Transcription
Okay, if you're confused about what's going on with tariffs—those extra taxes that are now going to be on many goods and services between Canada, the United States, Mexico, and the United States and China—or you're confused by what Elon Musk is up to with Doge, apparently trying to get line item veto power at the Treasury Department, leading civil servants who had been there for decades to resign, I don't blame you at all for being confused.
There is a lot that's happening, and we're going to break it down in this video. It is overwhelming, and we're going to try to make it simple. But I want to show you why there is such confusion.
Look at this tweet from Elon Musk. Elon Musk says, "Todd Young is a deep state puppet." Well, Todd Young is a Republican who is one of the votes needed to confirm Tulsi Gabbard. A White House reporter, Jake Sherman with Punchbowl, says, "I assume this isn't part of the White House's effort to lock up the vote for Tulsi Gabbard because it's kind of like a slam on the Republican they need a vote from."
Well, after this started getting more attention, apparently Elon Musk deleted this tweet. I confirmed the tweet is deleted, and instead, Elon Musk went from some reactionary form of "Todd Young is a deep state puppet," which remember, it's very popular on X to scream that somebody is a deep state puppet or corrupt or, you know, somehow bad.
Then Elon Musk 100% u-turns and says, "Just had an excellent conversation with Senator Todd Young. I stand corrected. Senator Young will be a great ally in restoring power to the people from the vast unelected bureaucracy," which is terribly ironic given that Elon Musk is basically the king of unelected bureaucracy now, given that he's got the reins of the Treasury Department and he's going through line by line as an unelected official trying to cut expenses.
Now, look, fans of Elon Musk are like, "Great, this is exactly what we needed." Other people see the irony. Anyway, like I said, we have a lot to cover, so let's get started.
Before we hit Elon Musk and more of the Doge stuff, including apparently Musk moving beds into the Doge offices so they could work longer hours, it's worth just breaking down what's going on with these tariffs and what institutions are saying, as well as what researchers are saying the impact of the tariffs could be.
So let's also just start by saying that many people didn't think that Donald Trump— you almost start confusing who's president—many people thought that the tariffs Donald Trump was threatening were just going to be a, well, threat and a negotiating lever.
And that's because if you go back to 2018, you can't really blame the historical context. Donald Trump phased in tariffs. In fact, he slowly worked tariffs up against countries like China and others over many months, with many warnings and time—a long period of time for people to sort of adapt to these tariffs.
Now we're literally going from an announcement on January 31st that we're getting tariffs, with the preview on the 30th, to tariffs taking effect on February 4th, which is less than a week for businesses and people to adapt to these tariffs.
People are also rightfully confused because if you look at, you know, Nick Tios from The Wall Street Journal, he quoted Steve Basset, the now Treasury Secretary, with this hedge fund letter. Steve wrote in the letter, "The talk of revenge will most likely be limited to a small group of political enemies, and wider policies of the administration will be oriented towards deregulation, energy independence, and reviving U.S. manufacturing and extending tax cuts."
In other words, don't worry, we're going to have all the good with very, very little downside. There's little to worry about with the tariff gun. In fact, the tariff gun, as he calls it, will always be loaded and on the table but rarely discharged.
See, keep in mind that we have this view that Trump will pursue a weaker dollar strategy rather than implementing tariffs. Tariffs are inflationary and strengthen the dollar—hardly a good starting point for the U.S. industrial renaissance. Weakening the dollar early in his second administration would actually make U.S. manufacturing more globally competitive.
Basically, if that's complicated—which it is, trust me, it's complicated for the vast majority of people to read—it basically means if it's cheaper to do business with the United States, more people want to manufacture their stuff in the United States.
Okay, if you're a foreigner, right? The dollar is weaker, then it's cheaper. It's kind of like when you go to Europe or you go somewhere where all of a sudden their currency has fallen in value relative to ours. It's cheaper to go there; like you get more for less of your own dollars.
Well, the same thing is true if you have a weaker U.S. dollar. Other countries are like, "Oh, let's manufacture in the U.S. The dollar is so cheap right now." It makes logical sense. The opposite is true when you have a really strong dollar. You kind of don't exactly power manufacturing in the United States from foreigners.
Now, from the inside of the U.S., maybe you can do that, but we've got some stuff to talk about regarding that as well. So basically, you have this Steve Basset letter that goes as far as saying we strongly disagree that you should have a strong dollar based on tariffs, and we don't—we basically don't think it's likely.
See, the Wall Street consensus is for a strong dollar based on tariffs. We strongly disagree. Well, it looks like the Wall Street consensus is right at this moment because the dollar is skyrocketing. The Canadian dollar has fallen into its lowest trading level since 2003 as these tariffs are being implemented—boom, relatively rapidly.
I mean, like really rapidly. People now expect that tariffs are going to impact about $1.3 trillion of U.S. imports. That would represent about 43% of U.S. imports and about 5% of GDP. That's a lot that is going to be affected by tariffs because it's not just the tariff items that are targeted, but then materials that go into those targeted items and the trade back and forth.
Now, something to remember when we talk about GDP and some—and we hear 5% of GDP—we might think, "Oh, that's not that big of a deal." But remember, we're trying to grow GDP right now. Our gross domestic product is growing by about 2%, 2.1% based on the fourth quarter of the United States and its growth.
Okay, well, if 5% gets whacked, and let's say half of that 5% disappears because people are like, "Whatever, we're just going to take a break and not trade for a moment here while we calibrate," well then you just lost 2.5%.
Okay, well, if we're growing at 2.1% and you minus 2.5%, it means now you're in a recession. You're at negative 0.4%. Because remember, GDP growth is what determines whether or not we're in a recession or not. Positive, no recession; negative, two quarters in a row, technically you're in a recession.
Average tariff rates across the United States are now expected to rise from 3% to 10.7%. Some people think that gas prices are immediately going to start rising by as much as 70 cents to maybe even over a dollar very rapidly as a result of this.
This is even in spite of the fact that Trump is encouraging—or I should say implementing—lower tariffs on Canadian energy than he is on Canada in general. See, Canada in general is going to get a 25% tariff, but on oil that they send us or natural gas, there'll only be a 10% tariff. Got it?
25% tariffs on Mexican products, 10% on China. And let's just say there is a little note in the Trumpian executive orders that creates even more nervousness. See, Goldman Sachs rightly pointed out this in their note this morning. They said the problem with these tariffs is that the tariffs that Trump has implemented include a retaliation clause.
It says, "If a country chooses to retaliate against the United States in response to this action through import duties on U.S. exports or similar measures, the president may increase or expand in scope the duties imposed under this order to ensure the efficacy of this action."
In other words, hey, if you tariff us back, we'll bump the tariffs even more against you.
Okay, interesting. So what have we seen so far? Well, so far Justin Trudeau has come out—good old Trudeau has come out and said, "We're putting 25% tariffs on U.S. goods."
And now he's also holding press conferences encouraging Canadians to think twice about traveling and vacationing in the United States. Maybe consider the historic sites or parks in Canada instead, and maybe think twice about buying Florida orange juice.
It's interesting; my wife is half Canadian, and I grew up in Florida, going to start charging her.
Anyway, okay, bad jokes. What's interesting here is if you actually look at social media, this is going as far as people getting shamed in Canadian grocery stores now for buying American products. People are literally going up to folks in the grocery stores, shaming them, saying, "Don't buy that; that's a Trump product."
And there are protests over this as well. This is expanding rapidly. In addition to Canadians' response, the Mexican government is expected to respond with retaliatory tariffs soon, and China is filing a lawsuit in the World Trade Organization.
In 2018, Donald Trump threatened to pull out of the World Trade Organization. He didn't, but he threatened to. He said, "If they don't shape up, I'm going to withdraw from the World Trade Organization."
And the World Trade Organization is basically set up to quote, "benefit everybody but us." We lose all the lawsuits filed in the WTO. I guess we're going to have some retaliation to deal with here.
Now, the Federal Reserve argues that these tariffs could end up knocking 1.2% off of GDP and adding 7% to core PCE inflation. Goldman thinks 7% of GDP is going away. Some people think more of GDP is going away; some people think less of GDP is going away.
But let's just put it this way: everybody is in agreement that this will be a net negative to gross domestic product. So in other words, it just pushes you closer to recession.
We really need to, like, think about it. Kind of like imagine you're a rocket, okay? You're a rocket; you're going straight, and then all of a sudden somebody puts, like, you know, Saran Wrap in front of you, and you're like, "Okay, I got to get through that Saran Wrap."
Well, you just lost some thrust, right? And so you need more in the boosters; you need more gas to kind of keep the boosters going through all the roadblocks that are getting put up.
All right, it doesn't help at the moment. We'll look at some studies and some research as well at the moment, but it's worth noting estimates are going to vary for a while.
The current estimates are that the benefit of these tariffs, maybe best-case scenario, would bring us in about $2.2 to $3 trillion in revenue. But the downside is that they're going to cost us somewhere around $4.6 trillion over 10 years.
This is over 10 years; this is per Bloomberg. And so basically, they're going to cost you somewhere around, I don't know, let's say for every dollar that you save—let's do it that way—and we'll go with the best-case scenario. For every dollar that you save through these taxes, you're probably going to lose about $1.53.
So this is why a lot of researchers call tariffs a very inefficient tool for collecting revenue for the United States government. They see it as like, "Hey, there are better ways to actually make money."
In fact, there are a few research papers we could look at just to see what this looks like. I'll go ahead and pull those up so you could see them.
Take a look here: "Who's Paying for U.S. Tariffs? A Longer-Term Perspective" by Princeton. Princeton here argues that when we looked at steel tariffs, about 50% of steel tariffs were borne by foreign countries because they lowered the cost of their steel.
However, the other 50% was borne by us or the buyer of the steel. And now sometimes there can be a lag in steel just because usually people lock in steel contracts for 6 to 12-month terms.
But the point is you kind of had every consumer of steel or maker of steel equally get hurt. There wasn't really an imbalance here as to who was punished.
Now, if you look at another research piece by CESIO, we find that during the U.S.-China trade war, U.S. punitive tariffs were almost entirely borne by U.S. importers, and only 68% of China's retaliatory tariffs were paid by China's importers.
And this is in part because the stuff we import from China is often electronic or chip equipment or computer-style equipment, whereas the stuff that China is importing can be fruit or other aircraft, which are often deemed to be a protected industry.
You know, their lobbyists make sure that they are fewer tariffs, so they break them down and they say they're low tariff, low pass-through tariff items and high tariff pass-through items.
Pretty much in English, the stuff that we take from China usually gets hit with the full brunt of the tariffs; the stuff we send to China usually doesn't. That was their take.
And then there was another piece put together by the NBR, and they reported that obviously the stock market gets hit in environments like this. Tariff announcements resulted in 2 to 4.3% market declines.
The market dropped 12.9% over a 3-day window around market announcements in 2018 and 2019 around tariffs. The counterview is that the very short-run stock market response time to a tariff announcement may not reflect the actual impact of tariffs on fundamentals.
In other words, it takes even longer to sort of assess the real impact on the economy. In other words, if you're studying the impact of tariffs, you have to be careful to say, "Oh, the stock market went down; it's bad."
No, it's going to take a while for us to see it in the fundamentals. And so when they do talk about the fundamentals, they say here that the welfare effects appear relatively small compared to GDP, and the distortions, though, are substantially larger.
In other words, GDP benefits from tariffs very, very little. This is according to NBR. However, the overall cost of tariffs is much larger, and so they go as far as saying that tariffs are quote, "particularly costly," or particularly costly relative to many other public policies.
Like if you're going to choose a tool, this is kind of an expensive tool to use to try to gain tax revenue. As we said, we're only expecting to get a buck for every $1.50 in cost that we hit here.
So this idea that, "Oh, tariffs are going to help pay for no income tax in the United States," is loony. The idea that it'll pay for some income taxes in the United States is much more reasonable but also unlikely, given that the cost is probably going to end up being higher, especially since we're playing this sort of tit-for-tat escalation game right now where first the United States issues tariffs, then we expect retaliatory tariffs, as Canada has already announced, China and Mexico are expected to announce as well.
And then the U.S. is already preempting that if you retaliate, we will raise our tariffs. So TBD how this is all going to go.
Obviously, Donald Trump says this is to stop fentanyl flow and illegal immigrant flow. One of the downsides of this for Canada is that only like 1% of the illegal fentanyl comes through the Canadian border, but they're still getting blamed for fentanyl flow.
It was literally JD Vance this morning that was tweeting about how fentanyl flows through Canada, and people are like, "Bro, it's a fraction of the problem; most of it's coming from Mexico."
And this has also led the Wall Street Journal's editorial board to say, "Yo, wait a second here. Yes, the drug issue is a problem, but this drug issue has been a problem for a very long period of time, and maybe there are different ways that we could go about solving it."
The Wall Street Journal editorial board actually goes as far as calling this the quote, "dumbest trade war in history." They say that President Trump's first salvo is not only very rapid, but it's going to impact our car industries really substantially.
They say, "Take the U.S. auto industry, which is really a North American industry because the supply chains in the three countries in North America are highly integrated."
By the way, this makes a lot of sense that they're highly integrated because six years ago, Donald Trump announced the USMCA, which was to integrate trade between Canada, Mexico, and the United States more heavily.
So the countries and businesses did exactly what Trump wanted in 2018, and now they're getting punished for doing exactly what Trump wanted in 2018.
In 2024, Canada supplied 133% of U.S. auto part imports, and Mexico nearly 42%. So there's a substantial supplying aspect of car parts, and this is leading a lot of folks to say that cars that are made in America are going to be a lot more expensive.
Your GM, your Ford, your Teslas—any kind of U.S.-manufactured car will be a lot more expensive. Batteries imported from Mexico will be more expensive; critical minerals coming from Canada will be more expensive; assembly imports will be more expensive.
This is really a big disruption, not to mention the amount of food that comes up from Mexico. Food exports made up about 23% of the U.S.'s total agricultural imports and supplied up to 20% of Canada's.
Mexico now supplies 90% of the avocados supplied in the United States. In addition, you're going to get hit with counter tariffs—California grapes and wine, Oregon Christmas trees, cherries, you name it.
I mean, the amount of things that can get hit here and disrupted are huge: jams, jellies, soy, steel, pork, you name it. And again, we're still waiting for counter tariffs.
Now, you might wonder, "Oh, well, you know, sure, China and U.S. manufacturing could get hit over a Tesla, but at least they're not hitting Europe."
Oopsie-daisy! So Donald Trump is threatening tariffs on Europe. In fact, if you look at what he said on Friday, Donald Trump said that tariffs on the EU will quote, "absolutely follow these tariffs against Mexico, Canada, and China."
Remember that currently, our largest trade deficit in the world is with this little country called Germany. I was born in Germany, and they are obviously a huge part of the European Union.
Now, the reason I bring them up is because it would make sense that if they're the largest, then we should be expecting tariffs against Europe as well. And the European Union is already threatening counter tariffs in advance of Donald Trump announcing tariffs on them.
Look at this chart right here; you could actually see Germany right here and the EU combined right here. Germany, the largest portion out of the other countries listed here.
But if you look at the EU, the EU is sitting somewhere around 18% of all U.S. imports—larger than Mexico, China, and Canada combined. I mean, combined, these are our largest trading partners for sure.
But in terms of trade deficit, the EU combined has a significantly larger trading deficit, which leads a lot of people to believe that the EU tariffs are next.
And then you're hitting Tesla Giga Berlin as well, and you're taking the EV tax credit away. I don't see how these things can be productive for U.S. automotive manufacturing.
But I understand the idea is for more countries to come manufacture in the United States. But the problem with that is, like Basset says—like literally Trump's Treasury Secretary said—the opposite would make the U.S. more competitive in manufacturing.
Like if we wanted to attract manufacturing, we should have a weaker dollar and not these sort of tariffs on everyone. Some are now calling this a trade war on steroids.
This is also very different from 2018 because inflation was running under 2% then; now it's over 2%. So obviously, people are really worried about inflation now.
You've also got The Economist arguing that this is going to be a pretty big hit to Canada and Mexico. Only 3 to 5% of our GDP in the United States comes from Mexico and Canada trade with them, but it's closer to 20% for Canada and 30% for Mexico.
So we could plummet our trading partners into a recession first, and there's that risk they could take us down with them. Nobody knows, but especially with how rapidly things change, who knows? Maybe some new USMCA 2.0 will start.
I don't know, but remember for a moment how these will work. And then let's also talk about the de minimis exemption.
So first, how tariffs work: let's say I buy this, I don't know, $20 mug from China, and I import it into the United States to go resell it on my Etsy store. Okay, it's a pretty cool mug; you know, got to get the Transformers going. I think it's awesome.
All right, well, because it's under $800, it's mostly exempt from duties or tariffs or taxes or whatever when it gets imported. Well, that's going away on Tuesday. They're just going to kill that.
Yeah, JK, no more de minimis exemption. So this will now also get hit by the 10% tariff going from China. If it came from Mexico, 25%, and so on.
So that's going to hurt the T-U, the Alibaba's, you know, the, I don't know, all the little smaller product stores that we buy things from from China. Okay, so that's going to be another hit.
But think about also, imagine this Transformer was actually a container—a container ship full of stuff that's going to get loaded into Walmart or Target.
Well, when that container shows up and Target says, "Yeah, it has a value of a million dollars, you know, all the goods in there," it's obviously going to be a lot more. But let's just say a million dollars.
Well, then at the border, our border patrol now gets to say, "All right, where's our $250,000?" assuming it came from Mexico or Canada, or $100,000 if it came from China.
Well, somebody's got to pay for that. So it could be the manufacturers of all the stuff in the container; it could be the Walmart or Target; it could be both.
You know, it's kind of like, you know, when the company offers you free shipping, it's included in the cost of the product they're selling you, leading to product inflation.
But that depends on the pricing power of that product. So then you wonder, are they just going to have another line at them that's like, "Yeah, we'll sell you this for the normal price, but you got to pay the tariff," or "We'll split the tariff."
And then you wonder what happens with companies that are like, "Okay, we have to absorb the margin because we're in a competitive environment."
You know, maybe we're selling bicycles or whatever, and we have to absorb the 25%. Well, what happens? Well, if our margins are 20%, we now go negative on every bike we sell.
Let's stop selling bikes; let's go bankrupt. So there are serious implications of tariffs, and it's unclear exactly what's going to happen, especially since we don't even yet know what the retaliation for Mexico is going to be.
We don't yet know what tariffs Europe is going to get, and we don't even know what the retaliation from Europe is going to be. We just know it's coming.
At the same time this is going on, Doge is, well, declaring war. Doge promises to hold a spaces tonight at midnight Eastern.
They also clarified that if you decide to stop working because you've received a deferred resignation period on offering, or you've taken the offering, you don't actually have to work during that period.
Doge reposted this excerpt here on screen, which says FAQ: "Am I expected to work during the deferred resignation period?" No, except in rare cases determined by your agency, you are not expected to work.
Now, this is actually really interesting because to me, this is sort of like the unemployment stimulus that we saw in 2021. You see, when people get money for not working and then they go get another job, they basically have more money that they can go spend.
So in some way, this is actually short-term stimulus. It's kind of good because these folks can now go get another job. The question is, are you going to be able to get another job?
What I recommend—not personally because I don't know what your situation is—but I would recommend likely often is that if this is you, I would as quickly as possible take the deferred resignation period, keep getting paid until September, but go get another job as soon as you can.
The reason you want to get another job as soon as you can is because you're likely going to be in this place of, "Oh crap, everybody's trying to get another job with the same set of experiences that I had."
So let's say you're a bean counter at the government. Okay, great. Well, what happens if you're the first bean counter to say, "Hey, I'm transitioning from the government to the private sector?" Cool, you might have a job opening you take advantage of; you bring your experience, and perfect, you adapt to the private sector. Fantastic.
Okay, well, what happens if you're the 100,000th bean counter to look for a job? Well, the private sector is like, "We already hired like five of y'all at this company and 20 at that company and 50 at that company."
And all of a sudden, everybody's already got their government bean counters. So then do you need more of them? No. So then the money that you're going to get offered will likely be lower than it would be today because there's an excess supply of you.
So, you know, I would start looking for a job right away, just looking at the economics of that, right? I don't want to get left behind.
Doge is also hiring, looking for world-class talent to work long hours and identify and eliminate waste, fraud, and abuse.
It is a little interesting how quickly, though, Elon Musk can sort of flip on his opinions because, you know, on one hand, now he's calling USAID a scam and corrupt. You know, they distribute somewhere around $50 billion of U.S. aid annually.
But then again, we saw what he did with the senator just at the beginning of this video, where all of a sudden it's like he's a deep state puppet, and it's like three hours later, he's great; there's no one better.
Okay, this is also leading to some confusion around what's going to end up happening with the funding for certain services. For example, there's screenshots going around about how Doge is identifying all this money going to the Lutheran Immigration and Refugee Service, and it's literally tens of millions of dollars.
But then when you look at what the Lutheran Immigration and Refugee Service does, it's not actually like a donation to a church that's doing nothing but buying new pews. This is actually an expense of the Department of Health and Human Services that's providing money to an agency taking care of unaccompanied minors.
So basically, when you have children that are refugees, they house them, they feed them, they take care of the children that are alone. Now, I'm not saying they need all of this money and that there's not waste, but the point of reporting this is that we could look at a sheet like this and go, "Man, why is the government throwing all this money at what looks like potentially a church organization, a religious organization?"
But then when we dive deeply, it's, "Oh, it's to save the lives of children that are abandoned or separated from their family." Like what happens when, you know, you're a child, you're in second grade, and you come home, and mommy and daddy have been deported?
Now, technically, you're a legal citizen. Donald Trump tried turning that around, but that got held up in courts in violation of the Constitution. So you're here, but now you don't have a mom and dad at home anymore.
Well, where do you go? Who pays for your food? How do you still get to school? How do you survive? So, you know, if at the same time you're kind of cutting at both ends, you wonder, "Okay, well, what happens to all these folks now?"
Another thing Doge is doing is apparently they're canceling contracts related to diversity, equity, and inclusion. You can see this screenshot here that they posted saying they're cutting about a billion dollars in admin costs for diversity, equity, and inclusion contracts.
There's no detail in how there were half a billion dollars of expenses for the Office of Personnel Management or how the FAA had $45 million in DE-related expenses. USAID is in here at $375 million.
There's no breakdown into exactly what's getting cut here, so it's a little tough to say that all of that for sure was for DEI. But I mean, other than their headlines saying DEI-related contracts, they forgot the hyphen—DEI-related contracts.
But anyway, yeah, this is interesting. We're definitely in a little world of uncertainty and a shakeup environment.
Now again, a lot of people are looking at this going, "This is great." Other people, like David LeBre, who rejected Musk getting access to the Treasury Department's data, was put on leave by the Trump administration, and then the guy resigned.
Now, the Treasury is technically like your bill payer; they're like the accountant. So it's like, "Hey, we need X thousand computers." Treasury is like, "All right, where do we send the check to?"
So they don't actually criticize what you're spending your money on. The money is authorized by Congress and delegated to the agencies, and the agencies spend it, and the Treasury pays it.
Musk now has been given access to monitor outflows at the Treasury Department, so people think he's basically going line by line like, "Yeah, no, let's cancel that; let's cancel that."
Which a lot of people actually really support—the sort of like line item, how should you say, accountability. But the line item presidential veto that Bill Clinton used all the time was ruled unconstitutional because, again, it's Congress that decides where the money goes, and then the agencies spend it.
So this is kind of an interesting outside of government, unelected, unbureaucratic bureaucratic process to line item veto spending. Democrats argue this is data theft that violates the law; Republicans are like, "The big boys are in charge now."
Okay, well, this is really interesting. I mean, we'll see how all of this develops, but as you can see, this is a lot. This is a lot of uncertainty for markets to deal with, and we'll see where the cards fall.
I mean, so far it seems like Bitcoin has slightly recovered a little bit from its low this morning, sitting at about, sorry, $98,000 right now. That is down from where we were, you know, before these tariffs were announced at about $105,000, and it's been steadily declining over the last five days.
You can see that on screen here, but a little bit of a bounce here in just about the last 30 minutes while the filming was going on from a low of about $97,000.
Anyway, there you have it. If you found this sort of information helpful and a summary helpful, please consider subscribing to the channel, and we'll see you in the next one. Thanks again, goodbye, and good luck.
Not advertise these things that you told us here. I feel like nobody else knows about this. We'll try a little advertising in.
See, congratulations, man. You have done so much. People love you; people look up to you. Kevin P.A., the financial analyst and YouTuber, meet Kevin. Always great to get your take.