Jim Rickards: Why Tariffs Work and the Lie They’ve Told for 50 Years

Hi everyone, if you're starting to question the system and want to protect what you have earned, you will want to download our free gold and silver protection guide. It's a clear easy to follow resource that explains why gold and silver have stood the test of time and how they can help you build real financial security even as the dollar weakens. You'll learn about which metals to consider and the plan that best suits your needs, not Wall Street's. So click the link or scan the QR code to get started today. You're not going to regret it. Welcome back to the Daniela Camponi show on the road for ITM trading in beautiful Boca Raton, Florida, joined by my good friend and the keynote speaker here at Rick Rule's wonderful symposium, Jim Rickards. Always good to be back with you. Daniela, great to be with you. How have you been? I've been busy in a good way and traveling around quite a bit, but it's great to be here in the Boca Raton spectacular resort and a great group of people. We had an incredible panel, not because I moderated it, but I couldn't ask for a better group of titans of the industry. So I want to kind of pick up from that panel with you today, but the topic I really wanted to bring up with you was tariffs. And I know your talk is really centered around MAG economics, right? But I can't remember the last guest that came on my show that thought the tariffs were going to be a good idea. I don't think I've had one expert come on, tell me the tariffs will work. Can you make the argument that they will work? I can make the argument and I have 235 years of history on my side. So a couple of points. What we're up against, there are a lot of narratives. Wall Street loves narratives. Commentators love narratives. Narratives are just fancy words for story. They want a story. And stories are very powerful. People buy into them and they act accordingly. But a lot of narratives are false. They're completely wrong. So then what's the narrative today? The narrative is, and this has been true for 50 years, free trade is good. Everybody wins from free trade. The other guy puts on tariffs, too bad for him, but you still benefit from no tariffs. We get cheaper goods. Comparative advantage, going back to David Ricardo, I think he published his work in 1819 or thereabouts. Free trade is good and tariffs are bad. And as applied in the current context, tariffs are inflationary because they raise prices, et cetera. So that's what you hear from everyone, from Larry Summers to talking heads on CNBC, et cetera. It's all wrong. Let me explain why. First of all, as far as tariffs being inflationary, it's just not true because everyone said, well, if you put tariffs on imported goods, they're going to raise the price to the consumer. No. There are three principal parties in the supply chain. It could be 20, but three conceptually. There's the exporter, let's say the Chinese manufacturer. There's the importer who receives the goods at the Port of Los Angeles or Port of Houston. Then there's a consumer who buys the goods. So you have these three people in the supply chain. Now, who writes the check? The importer, in my example, the Port of Los Angeles, who received the goods, you got to write the check to the treasury for the tariff. So you're the one paying it in the first instance. But who bears the economic cost? Because that can be pushed up or down the supply chain. I can tell you who's not going to pay it is the consumer. The consumer is tapped out. This came out on your panel yesterday. Consumers tapped out. Auto loans are going up. Mortgage equity is disappearing. Student loan debt is, you know, you got to pay it instead of ignoring it. So that's going to be a weight on the consumer. Unemployment is going up, et cetera. There are a whole lot of kind of macro elements that go in there. But the bottom line is the consumer is not going to pay. If you put it on the consumer, they're just not going to buy your stuff or they'll find something else that's cheaper or substitute or, as I said, they'll find some other glizzards, just not buy it. And by the way, if Walmart and Costco and Target could raise prices, why wouldn't they? They don't need tariffs. The fact that they're not raising prices means they can't. Tariffs or no tariffs. So now we're back to the importer and the exporter. And in reality, there's a lot of research that backs this up. They split it between them. Now the importer can turn around to the exporter, the Chinese manufacturer and say, hey, it's on you. You bear the cost of the tariffs. Lower your inputs, lower your costs or reduce your profits, reduce your margins, do something. I wrote the check, but I'm not paying it. I want cheaper prices from you if I have to pay more. The point is, it's not inflationary because the consumer doesn't pay it. It is shared on some basis between the importer and the exporter. It could be lower profit margins. It could be lower stock prices, but it's not inflationary. In fact, quite the opposite. So that's number one. Number two, the U.S. did not have an income tax until 1913. How the heck did we pay for the Civil War, the Mexican-American War, the Spanish-American War? Invent the telephone, telegraph, railroads, transcontinental railroads, harvesters, industry, Henry Ford. How did we do all that with no income tax? The answer is tariffs. That's how we ran the country. That's how we paid for everything. So what Trump is doing, I'll give you one more quick example. There's no such thing as free trade. People talk about it. They teach it in schools. I was a pretty good student in college, but I struggled a little bit in economics. I was like, hey, I got an A's in everything else. What's up with economics? That's news to me, by the way. It wasn't until really decades later that I realized that everything they were teaching me was wrong. Everything I learned in economics was wrong. And so that's why it never quite made sense to me. I figured that out later. But this idea of free trade, it's based on the notion that England has woolens and textiles. Portugal has grapes and wine. It doesn't make sense to grow grapes in England. Why don't we trade textiles for wine? And everybody's better off because we're all doing the thing that we do best. That's the theory of comparative advantage. It's nonsense. And Ricardo said this himself, and here's why. The inputs, the factors of production are mobile. So let's go back to 1975. What was Taiwan's comparative advantage in semiconductors? Zero, none. They had a comparative advantage in tuna fishing and rice farming. But today, they're the largest, most powerful, most advanced semiconductor manufacturer in the world. How did they do that? They just did it. They made it a government policy. They put the government behind it. They attracted talent from California. They attracted capital from around the world. They had a very liberal policy. If you worked for a Taiwan semiconductor in the 80s or 90s, and you wanted to start your own business, they would say, do it, and we'll give you seed capital. They created a whole ecosystem. But my point is, they did it out of thin air. So comparative advantage is nonsense because you can create it, and the factors are mobile. So the question is, if you want economic growth, what do you need to do to get that economic growth, get that investment, et cetera? It's not free trade. It's tariffs. Because what Trump has said, he said, hey, you can sell anything you want to Americans, anything you want, free of tariffs, but make it in the United States. And that's really the point. You brought up a good point yesterday because I know you're close with Steve Bannon. You obviously do his show. You're very close with the Trump administration. And you mentioned how it seems like there's total chaos. But that's really maybe part of the plan, part of the presentation they want to give. Tell me a little bit more about what you think is happening there because you say it's actually going to be a perfect Jenga piece that fits all together. But to the outside world, it just looks like chaos. They don't know what they're doing. They're changing their mind. Tariffs here one day, tariffs there one day. What's really the inner working? Okay. Well, first of all, your description is correct, Danielle, but don't underestimate the extent to which the media hates Trump. There is Trump derangement syndrome, which I think in the future psychologists will diagnose it as a mental illness and seems to be contagious. But if you're relying on the New York Times, the Washington Post, CNBC, Bloomberg News, et cetera, you're getting, again, you're getting a false status. So what did we hear the entire month of February, right after the Trump administration got up and running? It was uncertainty. It was so much uncertainty about what the president's going to do and how can you make investment decisions, et cetera. And then if you read like the Economist or the Financial Times, et cetera, I mean, I will confess I read all these papers, but even though they put out a lot of junk, but it was chaos. Trump says 500% tariffs on China. Well, it's like 100% and then it's back up to 150. Now it's down to 50, et cetera. So it seems chaotic. No, they have very specific goals in mind. They have a very specific, highly detailed plan. They weren't working on it for four months. They were working on it for four years. The Trump team knew in 2020 that they were going to win in 2024 because they knew that the Democrats had cheated in the 2020 election. So they said, we really don't have to do much differently. We just have to stop the cheating, which they did, thanks to Harmony Dillon and some others. So therefore they had four years to work on these plans because they knew they were going to win and they did. So these are highly refined plans. So what does it include? Well, I mentioned tariffs. By the way, tariffs are a major revenue raiser. So one of the narratives you hear is, oh, you know, Trump said he was going to cut the deficit, but deficits are getting bigger than ever. Where's that come from? It comes from the Congressional Budget Office. The Congressional Budget Office has never been right. They've never been close to right. Look at 10 years of CBO projections and show me one that's even close to playing out. And they don't. They're not stupid, but they have badly flawed models where they say, OK, here's behavior. Here's the change in the law. Let's apply the change to this behavior and see what it's going to cost. But they never consider the fact that the behavior changes. I was on the executive committee of an investment bank once and we got the bonus season. This was during the Reagan administration. They were going to lower the taxes a lot as of January 1st. We usually paid our bonuses in February or late February after we closed the books. But we said, well, if taxes are going down, actually, sorry, the taxes were going up. We moved the bonus payments to the last week of December because the taxes were lower, which made sense. But my point is, it's a very simple example of adaptive behavior. CBO does not take that into account. By the way, we just talked about tariffs. These will raise tens or hundreds of billions of dollars. The CBO does not count tariffs and the revenues. So say, oh, your model's wrong. You don't assume change behavior, which is behavior always changes, highly adaptive, and you're not counting tariffs. So those projections are garbage. But they're on the front page of The New York Times. For the people at home watching, they're probably wondering, all right, great. Let's hope the tariffs will bear fruit here. But when do we get to see the advantages it's bringing? When do we get to feel that? Almost immediately. Now, a lot of these investments are being announced from all over the world. And again, what Trump said, you can sell anything you want to Americans tariff-free, just build it here. Well, they are. They're talking about semiconductors building multi, when I say multi-billion, we're really talking like $20 to $40 billion semiconductor fabrication plants in Arizona, Oregon, Intel's doing the same, AMD, the UAE, Saudi Arabia, Volkswagen, they're putting massive investments in the United States. And it's not just the investment itself counts as GDP, but it's the high-paying jobs that come out of it. People, there's a famous story, which is true. In the early 1900s, Henry Ford gave his workers a $5 an hour raise, or I think it was maybe $5 a day, but it was a $5 raise. And the other oligarchs said, what's wrong with you, Henry? You're crazy. Why are you giving your workers a raise? And he said, I want my workers to be able to afford to buy my cars. And so you need, investment is great, but it creates high-paying jobs, which increases consumption. So there's a very virtuous circle that you got to get it going. The economy could actually be pretty slow, maybe even to the point of recession this year, but that's the hangover from the Biden years. But then looking at 2026, 2027, we should be going great guns. And that's what happened to Reagan, by the way. Okay, so that's a good point. So if you feel good about the tariffs, I know I asked you about debt yesterday and Ray Dalio's points, and you obviously don't agree with Ray Dalio, and you're not concerned about... No, he's not thinking about it the right way. You're not concerned about the debt. I want to know what is on your radar though. Is there something on your radar that you are looking at in the economy thinking, no, that doesn't look so big? Well, as an analyst, I don't really think I'm good and bad. I just try to get it right. So one thing that's happening, again, so the dollar's going down. It has been going down for about six months. It's down against the euros, Swiss franc, other major currencies. That's just a fact. The worst time since President Nixon. Since 1973. And we all know what happened after that, which was the Petrodollar Accord in 1974. And I was involved in that in certain ways. So the dollar's going down. So here's what I would say. First of all, so from that, that's a fact, right? Like you say, you're entitled to your opinions, but you don't get your own facts. That's a fact. But what does it mean? So the narrative that spun out of it is, this is the end of the dollar. People are getting out of the dollars. The end of the roll of the dollars. Reserve currency is the great reset. It's all nonsense. The dollar decline is being engineered by the Treasury. This is part of the Mar-a-Lago Accord that Steve Moran wrote about last November. And if you're up for a 24-page- On purpose. On purpose, exactly. If you're up for a 24-page, 8-point font technical paper, read Steve Moran's paper. It's available online. But he talked about this under his Mar-a-Lago Accord. By the way, Danielle, the phrase Mar-a-Lago Accord was first used in my book, Aftermath, in 2019, Chapter 6. So I came up with it. But I always say, if you want to be six years ahead, check out my books. But Moran borrowed it. I'm happy about that. And his paper. But that paper is one, not the only one, but one of the cornerstones of the Trump administration plan that we talked about earlier, that it does fit together like a Jenga puzzle. Now, when has this been done before? Twice. Richard Nixon, Henry Kissinger, Bill Simon, Jerry Parsky, and others engineered the decline of the dollar at the Smithsonian Accord in 1971, in December 1971. And then it played out over the following years. And that's when gold took off. The Arabs are worried about it. And we engineered the Petrodollar Accord, which locked in the role of the dollar ever since. And the dollar's been up and down. But as the leading reserve currency that you need, it was a very simple concept, which is, hey, the whole world needs oil. So if you price oil in dollars, that means the whole world needs dollars. Simple transitive law. And like I said, that's been true ever since. Now, there have been ups and downs. When was the second time that the United States government engineered a dollar devaluation? It was 1985 at James Baker in the Plaza Accord. In 1985, the dollar was at an all-time high. There are a lot of dollar indices. There's Dixie and Bloomberg and Wall Street Journal. They use Dixie, etc. But the Federal Reserve Board has an all-country trade-weighted dollar index. And if you look at that, the all-time high was 1985. James Baker engineered the decline of the dollar. And how did he do it? We weren't on a gold standard. So with Nixon, you went off gold, and that started the ball rolling. Then the Smithsonian Accord. But Baker did it with the cooperation of, it wasn't the entire G7, but it was the five of the biggest central banks in the world. They met at the Plaza Hotel. That's where the name comes from. And they agreed to do it. So what you had was central bank global developed economy central bank intervention to bring the dollar down. They had targets. And then in 1987, they met at the Louvre, and they said, OK, we did it. Now let's stabilize it. And then you had what they call the Great Moderation for 20 years, from 1987 to 2007, 2008. That's when Obama started a new currency war. But my point being, it's been done twice before. Ken Trump and Steve Moran and others in the White House, Scott Bassett, Secretary of the Treasury, pulled this off for the third time in 50 years. Well, my point is, it's a good question rhetorically, but that's what they're doing. So don't fight the Treasury on this. The dollar is going to go down more. It's going to stay down. And for people to say it has to bounce back, this is not driven by the market. This is being engineered by the Treasury. Well, let's end on this note. What everyone wants to know, if that's going to come to play, what does that mean for gold? Well, what happened in the 1970s is gold went up 2,700%. And one of your esteemed panelists, Frank Giustra, made that point yesterday. And so gold is going to go up a lot. It does it in stages. I would expect $4,000 an ounce by the end of this year, 2025, but much higher in the years to come. There were no gold bull markets before 1971 because the world was on a gold standard. Gold didn't go up or down. I always tell people, if you want to make money in gold, don't work for a gold standard because you can't make any money. But from 71 to 1980, gold went up well over 2,000%. From the other bull market, 1999 to 2011, rather, it went up about over 600%. So if you just take a simple average of those two bull markets, you would say that this has two things. This has years to run, and gold doubling is nice. I love it, but it's probably going to go up maybe five or 10 times. So you'll see gold well over $10,000 in the not-too-distant future, but a short run, $4,000. I truly appreciate you stopping by. Most importantly, are you going to be giving us a gift of a new book soon? Great question. My most recent book came out last November, Money GPT. It's doing very well. It's on artificial intelligence, but artificial intelligence as applied to capital markets, banking, and I also write about national security and nuclear warfighting and talk about a lot else, but I hope people enjoy that book. I'm kicking around some ideas. I'll talk to my agent and my publisher, but maybe this time next year, but I've got a few ideas I'm working on. Fantastic. Well, thank you. Bestselling author Jim Rickards, always just an honor to speak with you, Jim. And thank you all for watching. We'll have more great content coming to you from Rick Incredible Symposium on Natural Resource Investing. So be sure to stay tuned to the Daniela Combodian show here on ITM Trading and subscribe to our channel. Thanks for watching.