In this era of populism, tariffs have become as American as apple pie. Politicians are bending over backward to out-tariff their rivals. Voters are applauding the effort, and yet it is the consumer who will pay higher prices as a result.

 

I can understand how voters might disagree, given that party politicians continue to deny the obvious. "The notion that tariffs are a tax on U.S. consumers is a lie pushed by outsources and the Chinese Communist Party," declared a spokesperson for the Republican National Committee. 

 

I am neither an outsourcer nor a Chinese Communist, but I am convinced that tariffs are a tax on all of us.

 

When the U.S. levies a tariff on an imported good, the cost of the tariff comes directly out of the bank account of an American importer when the foreign-made product arrives at an American port. The importer then has a choice. It can either eat the cost or pass all or some of that added expense to the buyer of the imported goods. That buyer can be either a retailer or a consumer. How much of the extra cost is absorbed by the retailer and how much is paid by the consumer is hard to determine.

 

Historically, U.S. tariffs have been around since the days we declared independence. Tariffs generated most of the country's revenues and at one point represented 90 percent of federal revenues. That began to change when the Industrial Revolution took hold in the U.S. during the Civil War.

 

Tariffs were then levied to protect American industry, chiefly northern manufacturers from overseas imports. The Republican Party slapped tariffs on various goods from several countries in Europe and elsewhere. This period reached its zenith during the Great Depression when world economies were failing. Tariff wars exploded globally as countries rushed to protect industries within their borders.

 

Instead, these tariffs resulted in even less global growth and only worsened the state of the world's economies.

 

It was the passage of the Reciprocal Trade Agreements Act in 1934 that introduced the concept of reciprocity that began to reverse the global decline. The act allowed the president to horse trade on a global basis by negotiating lower duties if other nations did the same. After WWII, reciprocity became the dominant go-to trade policy. Over the ensuing decades, trade deals expanded from a country-to-country agreement to regional trade alliances that granted "free trade" to some while targeting duties and tariffs on others. The North Atlantic Free Trade Agreement is just one example of this practice.

 

After multiple decades, this era came to an abrupt halt when former president Donald Trump initiated a wave of tariffs on a variety of goods on China. He promised that the tariffs would level the playing field between the two countries, while bringing manufacturing jobs back home. He soon expanded his tariff offensive by placing tariffs on additional products and at the same time applying them to several additional countries.

 

His successor, Joe Biden, not only let stand the China tariffs but added to them. The costs to American consumers and companies not only increased as a result, but the jobs promised never materialized. The U.S. Customs and Border Protection estimates that Americans have paid more than $230 billion to date for tariffs that Trump imposed, and Biden extended.

 

A bipartisan working paper from the National Bureau of Economic Research found that the tariffs had no impact on the number of jobs in the affected industries. However, the tariffs did result in other countries imposing their retaliatory tariffs on U.S. products. That not only hurt consumers here at home but made the goods we exported abroad more expensive. In addition, those retaliatory tariffs lowered the number of jobs within the U.S. industries that were impacted.

 

The Chinese retaliatory 25 percent tariffs on U.S. cotton, soybean, and sorghum devastated large numbers of our farmers. The situation was so bad that the Trump Administration was forced to offset the damage by offering farmers $23 billion in taxpayer money.

 

J.P. Morgan economists estimated that the Trump tariffs on $300 billion of Chinese-made goods cost the average American household about $1,000 per year. We are still paying more today for a variety of imported goods from China including MAGA baseball caps, luggage, and shoes.

 

Next week, I will discuss the present effort to expand trade barriers and tariffs as a policy tool that is being used to advance several separate goals. Each of these tariff initiatives has serious ramifications for both American industry and consumers.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

This is year three of a 15-year period where change will occur throughout America. It won't be an easy time for any of us. Stress, conflict, dissatisfaction, economic and political turmoil. It all lies ahead, but there is a silver lining.

 

In the case of regime change fueled by populism, American history may not repeat itself, but it does come damn close. Throughout our history, we have seen the pendulum swing from right to left and back again as discontent and bad times (the absence of fairness, equality, and equity) alternated with boom times and capitalism (winner-take-all mentality).

 

The only time the pendulum broke down was during the Civil War and it could again if compromise gives way. You probably never heard of the Wide Awake Movement. It was a grassroots anti-slavery movement that had its birth in Hartford, Conn., in February of 1860. The movement spread rapidly.

 

By the end of that summer, there were a half-million uniformed members under arms protesting slavery in a nation of 31 million. In response, those who disagreed with that stance formed armed groups of their own. They also numbered in the hundreds of thousands with names like the Minutemen and the National Volunteers. Americans on both sides failed to compromise, to see the other side's point of view. The pendulum had swung too far, so the system broke down.

 

In 1891, the People's Party was founded as America's farmers had had enough. It represented a populist agrarian movement that pitted a growing number of the nation's landless tenant farmers against the Eastern establishment and banking elite. That finally wound down by 1908 after much-needed reforms.

 

Fast forward to the Great Depression, millions of Americans out of work, and the rise of the labor union. That period encompassed almost 15 years. Then came the Vietnam Era along with a boatload of grievances from many segments of the population. Is any of this getting through to you? Populism is, and always has been, part of this nation's fabric.

 

Each of these periods represents a regime change of about 15 years. Why so long? It requires a huge effort, and a great deal of time to move the pendulum to the middle and even more to swing to the other side. It does not occur without crisis (real or imagined), and conflict. All the regime changes I have examined are filled with them. Economics and politics both play their part.

 

Why, might you ask, are conflicts necessary? Conflicts make people realize that "something must be done." Conflicts are necessary to move the pendulum. History is rife with examples. It required a Civil War to end slavery. World War II to finally pull us out of the Great Depression and confront the horrors of the Nazi's extermination of millions. The Vietnam War to recognize a new generation. But make no mistake, a shooting war-type conflict has not always been necessary to effect change here at home.

 

 Domestic conflicts were also plentiful — and just as traumatic. The suppression of labor unions by businesses and the nation's police forces in the 1930s comes to mind. Some of us remember the 1960s. I lived through Kent State and other student demonstrations, marches for racial equality, the burning of Watts, assassinations (the Kennedys, Martin Luther King, etc.), and much more. All of the above created a crisis and triggered change.

 

 Economics has always played a major part in populism. In the post-Civil War era, the decimation of the southern agrarian economies was a wrenching blow to a large swath of the nation's population. In the 1930s, we suffered through thousands of bank failures, drought, historical unemployment, tariffs, and the rise of communism and Nazi Socialism, which threatened capitalism and free markets. The regime change that occurred from the mid-1960s to the 1970s culminated in a period of skyrocketing interest rates, inflation, and gas lines at the pump.

 

The response to my columns thus far on populism has been heart-warming. Thank you, readers, for your interest and continued encouragement. Next week, I will conclude this series with a glimpse of what we can expect in the years ahead, at least from a financial and economic perspective.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The number one issue on voter's minds in this election year is immigration. That may come as a surprise to some, but it makes a lot of sense if one believes that we have entered a period of populism.

 

Sixty-two percent of registered voters nationwide support a program to "deport all undocumented immigrants," according to a CBS News poll over the weekend. On June 3, 2024, President Biden signed an executive order that would ban migrants who cross the southern border illegally from claiming asylum to defuse this election issue. Faith-based charities, like Catholic Charities, which have a long history of providing shelter, food, and clothing to migrant families are targeted by anti-immigration activists. What has all this immigration anger have to do with American populism?

 

By now readers should be aware (if you have been reading my last three columns) that over the last 40 years middle- and lower-income Americans have seen their livelihoods dwindle because of government policies that favored a top-down approach to economic growth and fiscal spending. The flow of money from both the Federal Reserve Bank and the trillions of dollars in government spending has largely found its way overseas in a variety of forms. "Go forth and conquer the world" was the mantra our nation's leaders espoused pointing to the benefits of international free trade.

 

Every effort was made to encourage, expand, and at times, protect our overseas markets. Think of government contractors across a wide spectrum of U.S. industries importing goods and services from cheap overseas companies or their foreign subsidiaries. I have already written about the long-term trend by U.S. corporations to invest in plants and equipment in various countries.

 

U.S. companies have routinely imported basic materials from around the world to build our outdated infrastructure and still do. We must also add in the trillions of dollars in U.S. funding of dozens of foreign governments, while also supporting our troops in various conflicts abroad over the last couple of decades.

 

Here at home, as good-paying jobs disappeared, many younger Americans found that even their high-priced college educations might only qualify them for a minimum-wage job at a fast-food restaurant. Unlike in past generations, where only one spouse needed to work, now two were necessary, and even then it was not always enough to put bread on the table. Many jobs don't even cover child-care expenses.

 

Back in the day, they called America "the Sleeping Giant." Given the trends, it was only a matter of time before a large portion of the country woke up and asked the obvious question.

 

 "What about me?"

 

It is not the first time in our history we have asked that question. There have been many populist periods where economic or political dissatisfaction has translated into protests of immigrants and foreign influences in the form of protectionism. Protectionism is a policy of restricting imports from other countries through tariffs on imported goods, and quotas. and a variety of other government regulations that restrict the free flow of goods and services between countries.

 

Back in the 1930s, for example, during the Great Depression, as millions of workers lost their jobs, and populism surfaced, higher trade barriers were put in place. Those tariffs not only exacerbated the severity of the downturn but also worked to choke off any recovery.

 

This latest period of populism/protectionism found its voice through the ideas of MAGA. The Trump administration built walls along the Mexican border, levied tariffs on China and other countries, threatened to pull out of NATO, and provided a steady stream of anti-foreign rhetoric that was music to the ears of many Americans.

 

But like the 1930s, none of these policies worked. It only led to dislocation, losses for American farmers and other workers, and higher prices for consumers. Nonetheless, many Americans not only applauded these efforts but also supported even higher tariffs and more restrictions and deportations of immigrants.

 

The connection between protectionism and immigration is straightforward. Barriers to admitting immigrants are simply a tariff on another type of imported good and service that is entering the country — labor, both legal and illegal. The difference is that, unlike a tariff on Chinese semiconductors, an immigrant is someone who can be identified as such and is far easier to vilify. Immigrants become the embodiment of all that is wrong with globalization.

 

Making matters worse, thanks to COVID-19 and the failed economic policies and shortcomings of some governments, the refugees' rush to flee to the freedom and economic promise of the U.S. became irresistible. As such, we are assaulted through the news media with the spectacle of huge waves of immigrants at our borders, climbing fences, wading rivers, and dying in deserts. Unfortunately, they are also a visual reminder to all those generational Americans who have been left out of that economic promise, who see them only as a danger to our society and to job security.

 

Only now, thanks to the match lit by Donald Trump's oratory over the past several years, have politicians and corporations, begun to realize that the 40-year top-down, globalization trends that benefited a small segment of society have run into a brick wall of anger, resentment, and demand for change — or else.

 

Those who read my two-part column on immigration in March "Immigrants are getting a bad rap on the economic front," understand that immigrants have contributed far more than they have taken from the U.S. economy in recent years. In fact, throughout our history that has proven to be true.

 

But facts have never carried much weight in a season of discontent. As many who have tried reason in the face of conspiracy theories know, spouting facts in the face of this populist sentiment is a useless endeavor. 

 

The U.S. is not alone in using immigration as the favored whipping boy in an era of populism. In European elections last week, France, Germany, Spain, and Italy saw large advances by political parties that oppose immigration. The trend toward protectionism and de-globalization is gathering steam in Asia and Latin America as well.  Next week, I will examine similar times in our past when populism flourished. How long these regime changes normally last, what lessons we have learned, and why the coming crisis period we will encounter could usher in a change for the better over time.    

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The Federal Reserve Bank's smoothing of the business cycle, which started in the 1990s, was meant to ensure price stability and the health of the labor market. It's top-down policies of reducing interest rates through the banking system and into the hands of the largest corporations was meant to benefit the whole economy.

 

The problem is that corporations and the minority of Americans that control them are not the whole economy. What did that matter, argued supply-side economists. This group, who championed Reaganomics in the 1980s and beyond, assured us that the benefits of the Federal Reserve Bank's policies would ‘trickle-down' throughout the entirety of U.S. society over time. They said the same thing about corporate tax cuts. Those assurances never materialized. Why? Times had changed, and neither the government nor the Fed realized their mistake.

 

As profit-seeking organizations, corporations do not seek to be fair, equitable, or distribute justice. They ignore that side of the pendulum swing (as they should). Corporations simply seek to reduce costs and expand revenues. If they are good at doing so, more and more profits are generated for themselves and their shareholders.

 

In the 1990s, and especially after the turn of this century, U.S. companies and their owners realized that by investing overseas where labor and taxes were much lower, they could reduce costs, widen profitability, and open new markets for their products. As a bonus, it could also help them to compete in an increasingly global marketplace with larger and larger companies.

 

In the ensuing years, U.S. jobs and industries were exported overseas leaving entire regional industries rusting into decay. It also drastically reduced the size of the great American middle class, which had acted as a buffer between the haves and have-nots within society. It also made any semblance of 'trickle-down' economics a sad joke. There was nothing fair or equitable about this trend and yet our politicians applauded the outcome. We were winning the market share war in China. And all it cost was money and giving them our greatest corporate trade and technology secrets.  After all, both parties' politicians reasoned, who doesn't want cheaper T-shirts (for those who could buy them) at Walmart?

 

In my Nov. 8, 2012, column "The Incredibly Shrinking Middle Classhttps://tinyl.io/Av8y" I wrote "Last month the Census Bureau found that the highest-earning 20 percent of households earned 51.1 percent of all income last year. That is the biggest share on record since 1967. The share earned by middle-income households fell to 14.3 percent, a record low. From 1979 to 2007, the incomes of the richest one percent of Americans soared 275 percent. That same 1 percent earned 23.5 percent of all income, the largest share since 1928. At that rate, the rich are 288 times richer than you the middle class."

 

At the same time, with the additional corporate profits rolling in, company managements invested in technology, especially labor-saving technology, that further reduced the need for human capital.  Companies got bigger, owners became billionaires, the stock market boomed, and those with enough money to invest (mostly Baby Boomers), were paid off in escalating stock prices, buybacks, and extra dividends. As for the bottom half of society, "Let them eat cake."

 

Today, income inequality is a worldwide phenomenon where the richest one percent own half the world's wealth, while the poorest half of the world own just 0.75 percent. Here at home, the bottom segment of American society has been suffering through the worst period of income inequality in American history, far higher than during America's colonial period.

 

In a column I wrote entitled "The Next Third World Nation" back in 2010, I asked this question, "What do Cote d'Ivoire, Uruguay and the United States have in common? Answer: all three nations have about the same level of income inequality. America now ranks lowest of all developed nations in terms of its income distribution." It has declined further over the ensuing 14 years.

 

It is no coincidence that the rise in populism here in the U.S. began about the same time. There was a gathering sense that the real people in this country were under attack by money-grubbing elites, many of whom were thought to be liberal or represent liberal-minded institutions. Movements such as Occupy Wall Street and the Republican Tea Party were early warning signs of the discontent that has now bubbled over among many Americans in the form of today's populism. 

 

Unfortunately, the same trickle-down mentality and government policies that created this inequality continue today. Trump, if elected, offers tax cuts for the wealthy. Biden is funneling billions into corporations as you read this.

 

Who suffers the most from the Fed's higher interest rate policies? The credit card holders, the family purchasing a used car, the first-time home buyer; that's who. Ask yourself who benefited the most from the trillions of dollars in spending over the last decade under the last two administrations. 

 

In my next column, I will tackle the issue of protectionism, which I believe is the cousin of today's populism, as well as the similarities and differences between the crisis we will face over the next decade and those of similar times in our nation's past. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The Federal Reserve Bank is the most powerful central bank in the world. It has a long history of successes and at times, failures in steering the U.S. economy through ups and downs. This is a story of how a well-intentioned policy has resulted in one of the worst disasters in American history.

 

After the stock market crash on Oct. 19, 1987, just two months after Alan Greenspan assumed the chairmanship of the Federal Reserve bank, he fired off a one-sentence statement before the start of trading on Oct. 20, "The Federal Reserve, consistent with its responsibilities as the nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system." It was enough to turn markets around and kick off an economic expansion that lasted for 10 years.

 

The Fed soon realized that it might be able to smooth out the bumps in the business cycle and the economy by using monetary policy. They tried and succeeded in doing so in the early 1990s to combat a credit crunch, a Russian default on government securities, and the overheating of the U.S. labor market in 1994. As a result, the decade was marked by generally declining inflation and the longest peacetime economic expansion in our nation's history.

 

How exactly does the Fed work its magic? Think of monetary policy as a money spigot. When the Fed believes the economy is going to enter a slow patch, it turns on the money spigot. It turns the spigot off when it fears the economy is overheating, which could cause inflation. Simple, right?

 

It was a wonderful discovery. The government, through the Fed's actions and its fiscal spending, could minimize unemployment and ensure price stability by controlling the money supply if the dollar maintained its status as the world's preeminent currency.

 

However, money is distributed into the economy in a certain way — through the banking system in the form of lower interest rates. Interest rates are the cost of money when borrowed. The lower the rate, the cheaper the money. Banks offer loans to borrowers and these loans flow from the top down. Therein lies the problem.

 

Take a guess who gets to borrow the lion's share of this easy money?

 

Corporations, of course, are followed by the wealthy who own them. Corporations are profit-seeking entities that use capital most efficiently. The biggest, most profitable companies get to borrow the most at the lowest rates. The same top-down mentality pervades our fiscal policy efforts. Who, for example, will receive the $90 billion in new spending for Ukraine? It will not be soldiers on the front line. It will be defense companies, arms suppliers, munition distributors, etc.

 

From the government's and the Fed's point of view, this is the most efficient means available to inject monetary stimulus into the economy. The Fed also realized that with their top-down efficient capital approach, monetary loosening was not by itself inflationary. 

 

Remember last week's column concerning a swinging pendulum where on one side sits winner-takes-all capitalism versus fairness, equality, justice, and equity on the other. In this top-down situation, what happens to those who are at the bottom of the borrowing chain? Is this fair, and if so, how do they benefit?

 

Well, that is where trickle-down Reaganomics is supposed to come in. Corporations and other wealthy borrowers, according to supply-side economists, would invest in new plants and equipment, which would bring new jobs and higher pay to the masses. Economists used the same arguments for tax cuts as well. It may have worked in the 1980s, although many have their doubts, but it didn't work in the 1990s, or any time since then. Why?

 

Next week, I answer that question and give readers an understanding of how a swing in the country's economic pendulum isolated and decimated the lower and middle classes of this country.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.