Asset manager Cathie Wood hinted at her support for President Donald Trump’s trade and economic playbook by sharing an article on the destructive impact of tariffs, written by renowned supply-side economist Arthur Laffer.
What Happened: On Wednesday, Cathie Wood shared the article on X titled “The Truth About Tariffs And Trade.”
“Trusting President Trump will get this call right, [Arthur] Laffer just published an important article on the destructive impact of tariffs. The historical perspective--back to the 1920s--and the logic are the best I have seen,” she wrote.
Laffer starts by bluntly stating that tariffs are just taxes, but they are also far worse than taxes because they are charged on the gross value of the goods being shipped, as opposed to wages and profits.
He adds that imports and exports go together, saying that “if you tariff imports, you reduce the demand for imports, which, in turn, reduces the need for the proceeds from the sale of exports and thus reduces exports. Tariffs, therefore, reduce both imports and exports.”
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Laffer’s article veers into several periods of U.S. economic history, going as far back as the American Revolution, to make his points on trade and tariffs. He says that the handful of years when the country had a trade surplus were all during periods of war when consumption dropped.
He says that a prolonged trade deficit is only possible with any country if that country invests in the U.S., referring to China, Japan, and other American trading partners using their surpluses to buy U.S. Treasuries and other assets.
He, however, counters the narrative that deficits “constitute an export of U.S. net worth,” stating that “U.S. wealth went up $40 trillion from 2008 to 2018,” while the cumulative trade deficit, that is, the increase in assets owned by foreigners during this period only increased $2.8 trillion. “Trade deficit periods are a win-win for Americans and foreigners,” he says.
The article ends by praising Trump’s economic policies during his first term, referring to the 2017 tax cuts, deregulations, and business-friendly policies that made the U.S. a magnet for foreign capital. Laffer also espoused his faith in the President’s negotiation style, saying that if Trump uses tariffs as leverage to lower global trade barriers, it would be an outcome that he would applaud.
Wood reiterated the same in a follow-up tweet, saying that “If negotiations lead to lower global tariffs and lower non-tariff trade barriers, investors shorting the equity market now will be caught flat-footed or worse. A global tax cut would be a very good thing.”
Why It Matters: Wood has come out in support of Trump several times in recent weeks, having said just a couple of days ago that Trump’s shock therapy “may have been necessary.”
Her asset management firm, Ark Investment Management LLC, has also been very proactive in finding bargains amid a rout in the markets throughout this month, largely across AI, biotech, and crypto-related stocks, in anticipation of a recovery once the dust settles.
However, others, such as Blackstone Inc. (NYSE:BX) President Jonathan Gray, have warned that the longer this uncertainty continues, the greater the risk of a recession. “The recession risk is directly tied to the length of the uncertainty,” Gray said.
The CEO of JPMorgan & Chase Co. (NYSE:JPM), Jamie Dimon, recently predicted a recession as the “likely outcome,” due to tariff-related uncertainties. Dimon urged Trump last week to “take a deep breath, negotiate some trade deals,” adding that “it could get worse if we don't make progress.”
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