Market Update 4/4/25

Policy Chaos

April 2nd—“Liberation Day”—has passed, and the tariff bombshell dropped by the Trump administration is being absorbed by the markets in an abysmal way. Simply put, the administration has enacted policy chaos, and given basic logic, the reason for such enactment could be just for the chaos itself.

The fact is that we already know the result of such a tariff policy, as it is listed on the Senate website: Smoot-Hawley Tariff Act of 1930. This act, which raised tariffs globally, resulted in retaliation by other countries and froze international trade. Two years later, voters turned over both houses of Congress to the Democrats. Already this morning, China announced a 34% tariff on all U.S. imports, and I’m sure many other countries will follow. What’s upsetting to me is that none of this tariff malarkey does anything to address the underlying issue: the global wage structure.

The highest hourly minimum wage in the world is in Australia at $18.12 (source). In 2024, the U.S. had an $18 billion trade surplus with Australia. The UK and Luxembourg are close behind, with hourly minimum wages of $15.55. The U.S. also had a trade surplus with the UK and Luxembourg—$12 billion and $434 million, respectively (source). The reason for these surpluses is simple: the U.S. minimum wage is just $7.25 per hour. It is cheaper for Australia to buy goods produced in America than to manufacture them domestically at $18.12 per hour.

For further validation, flip the chart to the countries with some of the lowest minimum wages, such as China, Mexico, and Vietnam, where the average hourly rate is a paltry $1.34. Given this, it should come as no surprise that the U.S. ran a $1.082 trillion deficit with these three countries last year. Labor rates and living standards dictate trade balances, and there is more than ample data to establish this fact. So, what’s the administration’s agenda?

I know there are smart economists and advisors in the administration, and they fully understand this dynamic. Therefore, I must assume the endgame is not turning our $400 billion trade deficit with China into some ridiculous surplus when the average annual income of a Chinese citizen is just $2,600. Perhaps the objective is to get TikTok sold to Amazon. Perhaps it’s to claim new tax revenue streams to make Trump’s original tax cuts permanent. Perhaps it’s to eradicate the federal minimum wage and let capitalism flow without government interference.

We simply don’t know—which is why remaining properly invested during periods of chaos is necessary. It only takes one tweet, one claim of tariff victory, one court rejection of executive authority, or one turn of Congress—as happened in 1932—to shift the tide. Given the market’s overreaction over the past 48 hours, I suspect that turning point is closer than current trends indicate.