Tariffs and the Future

Hello and welcome to Money Talks. My name is Ken Wink from Summit Financial Consulting. If you'd like more information during the show today, give us a call at 586-226-2100 or you can visit our website at summitfc.net. While you're on the website, be sure to check out the radio page and check out our past shows. They're all available on Apple Podcasts, Spotify, or Amazon Music. So during the last couple of weeks, tariffs have become one of the hottest topics and the United States is in a war of words and policies when it comes to Canada, China and Mexico. A lot of people have questions about what tariffs are and some of them have an idea what they are vaguely. But the important thing is how is this going to affect the economy and your investments? So a lot of people are nervous that when these tariffs go into effect, it's going to go directly towards their own pocketbooks. You know, are the foreign countries going to pay the tariffs or are the importers going to pay the tariffs? So these are all important questions and we're going to cover that today. Before I get going, I'd like to introduce my co-host, Tony. Tony has agreed to join us completely tariff free today. So thanks, Tony.

Well, Ken, already we're starting with the jokes. There you go. There's the room shot for you. I think this is going to be a tariff show. Nailed it. Some people are terrified about this topic. Okay, that's bad. Done with the bad dad jokes on tariffs. It's a serious topic. Thanks for having me on your show, Ken. Talk about a hot button topic. I mean, we're recording this on a Wednesday. Last night, the president spoke in front of Congress, the House and Senate, and it was interesting, I thought. And tariffs were a big part of what he talked about. So this is going to be a good one because, you know, it's hot off the press. And like you said, some people know what tariffs mean and what they are, especially for the government, but not as much about what they might mean for the average person. Right. For the rest of us. So where do you want to start?

I guess we'll just start at the start of the most recent discussion on it. So just basically in February, President Trump announced a 25% tariff on Canada and Mexico, and then an additional 10% tariff on China. Trump is saying that he's instituting these tariffs to try to stop the flow of illegal immigrants, and then also narcotics. So in less than 48 hours after that first announcement, both governments basically came to an agreement to delay the tariffs for 30 days. And that deadline basically came and went earlier this week. So now people are basically asking themselves in the midst of this, what is a tariff? So a tariff is basically a duty. placed on a good that is imported to the United States. I like to think of it as simply a tax on products.

Right. So the company bringing in the goods from another country. So let's say a U.S. company is bringing in lumber from Canada. That U.S. company has to pay U.S. customs a tax or a tariff. to get that product in the state. So we're paying, the companies in America are paying the government to bring it in. Of course, then they're going to pass that on probably to consumers. We'll talk about that. And the countries that we impose tariffs on don't like it because their companies will sell less goods is the thinking there. But who pays the tariff then? It's the companies, like I said, or how does that work?

That's right. So, yeah, whether it's a part for an automobile or an Apple that you eat or even an Apple iPhone that you're watching movies on, you know, or anything else, the importer is definitely responsible for paying the tariff. And they actually have to pay it right at the port of entry. So U.S. custom officials collect it. And then the money ends up at the U.S. Treasury. So it is a net income for the United States government. And one quick point is that our current administration does seem focused on trying to reduce the deficit. So tariffs are a way to raise revenue and potentially lower our deficit and our national debt. It comes with some short term pain. And whether it helps in the long run, you know, obviously having less debt and less debt payments for the U.S. government is a good thing in the wrong one. But or in the long run, but it might be a sacrifice to the economy in the short run. And to answer your question, often the importer is going to simply just pass the cost of the tariff right along. So the consumer ends up with higher prices. So as an importer, they can choose. They can choose whether they want to pass it along or they can choose whether they want to absorb it. Some companies have already said that they're actually going to absorb the cost themselves and try to keep prices at the same levels. So the short answer is it depends. And every company is different and every product is going to end up being different. But most economists agree it's most likely going to get passed along to the consumer.

Yeah, and that could possibly hurt the economy. I know a lot of people might not like that. We'll see what happens. It's kind of a wait and see. But can you go into more detail, Ken, on why tariffs are typically imposed? Sure.

Yeah, in most cases, economists say that the tariff is imposed to create basically an economic advantage for the country that's implementing them. So in this case, it's the United States. We're adding the tariffs so we get the benefit of the additional tax revenue. And then also it can be viewed as a protectionist policy. So a lot of people that realize in September of 2024, which obviously isn't that long ago, President Biden actually instituted a 100% tariff on Chinese electric vehicles. And the thought was China is giving their electric automakers basically free money. So that puts them in a position where they can lower their prices on their EVs significantly. And the hope by the Chinese government and the Chinese electric vehicle makers was that they could hurt United States manufacturers of automobiles and get a their intent was to take over the market. So president Biden retaliated with a hundred percent tariff on their vehicles to basically try to protect the United States manufacturers of electric vehicles. So that's, that's an example of one that would be considered maybe an unfair trade practice. China is artificially subsidizing their own companies in an effort to take over another country's market. So that's a, that's, One example of an unfair and then another one could be just to support a domestic industry. So a lot of people don't realize in 2002, Ecuador, a country of Ecuador, was selling tuna really, really cheap. And the United States put a 35 percent tariff on it to give United States tuna fishers a fighting chance. And then in the 1990s, another one that I thought that was sort of interesting. China tried to take over the paperclip market in the 90s. What? Yeah, the United States government put a 127% tariff on Chinese paperclips to support the United States makers of paperclips. Wow. The more you know, right? Yeah. Absolutely. So that's that's what President Trump is is hoping to do is sort of cause some economic pain for these other countries. If the prices of those goods and services are goods are more expensive. Then maybe we buy more American products, which has the potential to create more American jobs. And then also it's a motivator for them to try to allocate resources to try and stop the flow of illegal immigrants and fentanyl, which is the narcotic that they're specifically targeting. Trump throughout his entire campaign to be president was saying this was what he was going to do if he won. And now he's following through on it. Yeah. And everybody's a little bit nervous.

Right. Well, I imagine they are. That's true. I know that it is interesting and it's interesting. There always have been tariffs. And like you say, even Biden implemented tariffs. I think the surprise may be Canada and Mexico. A lot of people know that we're in these trade wars with China, and that's been an ongoing issue for quite a while. But hearing about all this, my first thought Ken, is that our listeners out there shouldn't do anything rash with their financial strategies based on all this news about tariffs, because, you know, if you watch the news too much, the sky is falling. Right. That's right. So patience, I would assume, is important. And of course, it's always a good reason to. schedule a check-in with your financial advisor, a financial services professional like yourself. I encourage our listeners out there to pick up the phone, give you a call, or go to your website, set up that consultation because it's so important to have somebody who's going to look at it without the emotion, look at it rationally, and look at your big picture and say, For you, the best thing is this, and you're kind of keeping track what's going on with the economy, but you don't want to let that force you to make expensive mistakes, basically, right?

Yeah, I think the biggest value add that we bring to the table is that we do manage our own portfolios in-house and then we also give clients who have 401(k)s advice on how they should invest their 401(k). So sometimes our clients sleep a little bit better at night knowing that we look at our investment portfolios every single day. So if we think we need to increase risk or decrease risk based upon what's going on, we'll do that automatically. But for anyone that's nervous right now, as far as our research is concerned, and this is as of today, March 5th, we have five indicators inside our research. All five indicators are green right now. Typically, and past performance can't predict future performance, but typically when all five are green, that means that new all-time highs could happen within a month or two. And a lot of people are surprised with how much volatility we've had in the stock market over the past couple of weeks. The market did hit a new all time high just two, three weeks ago. So it wasn't wasn't that long ago that we were all basking in the sun. We'll see how it all plays out. And the research can most certainly change. But as of today, the research is still saying, hang in there. This volatility is a short term bump in the road, but not something to worry about quite yet. Sure.

Sure. It's interesting because now, you know, last night the president was talking about April 2nd, more tariffs kicking in, and he seems committed this time. So we'll see. What is the role of Congress? Could Congress overrule the president's decision to implement tariffs? Sure.

So Congress could with this president or any president, you know, sort of give him a hard time about tariffs. So make some, you know, do a lot of interviews and make a lot of political commentary about it. But the fact is, given current law, the president has discretion on trade policy. Essentially, what this comes down to in most cases is national security. So, for example, any president, not just Trump, could make the case that illegal immigration and illegal narcotics are a threat to the United States and its people. So as you'd expect, there's people on Congress who are definitely against the tariffs and there's some politicians that are for the tariffs. So, you know, there's always going to be that political football game being played. And obviously, it's Trump's or during Trump's first term, he did tariffs back then, too. So he protected a lot of different things or came up with tariffs for different reasons. Back then, it was solar panels and washing machines and steel and aluminum tariffs. And a lot of those tariffs were actually kept in place by the Biden administration. So there's there's always a war of words. But at the end of the day, it seems like the tariffs last time around did protect some very important industries for the United States. And we'll see how it goes this time around.

Yeah. Yeah. The way I see it, Ken, is and from what you're saying here as well, is that especially with Trump, he's using them both as a negotiating tool. The threat of tariffs as a negotiating tool and then implementing actual tariffs to force. U.S. companies to buy more from within and force them to manufacture more within the United States rather than import from other countries. So I can see those two reasons. You know, it depends. I am kind of surprised still about Canada and Mexico. I think that's what people are surprised about. Although right now, Mexico is actually our number one importer. We import more products from Mexico than any other country. It used to be China, but thanks to what Trump implemented and increased the tariffs, that's actually, they've dropped to number two and Canada is three. So the reason he went after those three, they are our three biggest trade partners. So that is interesting. And we've talked about this current tariff debate that our government is having. And you noted that these tariffs against Canada and Mexico were negotiated at first. Now it seems like they're going to stay implemented and they're threatening now counter tariffs. So we'll see how that goes. I know even financial experts don't have a clear picture on how this is all going to play out or ultimately be resolved. It's kind of a day to day thing, right? Yeah.

Right. Yeah. I wanted to share. So I, in the state of off topic a little bit, but I'll get back on point here. So in the, in the state of Michigan, we have a debate or a battle between our colleges. So I went to Michigan state. So any listeners that went to U of M or Ohio state, I guess, by extension might, might hold it against me. But anyways, at Michigan state, I did a, did a finance degree and I had an international economics professor. And there are a couple of things that he's, you know, this was a, 26 years ago. So it obviously made an impression on me that I still remember this specific lecture from this international economics professor that I had at the time. But one of the things that he was really passionate about was that trade deficits are bad for the United States. So he pointed out that the politicians were potentially sacrificing the strength of the United States by having a budget deficit. So when you talk about tariffs, the deficit doesn't often get brought into the conversation, but I agree with the professor that it's really important. So at the time, the United States had a major trade deficit with China, but also at the time, the United States was running a fiscal deficit. So the government's spending more money than it has coming in. And we were mainly borrowing that money to be able to spend too much from China. So he felt that the United States had sort of a backdoor handshake deal with China that was, we're going to let you sell billions of dollars of products to our country. And in exchange, you have to help finance by funding our deficit. And that went on for a long time. And he just kept saying, eventually, you know, this is, this is a game of musical chairs and eventually the music's going to stop and that we're exporting money. You know, we're importing their goods, but we're exporting money. And you just keep doing that over and over and over again and sending more and more money overseas and then accumulating more and more debt. It's just not a good thing to keep doing. So the fact that particular emphasis is being placed on reducing our national debt, reducing our annual deficit, and trying to balance these trade imbalances, it definitely has the potential to hurt in the short run. But in the long run, the, you know, 18, 19 year old college student in me who's been troubled for the past 20 some years because I've never seen the United States really make an effort to try and fix these problems. So, yeah. In the short term, we'll see how it goes. But in the long term, it does have a chance to make the United States more economically viable, which is a great thing.

Yeah. Yeah. The budget deficit is a huge problem and they keep kicking that can down the road. So we'll see how this all plays out. You can't keep doing that. I mean, they've got to tackle that budget deficit. I mean, they have to. So and if and if tariffs can help with that, great. But we also have to balance out our own economy. And you can't you don't want to crash the economy, but it's going to be a delicate balance. And I hope it works out for the best. I mean, I love the fact that America can be more reliable overall. On its own, and we should get back to manufacturing things here. I mean, right now, our biggest advantage is just consumerism, right? That's what drives the economy. So it's not manufacturing. It's not making things. It's buying things. So that is interesting that you pointed that out there.

Yeah, thanks. So sort of segueing a little bit, I just wanted to help calm people's nerves a little bit and also let them know some ways that they could sort of battle inflation when it comes to their own personal household. So maybe prices do go up in the future. How do we combat that? How do we make sure that we're on a firm financial footing? So just wanted to share a few quick tips with people for how they can be prepared and maybe be a little bit calm in spite of everything that's going on. The first one is just to have cash on hand, not necessarily like under the mattress, but just in the bank. You know, it's really important that you got a solid amount of cash inside a money market or a bank account in case unexpected emergencies pop up. Don't view your cash as a long term investment. We meet with clients all day. I met with a client last week that had over four hundred thousand dollars sitting in cash in their bank account.

Oh, wow.

You know, they're just they're missing out on so much potential upside.

Plus, it's not insured. Only two hundred and fifty thousand of it is insured. Yeah, exactly. Oh, yeah.

Yeah, the more inflation climbs, the more the purchasing power of that money goes back. You know, you're actually losing money by keeping it in the bank if you're making a small amount of interest on it.

Right. But it is important to have that emergency fund, like you said, that's readily available. And that's what, three to six months worth of income that you should have saved for your emergency fund, right?

Yeah, that would be great. Three to six months is definitely what we recommend. And if you start getting up above that, let's talk about some other options. There's some good stuff out there right now.

Exactly. Well, and at first blush, it might seem like there's no downside to having a big pile of cash squirreled away. But someone like yourself can help you make sure your money is working for you. Right. And if you have money that can be earning interest, it should be. Right.

Yeah, absolutely. And one nice thing about, you know, so interest rates are pretty high right now. One nice thing about higher interest rates are there are different types of investments that are available right now or maybe are more attractive right now than they would have been in the past. And we also have access through Charles Schwab to hundreds of different banks, CD rates and U.S. Treasury securities, which are tax advantaged. So there's lots of tools in the toolbox. It's definitely a good idea to to meet with an advisor and just really Re-evaluate your portfolio, you know, whether it's your stocks, whether it's your cash that's sitting on the sidelines. People could think about investing in inflation protected bonds. People could consider investing in commodities. The goal is just to stay ahead of inflation.

Yeah.

One way or another.

Yeah, inflation's a tough one. And with the tariffs, we might see a rise in prices in certain things. So be prepared, have an emergency fund, make sure your portfolio is balanced, but make sure you have a balance across the board of where your money is at. You don't want it all in one place. And Ken, I know that's what you help your clients do. So, you know, I tell all my family and friends that building a financial strategy is, And a retirement strategy is so much easier when you work with somebody like yourself. I'm not going to name names, Ken Wink, but I know a guy. I know a guy that can help you. And Ken, that's what you do. You love hearing from our listeners out there. So again, we're going to give the number and the web address here in a few minutes. And I encourage our listeners to get a hold of you. I know you're happy to talk to them about all of this.

Yeah, absolutely. It's always good to get a second opinion. We run into do-it-yourselfers all the time and, you know, just see what's out there, especially since we're independent and have access to so many different types of vehicles.

Yeah. Yep. So what's next? What's something else people can do?

So whenever somebody comes in to sit down with us, one of the biggest topics is Social Security. So we always want to take a look at your health and see how things are going in that department. If things are looking good there, we'll, in a lot of cases, recommend that people don't turn on their Social Security for as long as they can, just because there is a very clear economic advantage to doing that. Obviously, you can turn it on as early as 62, or you can wait until age 70 if you want. So full retirement age for people is typically in between the age 66 and 67. So if you're born in 1955, it's age 66 and two months, and then it increases in two month increments. Okay. as the years go on until you basically hit age 67 for everyone that's born in 1960 or later. So long story short, once you turn on that Social Security, it's not going to accumulate anymore. And if you were to wait, it can go up as much as 8% per year, especially from ages 67 to 70. So it's something to think about once you flip it on. You will get a small raise called a COLA, which is an acronym for Cost of Living Adjustment. But that is completely dependent upon market interest rate inflation forces. In 2025, for those that don't know, the COLA was 2.5%. We'll see how things look next year. But delaying Social Security, it's definitely a topic of conversation that everyone should have. And we recommend using software to figure out mathematically how much it could potentially benefit you.

Yeah. And speaking of that, that's your social security maximization report, Ken, that you run for people. That is great because it helps you know exactly when to file based on your personal situation, you know, spousal benefits, things like that. It calculates all of that. And I know you're more than happy to run that report for our listeners. If they set up a consultation with you, there's no charge, no obligation. That's really important. getting your timing right is yet another reason to work with someone like yourself.

Yeah, absolutely. If anyone's interested, they can give us a call at 586-226-2100 or at our website, summitfc.net. All right.

Is there anything else we need to be aware of?

Yeah, we think planning for future retirement costs is just another way to provide financial protection. So healthcare costs, for example, they've been going up much quicker than other types of costs associated with retirement. So the inflation rate on healthcare is just higher.

Oh, it's crazy. One year, my healthcare benefits through my employer went up 20%.

Wow.

The premiums from year over year.

Yeah, it's definitely crazy.

Yeah.

You know, another thing is just to look at a lot of people when they're retired, they're at Medicare age. And we encourage that everyone just look at what Medicare does and does not cover. So, you know, we have a team here at Summit Health Services, sort of our sister company, that will sit down with people and figure out which plan makes the most sense for them and look at dental and vision and hearing options. But it's important to know Medicare doesn't cover those. Medicare doesn't cover dental, vision, or hearing, and it doesn't cover long-term care either, which I'm pretty spry. My wife's pretty spry here, but I don't think she could pick me up out of the bathtub right now. And 30, 40 years from now, I doubt that's going to improve.

Probably not. I like that you're a spry guy. That's good. I'm just going to call you Spry Guy from now on. That's great.

I'll take that nickname and run with it. It's much better than my nicknames at Michigan State.

Yeah, we're not going to talk about what the Spartans called you. No.

So one other tip before I forget is we really like it when people set up a health savings account or an HSA account. Oh, yeah. Yeah, there's a triple tax benefit for that. So you get to write off the contribution, and then any growth, whether it's interest or invested in investments, is tax-deferred. And then as long as you use it for medical expenses, it's tax-free.

Yeah, when you take it out, it's 100% tax-free when you take it out, as long as you use it for qualified healthcare expenses. And healthcare, when we're in our 70s and 80s, is tremendously expensive, even with Medicare. So a few solid strategy steps like that, like taking advantage in your working years by putting money into an HSA, that's huge. Now, obviously... HSAs have a lot of rules and not everybody's going to qualify to get an HSA or have that opportunity. But if you do, you should take advantage of it. That's a good point.

Yeah, one last tip here before we go is pretty simple, but just save more and spend less. The more you save, the better your lifestyle may be in retirement. So whether you're getting ready to retire or you're already retired, if there's anything you can do to cut expenses in the meantime here, that'll help. A lot of people during retirement will use the 4% rule, which basically means you take 4% of what your portfolio balance is and try not to ever take more than that. If you do that, some experts will say that you can have a very successful at least 30 year retirement. Everyone's situation is different and past performance can't predict future performance. But pretty good rules of thumb to follow, Tony.

Yeah, for sure. Well, I know you look at everybody's unique individual situation, Ken. And so we've had an excellent show. It's time to go. Is there anything else you want to add before we do?

No, just if anybody would like to get in touch with us and get a no cost review of everything that they have going on in their neck of the woods, we'd be happy to help. Whether that's an investment portfolio review, Social Security maximization, health care review, taxes. We have attorneys that we partnered up with that can look at estate planning documents. So a lot of different ways that we can help and no cost to sit down with us. So if you go to our website, www.summitfc.net, or give us a call at 586-226-2100, we'd be happy to have a conversation with you.

All right. Well, that's a great, great offer for our listeners out there, Ken. And listeners, that does it for today's episode of Money Talks with our host, Ken Wink at Summit Financial Consulting.