Tariff Winners and Losers

T-minus 4 days until the terror becomes real in D.C.

Inauguration Day will be upon us, and the D.O.G.E. becomes manifest for the parasite corps infecting America’s Capitol.

On that day, the Department of Government Efficiency, headed by Elon Musk and Vivek Ramaswamy, officially gets to work.

Truth is, the DOGE-ites have already begun work. But Monday, sh#t gets real.

The D.C. parasites will not yield peacefully, of course. 

Like a horde of orange-vested climate justice warriors halting Paris traffic, I fully expect to see “public servants” blocking inside-the-beltway roads in protest of the injustice wrought by steely-eyed, hyper-intelligent, small-government revolutionaries with all the compassion of private equity accountants.

But as a leech quickly yields its grip to a flame applied to its butt, the bureaucrats feasting on the money flowing from Americans’ productive actions to government wastefulness will relent to the heat of accountability.

The result will be a U.S. business boom reminiscent of the deregulatory 80s.

That is unless “Trump’s Tariffs” trip it up.

A classic read of economics coupled with the scale of tariffs being proposed suggests we could be headed for trouble.

Indeed, companies selling their goods under long-term fixed-price contracts have a lot to fear. But, broadly speaking, markets don’t see much harm headed our way.

You can see that in this graph I poached from Bridgewater’s latest market commentary–Ray Dalio’s shop, probably the world’s oldest hedge fund.

Every investor knows the price they pay for an investment implies a certain path the future will take. That price can imply the path of inflation, market volatility, and even profit growth. And in answer to the question “what will be the cost of tariffs,” the reply from stocks is “not much.”

In Bridgewater’s analysis, they separated companies that should win from tariffs from those that should lose, then determined the level of earnings growth reflected in P/E ratios (price-to-earnings ratio).

At current prices, stocks imply less than a 1% difference in EPS growth over the next 10 years between tariff winners from losers.

Now, there are a few ways to interpret this answer:

1. Tariff impact uncertainty is so high that investors have backed away from making a bet
2. Any impact will be isolated and short-lived
3. The Trump administration will correct significant supply-chain disruptions with policy adjustments

I personally read this narrow difference between winners and losers as a blend of 2 and 3. Markets will adjust to the inevitable shortages and surpluses, and the administration will grant exceptions to address extreme cases.

So the boom is on. And D.C. parasites will feel the heat.

Think Free. Be Free.

Don Yocham, CFA

Managing Editor of The Capital List