Tariffs – Will They Burst the Stock Market and Real Estate Bubbles?

Thoughts on the Markets

November 17, 2025

Tariffs, Market Vulnerability, and the Great Divide: A 2025 Analysis

Much has been said this year about tariffs and their supposed economic benefits. President Trump has repeatedly claimed that tariffs generate substantial revenue, protect U.S. industries, reduce deficits, and will even fund direct payments to Americans. He has described tariffs as a transformative tool capable of turning the U.S. into an economic “powerhouse,” lowering the cost of living, and bringing “trillions of dollars” into the country to pay for $2,000 checks and reduce the national debt.

I have avoided weighing in for most of the year, but given the market turbulence surrounding tariff policy, it is time to take a clear, data-driven look at these claims.

Key Statements About Tariffs from President Trump (2025)

1. “Tariffs are slashing the deficit.”

In January, Trump said tariffs were helping reduce the deficit by “more than 25%.”
However, Congressional Budget Office data shows the deficit declined by only about 2%, and still stands near $1.8 trillion.

2. Tariff-funded payments to Americans

In November, Trump proposed sending $2,000 “dividends” to most Americans, funded by what he described as “trillions” in tariff revenue. Analysts widely view this as unlikely due to legal and congressional barriers.

3. Tariffs as bargaining leverage

Trump has emphasized new trade agreements with Switzerland, Argentina, Ecuador, El Salvador, and Guatemala. These deals reduced tariffs on certain agricultural goods to offset the cost-of-living increases caused by the initial tariff hikes.

Context and Criticism

Experts generally agree that while tariffs can protect specific industries, they also raise consumer prices and strain global trade relationships. The administration’s mixed messaging—imposing tariffs, then rolling some back to ease public backlash—reflects these challenges.

In Trump’s rhetoric, tariffs serve as:

• A revenue source
• A tool for issuing direct financial benefits
• A way to protect U.S. industries
• A negotiating weapon in international trade

Some points may hold true in isolation, but the overall effect of tariffs is far more damaging and complex than the administration suggests.

Do Tariffs Actually Deliver Positive Outcomes?

According to a new study from the Federal Reserve Bank of San Francisco, tariffs are not inflationary over time --  they are deflationary.

Why?

Because tariffs eventually act as a negative demand shock: raising prices initially, but then reducing economic activity, employment, and demand so severely that they push prices lower.

About the Study/Key Findings

• 150-year dataset (U.S., U.K., France; 1870–2020)
• Authors: Régis Barnichon & Aayush Singh
• Main conclusion: Tariffs reduce inflation over time because they suppress demand and increase unemployment.
• Mechanism:
  • Tariffs raise costs upfront
  • Higher prices reduce spending and investment
  • Weaker demand increases unemployment
  • Lower demand ultimately reduces inflation

This challenges long-held economic orthodoxy: yes, tariffs increase the price of specific imported goods initially, but the larger macroeconomic effect is deflationary.

Historical Context: When Tariffs Turn Dangerous

1. The 1930s: Smoot-Hawley Tariff Act

• Raised duties on 20,000+ goods
• Triggered global retaliation
• U.S. exports fell 75% (1929–1932)
• Fueled 25% unemployment
• Contributed to a 25% fall in consumer prices

Outcome: Tariffs worsened the Great Depression by crushing demand. The deflationary spiral was devastating.

2. The 1970s: Nixon’s 10% Import Surcharge

• Imposed in 1971 during an era of high inflation and slow growth
• Added costs on top of oil shocks and loose monetary policy
• Reinforced stagflation rather than cooling it

Outcome: When inflation is already high, tariffs make it worse.

The Lesson: Tariffs amplify whatever macroeconomic forces already dominate.

• In deflationary times → tariffs worsen deflation
• In inflationary times → tariffs worsen inflation
• In stable environments → tariffs create uncertainty, supply-chain friction, and lower efficiency

The 2025 Tariffs: What’s Really Happening?

Short-Term Consumer Impact

• Tariffs are already raising prices of cars, electronics, furniture, and food imports.
• Yale’s Budget Lab estimates the average U.S. household will lose $2,400 in real income this year.
• Transportation costs now consume 17% of household spending, partly due to tariff-driven increases in car prices.

Stimulus & Fiscal Effects

• The administration claims it will fund $2,000 “tariff dividend” checks.
• Economists warn these checks could reignite inflation, counteracting any deflationary forces later.
• Tariffs might raise $4.1 trillion over 10 years, but the drag on GDP and wages far outweighs this revenue.

Long-Term Impact

• Penn Wharton Budget Model estimates:
  • GDP down ~6% long-term
  • Wages down ~5%
• J.P. Morgan warns of global trade fragmentation and rising volatility.
• Europe faces growing GDP impacts in 2025–2026.

Blaming the Federal Reserve for slow growth is misplaced: with inflation still above target, deeper rate cuts would be irresponsible.

Macro Dynamics: When Tariffs Magnify Economic Conditions

1930s (Weak Economy): Tariffs deepened deflation and unemployment.

1970s (Overheated Economy): Tariffs reinforced inflation.

2018 Trade War: Tariffs caused localized price increases and global supply disruptions.

2025:

• Inflation has cooled but economic growth is fragile.
• Tariffs are raising consumer costs while proposed stimulus checks could spur demand.
• Long-term projections point to weaker wages, lower GDP, and potential deflation after initial price spikes.

Bottom Line: Tariffs are economic magnifiers -- not solutions. They rarely fix the problems they’re meant to address and often make them worse.

Tariffs and the Great Divide

The impact of tariffs is magnified by extreme wealth inequality—what I call The Great Divide.

Wealth Distribution (2025)

• Top 10% own 71% of U.S. wealth
• Bottom 50% own 2.5%
• Top 1% own 31%
• Top 10% hold over 90% of U.S. stocks
• Top 1% hold half of all equities

Consumption Power

• Top 10% account for  roughly 50% of all consumer spending, up from 36% in the 1980s
• Since consumer spending is 70% of GDP, the top 10% drive one-third of the entire U.S. economy

Why This Is Dangerous

If stock or real estate prices correct sharply:

• The wealthy will reduce spending
• This will shrink economic activity
• Shrinking activity will push markets further down
• And the cycle will accelerate

The government -- already drowning in debt -- has far less ammunition to fight the next crisis.

The 90-Year Economic Cycle

I subscribe to the view that major economic resets tend to occur roughly every 90 years:

• 1840s–1850s: Global banking crises, revolutions
• 1930s: Great Depression
• Late 2020s–2030s: We may be nearing the next structural break

Drivers include:

• Generational turnover
• Debt saturation
• Geopolitical realignment
• Technological disruption

This cycle suggests we may be approaching a period of major economic restructuring—possibly rivaling the upheaval of the 1930s.

The Debt Problem

Since 2008:

• U.S. federal government debt has increased by ~$29 trillion
• The Federal Reserve’s balance sheet has grown by ~$6 trillion
• Total: $35 trillion in artificial stimulus

Without this intervention, real economic growth would likely have been at least one-third lower.
Asset prices -- stocks, bonds, and real estate -- are now the most inflated in U.S. history.

Market forces cannot be suppressed forever.

Today’s Market Positioning and Potential Risks

• Recent trades in USD/CHF and CAD/CHF are performing well
• The S&P500 downside butterfly is showing early profits
• Bitcoin may have formed a major top

A break of key support levels in Bitcoin could trigger a 20% drop or more, likely dragging down other risk assets.

Last week I wrote about selling USD/CHF and CAD/CHF, and those trades are working out nicely.  I had also suggested a downside butterfly on the S&P500, and although it is not making a large return yet, it is showing some nice profits.  I want to also alert you to the fact that Bitcoin looks like it may have put in a major top.  Bitcoin has been a market leader all the way up, so we should pay close attention to the price action of this crypto asset.  If it keeps slicing through some residual support levels, then we could easily be looking at another 20% drop in price.  I would expect other risk assets to follow, so pay close attention over the next week or two,  We could be getting ready for some major down moves in “risky” assets. 

Please be careful here as the downside in stocks, Bitcoin, and other “risky” assets could be violent once it starts.  I don’t know whether we need another new all-time high in stocks before the downside opens up, but the move will likely be vicious.

We may be on the cusp of a significant risk-off move across equities, crypto, and speculative assets. It’s unclear whether we need one more marginal new high -- but the eventual downturn is likely to be sharp and violent.

Final Thoughts

We are entering a period of extraordinary economic fragility.

Tariffs are amplifying the stresses already present in an overvalued, overleveraged, highly unequal economy. Combined with historical debt levels and the possibility of a cyclical systemic reset, the risks ahead are profound.

Stay cautious, stay nimble, and prepare for volatility.

Best of luck navigating the markets.

Andy Krieger