Transcription
Stocks were getting absolutely brutalized this morning. Let's see exactly where they are right now. Uh, Dow down about 4,500 points.
Why is it happening? Well, a court ruled that most of Donald Trump's global tariffs are illegal. And the wild part that is now crushing the stock market is that the government might have to give all of that tariff money back. Now, you might say, "Wouldn't that be good?" Well, I'm going to get to that in a moment.
Uh, a federal appeals court voted seven to four that only Congress, not the president, has the constitutional authority to put sweeping tariffs in place. Donald Trump's tariffs were going to bring in hundreds of billions in 2025. Those tariffs are now legally on life support. They are still in place for now, but if the Supreme Court agrees with this ruling, we are talking about refunds, billions of dollars going back to the importing companies. And this is where the bond market completely freaked out.
Now remember, a tariff is a tax on imports. The thing that most MAGA people and frankly Trump himself doesn't seem to understand is the money doesn't come from other countries. China doesn't mail us a check when you tariff China. The tariff is paid by American companies that import goods. I know we're more than halfway through 2025 and I'm still explaining this, but a lot of people still don't understand it. The companies pass along some, most, or all of that tariff to the consumer. So this $170-some billion dollars, it's not a windfall from abroad. It's taken from American businesses and from American shoppers.
Bond traders liked tariffs because it meant the government had revenue and didn't have to borrow as much. Less borrowing usually means less pressure on interest rates. But now the government, if it has to give that money back, is going to need to borrow more to make up the difference. And how do you borrow more? You sell treasury bonds. When you suddenly flood the market with bonds you're trying to sell, investors demand higher interest rates to buy them. That's why yields jumped today. The 30-year Treasury yield went up to almost 5%. That's the highest it's been in a while. Uh, the 10-year went to 4.29%. Short-term rates were also up.
Higher yields means it costs the government more to borrow money. And then mortgage rates go up. Car loans get more expensive. Credit card rates climb. It's like raising the cost of money.
Now, Trump said the ruling is highly partisan. He's going to appeal, yada, yada. But Wall Street really isn't waiting here. For months, investors were happy that tariffs were plugging part of the deficit hole. Now, that's separate from the problems that tariffs were causing. But now, the little benefit investors did find in tariffs has been blown wide open by the possibility of refunds.
Now, what, what's really tragic about this is that much of the problem is from the on-again, off-again, unstable nature of this. If we had had a situation where Trump didn't even open this door, we would have had significantly more stability and it wouldn't be that every single piece of tariff-related news moves the market drastically up or drastically down. The tariffs as import taxes are inflationary and they're bad for businesses and they're bad for consumers. If you are a so-called deficit hawk, in theory, you like a little bit of the tariffs because they help plug a little bit of the deficit hole. Now that that's in question, it's causing yields to rise and stocks to go down. So the, the lesson here really is Trump never should have opened up this door to begin with. But alas, that is not the situation we find ourselves in today. And this could leave the government even in deeper debt, which not everyone cares about. There's a lot of different views about national debt. But if you are someone who does care about it, which these MAGA people claimed to, Trump is really causing a debt problem here.
So I don't know what the exit is from this because you now have, you know, at first you had Trump announces the tariffs, stocks go down. Trump pauses the tariffs, stocks go up. There's like a one-to-one relationship. Tariffs on, stocks down. Tariffs pause, stocks up. Now that there's a legal issue, the tariffs appear to be illegal and we already have some that were at least counting on the tariff revenue, which again comes from American companies. Now, not only do you have the effect of the tariffs on prices and on businesses, you have secondary impacts, which is how economies work at the end of the day, uh, and then we have speculation as to, wait a second, what is this going to do to the debt? What is this going to do to yields? It's a mess.
There. I don't know that there is a clean off-ramp at this point in time, but I want to hear from you. What do you expect Trump to do? That's if you believe Trump is even still physically with it. And based on what happened over the last five days, after the break, we'll delve into.