SAFE MONEY - 4-5-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Shillig here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
assets safely. I've been in an insurance agent for over
twenty four years. During that time, I've learned a few
insurance strategies, like using annuities as safe money harbors, or

(00:22):
using cash value life insurance to supplement retirement income. Just
a reminder to everybody. You can call our office at
five six three three three two two two zero zero
if you'd like to enroll in one of my virtual
Medicare community meetings two every month, or you can email

(00:42):
me at Craig at Craigshillig dot com and that's cr
Aig at cr Aig schi Llig dot com. Today I'd
like to discuss with you guys a little bit about tariffs.

(01:06):
Seems pretty appropriate since a couple days ago this all began.
A tariff is sometimes called a regressive tax because it
pinches families at the bottom more than it does families
at the top end of the income spectrum. Consumers usually
end up paying this regressive tax. April second was called

(01:31):
liberation day by President Trump, but for everyday Americans it
might be remembered as the day their wallets took a
serious hit. Today, I'll talk a little bit about tariffs,
how they work, and potential potential economic effects. With sweeping
tariffs imposed on nearly all foreign goods, Trump's latest economic

(01:54):
move is meant to encourage domestic production. However, the reality
is that it could drastically increase the cost of many
everyday essentials, from morning coffee to new cars in fashion.
With bas tariffs starting at ten percent on imports from
most countries and some staring as high as fifty four percent,

(02:16):
the price of everything from food to fashion will probably
go up for consumers. For many, a morning doesn't truly
start until they've had a steaming cup of coffee. I'm
one of those guilty ones. I have a local coffee
shop I go to three or four mornings a week. Unfortunately,

(02:37):
my daily caffeine fix is about to get a lot
more expensive. The US is one of the world's top
importers of coffee, plumby its biggest suppliers. They've both been
hit with a ten percent tariff That means a price
hike is all but inevitable. With your favorite lattes, cappuccinos,

(02:59):
flat white and cold bruce. They will probably cost more
in the next few weeks to maybe a couple of months.
Outside of Hawaii that has a very marginal coffee production,
we don't grow coffee beans in the US. We don't. Now.
Some of the toffing coffee producing countries are Brazil, Colombia, Vietnam, Indonesia, Guatemala, Ethiopia, Uganda, India, Peru,

(03:32):
and of course our friend to the south, Mexico. All
of these countries are going to get hit with this tariff.
Let's go back in time to the late eighties. Do
you remember the movie Ferris Bueler's Day Off. Let's go
back to the nineteen thirties. You remember the Holly Snoop

(03:56):
Tariff Act. A key part of the Ferris Bueler Day
Off Economics lesson was a nineteen thirty law that raised
US tariffs on imported goods Any economists believes in the
Great Depression by handering international trade. The Holly Snoot Tariff Act,

(04:18):
signed into law by President Herbert Hoover, significantly increased tariffs
on a wide range of imported goods, aiming to protect
American industries and farmers from foreign competition. In the Ferris
Bueller movie, the scene features ben Stein playing a high

(04:38):
school economics teacher explaining the Smoot Holly Tariff Act in
a way that is both dry and uninspiring, leading to
the student's disinterest and has seen that it has become
iconic for its portrayal of a very dull economics lesson
to teenagers. The Act is widely criticized for exacerbating the

(05:03):
Great Depression by raising tariffs. It led to retaliatory tariffs
from other countries, resulting in a sharp decline in international
trade and further damage to the US economy. The Smoot
Holly Tariff Act was enacted during the early stages of

(05:25):
the Great Depression, a period of severe economic hardship in
the United States and globally. On February one, twenty twenty five,
President Trump authorized an additional twenty five percent tariff on
all goods entering the US from Canada and Mexico, except
for a lower ten percent tariff on energy resources from Canada,

(05:48):
and in an additional ten percent tariff on all goods
from China. Nine days later, Trump authorized a twenty five
percent tariff on steel and aluminum active March twelfth, which
strengthened and elevated tariffs levied by the first Trump administration
in twenty eighteen. These were the opening salvos and what

(06:14):
promises to be a period of aggressive moves that is
likely to shake up the global trade environment. A tariff
is a tax on a particular class of imported goods
or services that is typically designed to help protect domestic
industries from foreign competition. However, the Trump administration is also

(06:36):
using tariffs as leverage for other goals. One example, my
coffee example here in the beginning, the US doesn't manufacture coffee.
We buy it elsewhere, so therefore we can't grow coffee
beans here. The tariffs on Mexico and Canada, are two
largest trading partners, were suspended for a month. Ever, both

(06:58):
countries promised major initiatives to secure the US borders against
the flow of fentanyl and illegal immigrants. Despite these efforts,
the tariffs. The tariffs went into effect on March fourth.
Canada quickly retaltaliated with a twenty five percent tariff on
about one hundred billion of US goods, while Mexico promised

(07:22):
to announce a retaliatory measure on or near March ninth.
On the other hand, China, which exports some of the
chemicals used to manufacture fentanyl, immediately responded to the February
February one action by raising its tariffs on selected US

(07:43):
exports by ten to fifteen percent. Trump added another ten
percent tariff on all Chinese goods, which also went into
effect on March four, and China shot back with a
new ten to fifteen percent tariff on US agricultural goods goods,
as well as restrictions on certain US companies. Although the

(08:06):
US Constitution specifically grants the power to levy tariffs also
called duties, Congress has delegated much of the authority to
the President over the last ninety years. This has led
to numerous trade agreements that have created a low tariff
rules based global trading structure, with tariffs applied on selected products.

(08:32):
Over the past seventy years, tariffs have seldom accounted for
more than two percent of federal revenue and were just
one point five to seven percent in the first year
of twenty twenty four. Prior to recent actions, about seventy
percent of all foreign goods entered the United States duty free,

(08:54):
So who pays for tariffs. Tariffs are collected by US
Customs and border protect at US ports of entry. The
tariff is paid by US companies or or individual who
imports the goods. Put simply, if the US company imports
one million of foreign steel with a twenty five percent tariff,

(09:18):
that steel costs the company an additional two hundred and
fifty thousand dollars for a total of one point twenty
five million on that steal. The US company then might
absorb all or part of the additional cost or pass
it on to consumers who buy products made from the steel. Alternatively,

(09:39):
the foreign steel exporter might lower its price in order
to maintain access to the US market, in which case
the US company would still pay the twenty five percent tariff,
but the total price would not rise by the full
twenty five percent over the pre tariff price. The other

(10:00):
factor in this equation, which is the traditional purpose of tariffs,
is that the US importer might buy steal from a
US manufacturer, thus avoiding the extra tax. The questions then
are will the US manufacturer raise its price because it
no longer has to compete with cheaper foreign imports, And

(10:21):
another question, will there be enough US manufactured steel to
meet current or future demand. There have been numerous studies
of the twenty eighteen twenty nineteen teriffs, which are not
as restrictive as the new program, but offer some possible
answers to these questions. Almost all of the steel and

(10:45):
aluminum tariff costs were passed directly to US companies in
the form of prices the rose by about twenty two
percent and eight percent, respectfully. However, many foreign producers received
exemptions from the tariffs, and US steel and a lunar production,

(11:07):
which represented more than two thirds of the US market
before the tariffs, they grew moderately to meet demand, rising
by the annual average of two point eight billion over
the period from twenty eighteen to twenty twenty one. Even so,
companies that depended on cheaper imported metal struggled, and overall

(11:29):
production of goods that used steel and aluminum decreased by
an annual average of three point four billion dollars. US
importers also bore near the full cost of the broader
tariffs on Chinese goods, but generally passed only part of
the costs onto consumers. However, a separate tariff on washing

(11:51):
machines added eighty six dollars to the retail price of
a washing machine and ninety two dollars to the price
of a dryer, ultimately costing consumers over one point five
billion dollars. Broadly, a twenty twenty four analysis found that
twenty eighteen twenty nineteen tariffs, many continued by the Biden administration,

(12:15):
combined with retaliatory tariffs by other countries, reduced US gross
domestic product by a little more than zero point two
percent and cost about one hundred and sixty nine thousand
full time jobs. Let's talk about reciprocal tariffs and dominimous suspension.

(12:35):
Trump has also ordered a study of reciprocal tariffs, which
would set tariffs based dollar for dollar on tariffs each
country charges on US goods, as well as non tariff
trade barriers. As with most issues related to tariffs, there
are differing opinions on this. At best, reciprocal tariffs could

(12:58):
lead to negotiating lower tariffs and removing barriers that prevent
US businesses from operating in a foreign country. At worst,
they could lead to a global trade war with ever
increasing tariffs and barriers. Along with the ten percent tariff
on Chinese goods, Trump excluded China from the Deminimus provision

(13:23):
of US customs law that exempts goods valued at less
than eight hundred dollars. This would make cheap goods from
China online retailers which were offering shipped directly to consumers
subject to existing tariffs plus the new ten percent tariff.
The exclusion was suspended on February seventh to give the

(13:45):
US Postal Service and Customs and Border Protection time to
develop a plan to collect the tariffs. It's unclear how
this change will affect consumer prices, but processing of these
tariffs could slow down delivery times. Let's talk about inflation.

(14:05):
Most economists believe that tariffs cause inflation, and President Trump
admitted there might be short term price increases. The potential
for tariff driven inflation is of particular concern in the
current economy. Two recent surveys show a significant decline and
consumer confidence due to inflation fears. If you guys have

(14:31):
looked at the stock market a few days ago, Thursday,
April second was a rough day on Wall Street. The
full economic impact will depend on how the tariff program
plays out, how much is intended as a negotiating tool,
and how much turns into long term policy. For now,

(14:54):
it'd be wise to maintain a steady course and keep
an eye on further developments now. A few weeks ago,
on March thirteenth, the SMP landed in corrective territory after
a swift three week drop of more than ten percent
from its February nineteenth record high. The Nasdaq index suffered

(15:15):
an official correction a week earlier, having fallen over several
months from its most recent peak in December of twenty
twenty four. President Trump's rapid on and off implementation of
tariffs and the escalating trade war it sparked unsettled the
financial markets. Meanwhile, the US economy, which had appeared to

(15:40):
be pulling off a soft landing, began to flash warning
science again. A tariff is a tax on imported goods.
It is used to help protect domestic industries from foreign competition,
raise revenue, or as a tool in trade negotiations. Tariffs
are a key component of the President's trademark America First policy,

(16:04):
as they are intended to incentivize businesses to produce goods
in the US. New twenty percent tariffs on imported goods
from China, now totally in about thirty percent, have already
taken effect, along with a twenty five percent tariff on
all imported steel and aluminum, threatened twenty five percent tariffs

(16:27):
on imports from Mexico and Canada. We're pay at or
paused until April. I forget if those were raised this
week or where that cetus is now, which is when
a round of reciprocal tariffs on specific US trading partners
could be announced. Canada and the European Union have responded

(16:49):
with reciprocal tariffs on specific US products, and Canadian shoppers
are boycotting American made goods. China imposed a retaliatory tariff
of fifteen percent on chicken, wheat, and corn, and ten
percent on soybeans, pork, beef, and fruit, which could potentially

(17:11):
cost US farmers billions of dollars in reduced agricultural exports.
If US companies must pay a twenty five percent terify
on imported goods, their actual costs may not increase by
the full twenty five percent because a foreign exporter might
lower its prices to remain competitive. Still, it could cost

(17:33):
substantially more for US manufacturers to buy widely used commodities
such as metal or lumber. The price of domestic supplies
could rise as well due to less foreign competition, as
would the price of products that are made in the
United States from those materials. By one estimate, the price

(17:55):
of a new car sold in the US showroom could
rise by a startling four thousand to ten thousand dollars
if threatened tariffs on Canada and Mexico take effect. The
National Association of home Builders reported that tariffs could increase
the cost of building a new typical home by nine

(18:17):
two hundred dollars in the worst case scenario. Significant inflation
could hurt consumers, reduce sales, squeeze corporate profits, and result
in job losses, especially in industries that depend heavily on imports.
The rising possibility of tear tear of tariff driven inflation

(18:41):
is just one reason that some economists have started to
downgrade their forecasts for economic growth, measured by two eight
percent over the twelve months ending in February of twenty
twenty five. It could take time for tariff driven price
increases to show up on priced tags, and even longer

(19:01):
before what would become evident in official inflation reports. Even slow,
the closely watched University of Michigan Survey found that consumer
sentiment fell sharply in March, and participants expected inflation to
run at three point nine percent over the next five
to ten years. That's the highest reading in more than

(19:24):
thirty years. This sudden declining confidence coincided with a barrage
of news about tariff actions and layoffs at federal agencies. Retailers, airlines,
and restaurants have reported seeing a noticeable decrease in consumer demand.

(19:46):
It appears that consumers have started to pull back, and
some could be tapped out after enduring several years of
high prices. Consumers spending accounts for two thirds of gross
domestic product, so if it significance slowdown materializes, it could
put the brakes on overall economic growth. For several decades,

(20:09):
much of the world, including the United States, supported free
trade and globalization. Many companies manufacture products in other countries
and or source raw materials or components from all over
the world. Reshaping complex supply chains isn't likely to be
a quick or painless task. Some tariff threats may be

(20:34):
dropped through negotiations. If so, it's unknown which teriffs will
stick for the long term. Uncertainty may cause many businesses
to hold off on capital investment and or hiring plans
until they have more clarity on tariff policies and the
direction of the economy. Tariff related costs that can be

(21:00):
passed on to consumers could cut into the earnings of
publicly traded companies in upcoming quarters, a prospect that has
likely triggered some of the recent market volatility. It's natural
to be concerned when the market drops, but it may
help you to keep in mind that investors have also

(21:22):
benefited from two years of extraordinary gains. Stocks on the
S and P five hundred index provided a total return
of twenty five percent in twenty twenty four and twenty
six percent in twenty twenty three. Stocks regained some losses
in the days following the correction, but prices could continue

(21:45):
to fluctuate while investors digest the potential impact of shifting
trade policies. Expecting volatility and maintaining a long term perspective
may help you avoid making snap decisions that could derail
your investment strategy and overall retirement goals. If the under

(22:07):
if you're under the age of sixty, my advice to
you would be just to buy more stock. Remember these
tariff shifts could change and for again the under sixty crowd,
don't change your overall perspective. This is just kind of
a blip on the radar. Remember the stock market has

(22:30):
done really well between twenty eighteen and twenty twenty four.
This could just be a little downhill blip. If you
have still time to retirement, don't panic, don't change your focus.
Keep doing what you're doing. If you're really worried about
stuff like that, here's a suggestion. Don't watch the news

(22:51):
or read the newspaper for a week. It'll kind of
change your perspective on life. For those of you that
are over sixty getting near retirement, I still wouldn't change
your focus. But if you need help, talk to your advisor.
If you don't have one, come see me. I'd be
happy to talk to you about the subject matter. We

(23:13):
can see if there's a way to tweak what you're doing.
Remember I do a lot of annuity seminars that I
can educate you on how pulling aside a piece of
your overall retirement portfolio to put into a safe annuity

(23:35):
harbor maybe a good play in certain circumstances. We can
always talk about it. Don't forget I give monthly virtual
meetings regarding Medicare for two different companies every month. In
one meeting, I will cover the Medicare Supplement plan with
a standalone drug plan. That meeting is normally sponsored by

(24:01):
My other meeting I do sponsored by United Healthcare. I
focus on Medicare advantage plans known as Medicare Parts C.
I cover the four parts of Medicare, and I cover
the benefits of that platform. My next couple Medicare meeting
dates are going to be April fifteenth and April seventeenth,

(24:24):
May tenth and May twenty second, June seventeenth and June nineteenth,
and my July dates will be July fifteenth and the
seventeenth of July. You can call our office at five
six three three three two two two zero zero for

(24:46):
the zoom meeting codes and additional dates and times. You're
also welcome to email me at Craig at Craigshilig dot com.
And that's my name, Aig at cr I G S
c h I L l I G dot com. I'd

(25:06):
be happy to send you the virtual zoom link meeting codes.
This is Craig Shellig with Safe Money