March 2025
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Watch previous episodes here:
Ep. 127 2025 Tax Laws: What's Changing & How to Stay Ahead
Ep. 126 U.S. Stocks are Expensive - Time to Invest Abroad?
Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski, joined by wealth advisor Beau Wirick. Thank you for joining me today.
It's so exciting to be here. It's crazy times.
I mean, look, it's March 10th at about 10:30 in the morning. The reason why I wanted to timestamp this is because we're going to talk about tariffs today. Right. And are they a necessary tool to protect American businesses or do they do more harm than good. And so we needed a time stamp because a lot of people aren't going to see this episode until Wednesday.
And the tariff conversation seems to be changing by the hour. So let's talk a little bit about tariffs, the current state at where we're at. And then we'll kind of argue whether or not they do more harm than good, ways that people can protect themselves. And sort of our thoughts around that.
Perfect. We have no idea where the tariff conversation is going to be at that point (Wednesday) currently. Today, the markets are a little bit scared. They've been selling off, you know, the S&P 500 is down about 8% from its highs.
And a lot of that is because markets hate uncertainty. And I think that's the biggest thing that we can describe the tariff conversation right now is uncertainty. Every day or even a matter of hours go by and, the Trump administration will announce a different policy change on tariffs.
And a lot of this is probably because it's a negotiating tool. Right now, Mexico, Canada and China are the three countries that they're talking about tariffing.
And for a while they were going to start March 1st, but now they're backed up to April 2nd. China and Canada have imposed retaliatory tariffs. And then we've imposed retaliatory tariffs. It's a really crazy conversation. So for that reason let's kind of talk about what can be done with tariffs that are good. What can be done with tariffs that are potentially negative.
Yeah. And the whole purpose of this is sort of deglobalization. Yeah. Right. Trying to, you know, create jobs and wealth here in America because for a long time, countries have sort of been using other countries to build products at cheaper in order to then export them or import them back to your country to have a cheaper cost of goods and services.
And so now we wound up with a country here in the US where we rely solely on the consumer. We don't make a ton of things here, like what we used to back in the Industrial Revolution. And so this whole theory of deglobalization is not relying on supply chains and other countries to manufacture goods and services.
And so now we're starting to impose tariffs to get a little bit more, I don't know, competitive in that range.
Yeah. And I think there's been some winners and losers in this globalization trend that we've seen over the last, say 25 years. As consumers, things have gotten a lot less expensive. And it makes sense if you have, you know, televisions being manufactured by cheap labor in foreign countries and it's cheaper to build factories in foreign countries, that capital expenditure that we are saving as consumers is pretty material.
If you want to build a factory again in the United States, to take back that manufacturing, it's going to be expensive to build that factory. And then if you have to hire American workers, for which you have to pay Social Security tax, and there has to be unemployment insurance and certain provisions for American employees, it's going to be a very different cost to the end consumer.
And so that's why tariffs are are seen pretty much as as negative. It's a tax. It's essentially saying we're going to pay more in order to have things produced in the United States. The way that I like to look at it is I shop for my produce at the farmers market. I know I'm paying more than if I went and got produce at Costco, but I'm supporting local businesses, right?
That's kind of what tariffs are supposed to do. It's like, yeah, we're all going to pay more, but we're supporting local manufacturers.
And do you think tariffs are working? I mean there was, I think two reports that came out. And again this changes by the minute so I might be wrong on this. But I think I heard that Honda wants to build a plant here in the United States and start building cars here in the U.S. to avoid the tariff and Taiwan semiconductors as well.
So in one lens, it's like, no, you're actually bringing jobs here to America. And this could be working.
Yeah. Those two examples are really great. Honda is more of a rumor. They have not confirmed that they're going to build any more plants in Indiana, even though that's what the administration claimed. Taiwan Semiconductors are building. They're investing $100 billion more in building manufacturing and research facilities in the United States.
That's huge. And so I would say if there's one victory to claim from tariffs right now, the fact that we're getting really high-tech semiconductor being produced in the United States. That gives us, protection against, you know, those semiconductor chips are... they're for military. They're for computers, they're for AI. And a lot of those, 97% of those chips are made in Taiwan right now.
So if we're actually onshoring that manufacturing, that's a really good thing. Could that have been done by having more of a targeted tariff, of just saying that we're going to, you know, impose a 25% tariff on semiconductor chips? I think that could have been done that way. But either way, the good thing is, is that this is a foreign company investing $100 billion.
Taiwan Semiconductors only makes $50 billion a year in profit. So that's two years of gross profits that they're investing in building plants and research facilities in the United States. Who's paying for the tariff? That's kind of the conversation that has to happen because it's a tax at the end of the day. In the case of Taiwan Semiconductors, that company is paying for it.
That's really good for the end consumer. If Honda did create a plant in the United States, and instead of building civics in, Mexico and they started building civics in the United States, who's paying for that? Obviously you're going to have to pay for higher labor costs. You got to build the plant. Those are huge investments. But if Honda, this foreign company, is, is paying for those investments and their profit margins are coming down, maybe the end consumer doesn't have to pay that cost. Maybe the cost of civics go up. And so it's a really dynamic thing. And I think if people talk about tariffs so simplistically, it's kind of an error to think of it that way.
I guess my fear around the tariffs is this whole conversation around affordability of lifestyle for people across the United States. They're already stretched thin with lots of household debt. I think a couple of weeks ago we talked about this with Jeff. I think the US has 18 trillion of household debt, 12.6 trillion of that is tied to mortgages.
Another 1.5 trillion is like student loan and auto debt. And we're starting to see some delinquencies in credit card payments and auto loans. And so when all of a sudden you have inflation and higher costs of goods and services, and we're sort of on the brink of like recession talks, with these tariffs now that the consumer has to pay more for goods and services, our economy slows down, potentially heads into a recession and even if Trump does come back and say, oh, I'm going to take away these tariffs after 100 days anyways, even if he does that, I'm not convinced that prices are going to go down after that point. So we're going to experience things like Shrinkflation where we pay the same price for something but get less and less of that quantity or prices remain high. And there's even more stress on the average consumer here in the US. So that's one of my biggest concerns around, you know, we can't just willy nilly, you know, impose tariffs.
And then they have retaliatory tariffs because this could cause a snowball effect. And so goes the US consumer. So goes the economy.
Yeah. When 68% of GDP is U.S. consumption, if you're increasing the cost of that consumption then that could really, really harm the average consumer. And I think that's why, generally speaking, widespread tariffs, most economists think is a bad thing. Again, it's a tax. It's not like this is going to grow the economy. The argument against tariffs I think that resonates most with me is that if you had one way to raise revenue from the government, either by imposing, tariffs or imposing an income tax, tariffs tend to hit low-income consumers harder than high-income consumers.
And the reason for that is because if you are a low income consumer, you pay a higher percentage of your discretionary income on goods. Things like your car, the food that you buy versus if you're a high income consumer, you're spending a lower percentage of your discretionary income on goods, a lot more on services and investments.
And so if you're taxing goods, imported goods, what that's doing is raising the price of every type of that good, whether or not it's foreign or domestic. And again, that hurts the lower-income consumer. It's more of a regressive tax.
And so one of the biggest arguments for tariffs is that they help protect American jobs, because if foreign companies flood the market with cheap goods, U.S. businesses will struggle to compete. So tariffs level the playing field. And that could be a good thing as long as the income for the average worker continues to increase by more than the increase in cost of those goods and services.
That's exactly right. And I think that's to be seen. And I think most economists would agree that that's an unlikely direct result of tariffs. Here's the dream of tariffs. The dream of tariffs is yes, all of us are paying a little bit more. You know a couple percentage more for all of our goods.
However, there's a lot of people who used to work in factories in the 1980s. Those factories have closed down. And we're going to build more factories and create more good-paying jobs for non-college-educated Americans. And again, 75% of Americans do not have a college degree. So this is very important to them. And again, the dream of tariffs is that this incentivizes domestic building of infrastructure and manufacturing to create those good paying jobs.
It's kind of like all of us are getting together to pay a higher price to support the middle class. Again. Is that going to be an actual result? Most economists would be. It's kind of a pipe dream, but that's the reason for if someone was to be pro-tariff, that's the reason why.
And so if you're a person living in the United States right now, or anywhere for that matter, and you're worried about the effect of tariffs on you- a couple of the things that they should really look at doing right now today is, you know, create a spending plan, understand what the cost of your lifestyle looks like today.
Then continue to track that month over month to determine whether or not you can cut spending in certain areas. Maybe, the cost of steaks got too expensive. So now you substitute that for chicken or whatever. So there are ways that you can sort of make different choices at the checkout stand to, you know, maintain the cost of your lifestyle, but also try to start building somewhat of an emergency fund or a safety net, because I'm not calling for a recession.
But if we do have a slowdown in the economy and we technically go into a recession, which is healthy and normal, we haven't had one in a very long time. People should protect themselves through that rough period by having some sort of a safety net. So that way they can, you know, weather that storm, so to speak.
I know here at Morton we've taken steps proactively to reduce stock exposure the last few years, because stocks are expensive from a number of valuations. So if we were to go through a recession or these tariffs do cause problems, our clients are going to be more resilient because they have a more diversified pool of investments, things that aren't going to fluctuate as much with the overall market.
But what are some other things that people can do to help protect themselves?
I think you're right on. I mean, diversifying away from the stock market where, you know, like you said, it was expensive. So anything that happens can, can spook the stock market. It can go down again, 8% as of today. Another thing that you can do is just getting out of of high-interest debt. You know, this is not a good time to be carrying a lot of credit card debt.
This is a good time to be saving up cash, having that ready for a recession. Also investing in yourself and your own skill set. Again, recessions happen because people lose jobs. And so if you were working in a job that might be affected by the things that are going on right now, now is a really good time to start investing in your skill set to make sure that you have something to pivot to.
That's what I would say. And so for our clients, we we make sure that they're invested in a way that's resilient. They can weather the storms.
And the only reason why I bring up those recession fears is because over the weekend, Trump sort of acknowledged that, hey, on this path to where he wants to get our economy to go, we may go through a challenging period to sort of, you know, have things reset, to get things retooled, to bring jobs back in. And so we might have to go through some short-term pain to win in the long run.
And that's sort of what this tariff conversation could potentially do.
Yeah. You're the king of dad jokes, as we all know around the office. Here's one for you. We're making sure that our clients are not tariff-ied.
We're going to end on that. We're going to end on that one. But that was, that was very creative. Something about dad jokes and financial dad jokes... they're even worse.
They're even worse.
The information presented herein is for educational purposes only and is not intended to constitute financial advice. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. It should not be assumed that Morton will make recommendations in the future that are consistent with the views expressed herein. Morton makes no representations as to the actual composition or performance of any asset class. Past performance is no guarantee of future results. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances
