off for the next six months or so, or else you could be paying a rather high price for that luxury. 

Give the tariffs some time

It’s only been a few days and there are protests across the country of people complaining about these tariffs. I hate to say it, but most of these people likely do not understand how tariffs even work. I will admit it is a complicated agenda and if you don’t understand finance or how economies work, the fear of not knowing can be scary. Those that understand investing and the economy, realize that making such a large shake up in global trade will not be resolved in a couple of days.

With that said we have seen companies like Siemens from Germany say they would increase their investment in the US by $10 billion. Taiwan Semiconductor set a plan to invest at least $100 billion if not more in chip manufacturing plants in the United States over the next several years. Also, other Taiwanese companies like Foxconn, Compal and Inventec are looking for land in Texas for AI server manufacturing that could be larger than their existing operations in Mexico.

Remember these tariffs will have a larger impact on countries that export more than they import and the US is a net importer, which means they will have a smaller impact on our domestic production. In 2024 we sent over $1 trillion to other countries around the world allowing them to grow their economies while they charged tariffs on US products. Also understand that in 2024 government debt grew by $2.3 trillion to $35.5 trillion. This is only April, just imagine how many more billions perhaps trillions of dollars will come into our country by June or July.

I know it may feel hard now, but be patient and gosh waiting just three or four months shouldn’t be that challenging. I believe we’ll continue to hear negative news over that time frame, but it should also come with positive news including new trade agreements with countries and the additional investment by foreign companies that I discussed. 

With all the noise, an important inflation report seems to have gone unnoticed

Tariffs and trade continue to take center stage, but the consumer price index (CPI) came in with very positive news on Thursday. The CPI showed an annual increase of 2.4% for the 12 months ended in march. This was down from February’s reading of 2.8% and came in below the expectation of 2.6%. Core CPI, which excludes food and energy was also impressive coming in at an annual rate of just 2.8%. This was down from February’s reading of 3.1% and also came in below the estimate of 3%.

This also marked the lowest reading for core CPI since March 2021 when it was just 1.6%. I don’t think we’ll see a level like that again for quite some time. There is of course some negatives in the report with eggs prices in particular jumping 60.4% compared to last year, but overall I’d say this was a great report. Shelter, which we have been talking about for what feels like years now, was up just 4% compared to last year. This was the smallest gain since November 2021.

The deceleration in shelter costs continues to put less pressure on the headline numbers and it appears to be on a glidepath lower, which should mean more promising reports in the coming months. The big question mark is of course the tariffs and how the trade wars will ultimately impact inflation. I am still in the camp that it will be less problematic than many fear. Be patient as I believe these concerns will persist for the next few months, but I still am looking for a lower inflation rate as we exit 2025 when compared to this March report.