Recently my wife asked me “what do we do to protect ourselves against what Trump is doing to the economy? What do you think is going to happen”? The answer of course was “I don’t know”. The people in charge of this country don’t seem to know, so why would I pretend to have a grip on it? The future is filled with uncertainty. We need to hedge our bets. And the real question is, what are you protecting against? How bad could this get, and what sort of future do you envision? I came up with a number of possible futures.
Future #1 – Trump blinks first, doesn’t impose tariffs and a massive trade war is miraculously averted. Good news all around, right?
We went to see our financial adviser last week. Somewhat surprisingly, to me, this is the future that major Canadian investment houses like RBC and BMO have been banking on. They believed that Trump was just posturing, just negotiating. Financial houses are wary of politics, but they’re more interested in business. And the business signs have been positive. The US economy keeps steaming along, and despite some short-term skittishness, I think the stock exchange was about at the same place last week as it was when Trump was elected. So, the banks are still feeling positive about the economy.
Or they were – until March 4th. On March 4th Trump defecated all over their financial strategy. Trump might still reverse his position, so I guess this future is still in play. But it’s on life support. We haven’t dismissed our financial adviser because I still have faith that RBC Dominion Securities will have a better idea about what to do next than I will. However, I think at this point, with all due respect to the financial geniuses at the banks, that Maxwell Smart said it best.
“Missed it by THAT much”!
Future #2 – Tariff war.
TV news this week is on fire with politicians waxing eloquent about how Canadians are tough and resilient and how hard we’re going to fight back. I watched Ontario’s Premier Mr. “I-Have-a-Mandate-Now” Ford, and thought he came across well. He was passionate, he was angry, and he was committed. The only problem is that I believe he was also wrong.
From the outset, when Trump promised tariffs, politicians from Trudeau to Freeland to Ford to Poilievre all said the same two things. They said 1) tariffs are a stupid thing to do and they will hurt your own people. And they said 2) if you hit us with tariffs, we’ll hit you right back, dollar for dollar. (They all love to say “dollar for dollar”. It sounds tough.) But here’s my problem – I’ve been left wondering why imposing tariffs is a dumb thing for the Americans to do, but it’s smart for us. How does that make sense? Will Canadian tariffs not be just as much of a problem for the Canadian consumer as American tariffs are for the American consumer? Has our own argument not come around to bite us in the arse when we do that dollar for dollar thing?
Fortunately for my peace of mind I’ve discovered an economics professor at Carleton University who agrees with me. Professor Ian Lee says that retaliatory tariffs will “increase the cost of everyday goods, reduce Canadians’ standard of living, and exacerbate the economic pain caused by Trump’s tariffs, rather than alleviating it.” Professor Lee describes people who believe that Canada can win in a escalating tariff war with the United States as “beyond delusional”. Furthermore, he adds that those who think that Trump is an ill-advised maverick acting on his own whims are misinformed. Trump, he tells us, has three extremely well qualified economic advisers one of whom is a man named Stephen Miran. Miran has a Harvard PhD in Economics. He has written an important economics paper explaining how tariffs may be used as a tool for “restructuring the global trading system”. It’s no coincidence Trump is using him for guidance.
Professor Lee’s advice? Don’t retaliate, negotiate. Negotiate a new CUSMA, and use that negotiation to address a long-standing list of grievances that the US has been documenting in the US Trade Representation (USTR) papers since the Clinton administration. The US is still one of the very least tariff-protected economies in the world. They complain that other countries demand access to US markets but then erect trade protection barriers to protect their own internal industries. So, instead of reacting with bitter outrage, maybe we should try to understand their real problem (which isn’t fentanyl) and propose mutually acceptable compromises.
I had another reaction to Ford’s impassioned speech, which was to wonder when Doug Ford had become the architect of Canada’s foreign affairs policy. His suggestion that energy is a strong bargaining chip seems to me like a great suggestion. However, his suggestion that he would execute a significant retaliatory action on his own independent of the advice and actions, and the concurrence (permission?) of the Government of Canada feels like he’s heading out of bounds. Seems to me like Ontario needs to be aligned with the whole of Team Canada…are you listening Danielle Smith?
In the course of Ford’s speech, he did mention something that set off a light bulb in my head. That something was the word “stockpile”. During Covid, the Canadian government committed huge funds to keeping businesses going. And yes, we eventually paid the price with an inflation cycle. But once again, the government could invest in Canada, but with less risk.
As an example, let’s have the federal government buy the output of an aluminum plant in Quebec and keep them in business. That keeps their employees working, and getting paid, and buying things, and that is good for the Canadian economy. Start building an aluminum stockpile, and while we do that, send out some people to start aggressively pursuing non-American customers for that product. Continue to sell whatever we can to the Americans, of course, because the tariff is their problem, not ours, but start opening up new markets. Maybe we can even get to the place where we can tell the Americans to find their own goddamn aluminum. The money our government spends on the stockpile is recoverable – that metal isn’t going to lose its value. Repeat as often, and with as many commodities, as possible.
That appears to be the immediate future. The trade war is full on, and it seems likely that we’re going to have to weather an economic downturn while we try to figure out useful strategies to counteract Trumpian expansionism. We’re heading into dark times. It’s no use complaining.
As Maxwell Smart would say “well, you can’t have everything Ninety-nine.”
Future #3 – A Total Breakdown of Social Order.
The tariff war is not, in my humble opinion, the most dangerous thing happening under Trump’s gentle hands. The next big issue is the savage attack on democracy and the rule of law. Following, as predicted, the Viktor Orban model, Trump is removing career civil servants from their positions and replacing them with Trump loyalists. One of his first actions in the “effort to root out corruption” was to fire 17 Inspectors General, the senior officials whose job it is to root out corruption. He has been gutting the FBI, the Department of Homeland Security, the Cybersecurity and Infrastructure Security Agency (CISA) and the Centre for Disease Control and Prevention (CDC) among others.
MAGA Republicans control the courts and they’re doing all they can to screw up the election system. If he’s not there already, it will not be long until Trump will control all major institutions with no-one left to resist him.
All of which sounds bad, but it’s an American problem, not a Canadian one, right? Wrong.
First of all, the Freedom Convoy, if it taught us anything, taught us that the American right-wing disease is infectious and may well cross the border. But more importantly for the purpose of this scenario is that eventually the triumph of the kleptocracy might lead to an economic collapse.
Suppose that the chaos in the CISA and the Dept of Homeland Security leave America vulnerable to a massive terrorist attack that takes out their electrical grid and/or the internet system. Suppose that a depleted CDC fails to detect and respond to a new and dangerous pandemic. Suppose that killing the FBI and the courts ushers in an era of violent crime. Suppose that for whatever reason at all, the bottom drops out and starts a panic sell-off in the equities markets and a possible run on the banks. If you consider that this is a serious possibility, then you might draw some or all of your money out of the banks and stuff it in your mattress.
You might also consider, if you think that a really serious collapse of the economy is in your future, that you might convert money into some more tangible assets. Gold has always been a hedge for people who are worried about the future value of money. Diamonds. Art. Stamps. I think my favourite is real estate. It’s all rather sketchy at this point because you have to envisage a pretty bleak future to consider removing yourself completely from the banking system.
For my wife and I, the issue with a future like this is not the fate of our meager savings portfolio. It’s the safety and security of our pension income, which is the real bedrock of our financial security and comfort. Could an extended tariff war threaten our pensions? Well, our pension fund, like most such funds is pretty well diversified. It’s not overly committed to Canadian vs international, nor equities vs bonds. I’m guessing that the pension funds will continue to generate money as long as some semblance of the current economic system survives. But I’m not super-confident of that. The only problem is, I don’t know what the hell to do about that.
“The old disappearing bank system trick. Second time this century we’ve fallen for that one.” (Maxwell Smart had a saying for every situation)
Future #4 – War.
In the last few years, the probability that Canada might get drawn into a wider war has increased as a result of the conflicts in Ukraine and in Gaza and a growing tension with China. And that probability grew stronger with the bizarre on-camera confrontation between Trump and Zelensky. War might even break out between Canada and the United States if the orange idiot decides that what worked for Putin in Ukraine could work for him here. Trudeau and Andrew Furey have both told us that they think the annexation threat is for real.
I’m an old fart. I won’t be fighting in any war. But I might not be able to count on my pension or food supplies or clean water or so much else that we take for granted in the highly developed paradise that is today’s Canada. In a war scenario, given enough foresight on my part, I’d sell my current house and cash in all my investments. I’d buy a few acres of arable land and anything left over I’d keep as currency or other tradeable assets. My new home would be well removed from any large population centre to try to reduce the chances of being involved in a future conflict and to avoid gangs and criminals.
I’d have a drilled well so I’m not relying on a water supply system. I’d have a manual back-up pump. I’d learn a bit about growing carrots and beans and potatoes and perhaps I’d keep a few chickens or pigs. Get a little tractor and a plow. Perhaps a horse just in case gasoline becomes a rare commodity. A small hobby farm on which you lost a few bucks every year before the war could be a life-saver if social order really breaks down in war-time.
The desirable small property would have some woods, and the house would have a wood stove and fireplaces, because in that imagined future I wouldn’t be able to rely on electricity or on the refining and delivery of fossil fuels. It would have to have some extra bedrooms too, so that I could offer shelter to kids and grandkids.
I’d probably buy a book or two on survivalist theory, and look for some of the more practical advice from those. Stock up on dried and canned food perhaps – and make sure I have a can-opener. Might even get me an illegal weapon – just in case. A lawless society is a dangerous one.
“I hope I wasn’t out of line with that crack about the orange idiot.”
Future #5 – Nuclear War
If you think the orange idiot is possibly going to blunder us all into a world war, then you have to consider the possibility of war expanding to become nuclear. Anything that looks like an existential threat to Russia, China, the US, North Korea and any of the other nuclear armed nations would likely provoke a first strike. And once one nuclear missile flies, they’re all going to fly.
I recently read Nuclear War by Annie Jacobsen. She interviewed a great number of specialists in nuclear arms including former National Security Advisers, top generals and the like. Also, she has reviewed whatever de-classified military documents she could get her hands on. Her conclusion – based on extensive interviews with people who are absolutely the best positioned to understand what could go right and what could go wrong – her conclusion is that there is no such thing as a limited nuclear engagement. (Spoiler alert – nothing goes right. Everything goes wrong.) A nuclear war will unleash every kind of hell and threaten to wipe out our entire species.
If you seriously believe that might be in the future, how would you prepare for that? Well, it’s everything from future number four, but with some special considerations. Forget about electricity and refined oil products. You need to think about being knocked back to the dark ages. You need a horse or two and some horse drawn agricultural equipment. You have to be far, far removed from any large population centre and no-where near a nuclear power station (for those of us in Bruce County). Dig a hole and build an outhouse, because your sewage system will eventually run out of capacity, and everything’s turning to shit. Raid Costco for toilet paper on your way out of town!
You can’t go too far north because the world will get real cold after a major nuclear engagement. You can’t go too far south because you don’t want to be in America which will become a flattened radioactive wasteland.
I’m clearly in a bleak mood. And to be fair, I’m betting on future number 2 and hoping for number 1. But the dystopian futures 3, 4 and 5 aren’t inconceivable either.
You shouldn’t take any of the economic considerations that I’ve offered very seriously. If I was any damn good with money I’d be a lot richer than I am. And economic advice from me wasn’t the point of the article.
The point of the article is simply this. Adolph Hitler became chancellor of Germany in 1933. In 1938 Germany absorbed Austria and the Sudetenland and commenced the very overt persecution of the Jews. How many people in Europe assessed the situation sometime after 1933 and decided to alter their life circumstances and did it in time? Not many, I suspect.
It’s not exaggerating to say that Trump is in a far more powerful position right now than Hitler was in 1933. And Trump has Hitler’s dream of creating a “reich zat vill last a sousand years.” So, while I don’t claim that I think that Trump will plunge the world into war, I wouldn’t dismiss it out of hand either.
TV news these days is depressing, and I’ve heard more than one person say they can’t watch it. My advice is simply this. Don’t look away. Keep watching and assessing. There may come a day when you’ll need to consider taking protective actions. Keep thinking about what the future might look like. Keep hedging your bets, and don’t leave it too late.
“Sorry about that, Chief”.
18 responses to “Hedging Your Bets – the Smart Way”
As Max used to say, “I asked you not to tell me that!” The sun shone through my window as I was reading your bleak but not bizarre assessment, yet the day grew steadily darker. The problem with negotiating instead of waging a tariff war (like the one that prolonged the Great Depression for nearly a decade)is that there is little guarantee that — as with Hitler — Trump Inc. would abide by any new agreement. After all, we already have a signed agreement, NAFTA — one that Trump negotiated after tearing up the last one — that has been abruptly trashed on highly specious grounds. I agree with those who say that the US is waging economic war on Canada. They don’t have to invade; they only have to ruin our economy. They are Walmart and we are the corner store; they can undercut us and lose money long enough to put us out of business. So, Canada can’t win a trade war, it’s true; but can it hold out long enough for mid-term election Americans to turn on MAGA because the “G” part hasn’t happened?
You’re dead on about the most critical threat being the wholesale dismantling of America’s democratic institutions. I think we are witnessing the slow-motion implosion of the great American experiment in democracy. The result may be a scenario you haven’t outlined: the potential for a civil war in a highly polarized America where the middle ground is fast disappearing.
And we haven’t even begun to explain the rationale behind America suddenly turning on its allies (without any real provocation) and aligning itself with Russia (presumably against China). I don’t think it was Maxwell Smart who said, “There’s something rotten in Denmark.”
Thanks for commenting Ed.
I must concede that your argument about the difficulty of negotiating with an unreliable business partner is valid. And the thought that we only have to drag this out for two years until the midterm elections is also a good thought. However, I’m still stuck with the conundrum of why putting tariff costs onto Canadian consumers is going to hurt the American economy and make them relent.
Your Walmart versus corner store analogy is accurate. Because of that, I think a retaliatory trade war is hopeless. I don’t think that negotiation is totally hopeless. If we put some things on the table that we ought to be doing anyway, like 3% GDP for defence, maybe we can reach an agreement that holds up for a while…at least until the scorpion remembers that it’s a scorpion.
I think that in a way I have addressed the potential for Civil War in the United States. It is future number three for sure, with a breakdown of social order and the possible loss of the banking system, which is based on the US dollar. The dollar would be highly unstable in a period of civil war. It’s also potentially future number four, where the chaos and the breakdown of law and order south of the border spreads to us, and it would be prudent to head for a remote valley and take up subsistence farming.
Your comment about America suddenly turning on its allies, and aligning with Russia, is probably a good topic for a future article.
Thanks for the thought provoking response Ed.
Dennis: at long last I have commented on line to your blog. First a thank you , I do love a little pick me up to start the week. When I get back home I was thinking I could come up for some of your “sour tarts” but upon further reflection you have probably eaten all of them.
The premise of the article is how to react /hedge against the proposed future scenarios. To my mind you have left out the most important one , that is do nothing. History has shown trying to react to the market is something we humans are very poor at. If you have a well diversified portfolio why do anything at all. The most likely outcome of doing something is to do the wrong thing at the wrong time, which would only add to the stress you are currently feeling.
As to your future scenarios I will comment in reverse order:
5) Your investments and pension don’t matter , there will be no monetary system . Its survival of the fittest and who gives a shite if you survive.
4) Very similarly does your pension and capital matter , your taken over by another country (ie we wont win a war with the U.S )
3) I agree there is nothing you can do about this financially , why worry about it
2) I do believe implementing counter tariffs have a place for two reasons. If you don’t show some fight he would just come back and do the same thing six months later. More importantly everything possible needs to be done to create discomfort for the American public , they and their votes in the midterm election are the only thing that will get the Trumpian underlings to stand up against him.
1) Reacting to the ebbs and flows of the market with on and off again tariffs would have accomplished nothing .
All in all I would put forth that thinking about and reacting to the scenarios you have put forth are counterproductive . The stress created in thinking about them may be worse for you than actual events.
Hi Derrick. And thanks for the comment.
You are, I think, only partially correct about the premise of my article. It’s not really about what to do for each of those futures. It’s about building an awareness and deciding on a contingency plan if things really go to hell in a handbasket. And I think that contingency plan is unique to each person’s specific circumstances.
For example, if you have a little nest egg set by, and you can afford to just let it ride for several years, the best approach to the trade war future is probably to do nothing and wait it out. On the other hand, if you have reason to believe that you might need money in the near term, then you should probably convert some to cash ahead of time.
In the scenarios where the value of money is in jeopardy, the trick is to anticipate that coming, and to convert your assets into something more tangible long before the fertilizer hits the rotating ventilation device. I agree with you that it’s very difficult to predict at this point what’s going to happen, and I agree with you that stressing out about it is bad for your health. But I do think that it would be useful to know where you could find a nice dry cave with a good supply of water and some reasonable potential for food.
Dennis
I want to comment about the matching $ for $ comments. I initially agreed with your position but am not so sure the US consumer has much influence with Trump. Businesses may have more and it seems to me US businesses will be affected by the Canadian tariff response and pressure from American businesses may shorten the tariff nonsense. It is also possible that if Canadian GDP falls the dollar will drop which will in turn make our goods cheaper to Americans and the world . That could result in a pick up in Canadian exports. At least that is what I am hoping. Canada also has the opportunity to reverse its tariffs if it seems that strategy isn’t working.
Thanks for the comment, Kate. I agree with you on both counts. Pressure from business might matter, and the falling Canadian dollar would help our exports. However, relying on Trump to react to business pressure may not work. He doesn’t seem to be reacting to any pressure at this point in time.
We seem to be developing a consensus that we need to ride this out until the US mid-term elections. Unfortunately, it may be a damn rough ride.
Economically, I agree with the statement that retaliatory tariffs will, at least over the longer term, “increase the cost of everyday goods, reduce Canadians’ standard of living, and exacerbate the economic pain caused by Trump’s tariffs, rather than alleviating it.” That’s what tariffs do. And I agree with “don’t retaliate, negotiate”. However, reciprocal retaliation may well be the only way to get the U.S. to the negotiating table and provide some level of negotiating leverage. Short term pain for long term gain, especially if we can target retaliatory tariffs to goods that are readily substitutionable at no higher costs (e.g., Canadian rye whiskey for bourbon) and/or, as you suggest, key to the U.S. and can be stockpiled (aluminium, potash). (As an aside, energy is not one of these things for a number of reasons.) Keep in mind we’re dealing with a bully, not a logic driven counterparty.
As to Futures #’s 3,4 and 5, the unthinkable has now become the thinkable – ‘nuff said.
Hi Peter. It’s nice to hear from you. I hope you are wintering in comfort.
I like your focus on tariffs for commodities that we can reasonably get elsewhere. Very focussed tariffs and perhaps import quotas on certain items might work. Nevertheless, I don’t like our prospects if this thing escalates. If each tariff that we put on prompts another one from Trump, we’re going to run out of ammunition.
“The unthinkable has now become the thinkable”. To a certain extent, that is the point of the article. Not that you need to react now. Not that one of those dystopian futures is going to come to pass. But just that you need to have at least the kernel of a plan in the back of your mind for worst case scenarios.
Hi Dennis, you sure know how to brighten up a morning! I couldn’t help but think I may be ahead of the times with my country living , drilled well & wood heat system. I just moved thought of it as a survival system but it may come to that. We have 50 acres so could probably find a corner for you to squeeze into, just let us know when you’re coming
Hi Kevin. You’re right. You’re likely in a good place. All you need is a horse drawn plow, a couple of Clydesdales and an old order Mennonite or two.
Although I agree winning any war with the USA is delusional, we cannot go into negotiations for a revised trade agreement “holding such a weak hand”. The key is to help Democrats (they really need it) to win seats in mid term elections and cause some pain to Republicans states. We have few options. We can not travel to states for vacations and minimize USA made product purchases. We can also have very targeted tariffs. It is a short term tactic to achieve long term objective of a new trade agreement.
The notion that all we need to do is last 18 or 20 months until the midterm elections appears to be very popular. And it may be right. But I don’t feel so very sure of that. First, Trump is not so stupid that he can’t recognize a delaying tactic, and may choose to grind even harder to force our capitulation before the midterms. Second, I’m not 100% confident that midterm elections will be held. All he needs is a pretext to declare an emergency to put those elections off.
It seems that no one learned anything from Trump’s first term or if they did they quickly forgot.
The flavour of one day i.e. a tariff of some great per centage is quickly followed by a greatly reduced tariff or not one at all.
We have seen it all before.
I was distraught over the Fed’s reaction to the Trump fentanyl threat. Anyone with a brain knew the threat from us to them was little to none. Yet our Gov’t spent a fortune to beef up the borders etc. Not necessary. The threat from the south of the usa was far greater(surprisr surprise)and the threat from the USA to us was far greater.
Hold the course with everyhing including investments Maybe don’t buy TESLA. Ha.
I am pleasantly surprised at the performance of Doug Ford. He has become the unanointed leader of the Premiers and is standing up to Big Orange. He has far surpassed my expectations.
Having said all of this let’s get serious and play some GOLF!
Hi George. Thanks for the comment. i’m not sure I can agree with you that beefing up. The borders wasn’t necessary. It wasn’t logical, and it wasn’t productive, but it was a definitive action that may, and should, have prevented the imposition of tariffs if fentanyl was actually the reason. And now we know it wasn’t the reason.
Like you, I have been surprised at Doug Ford’s performance. I would say that I am cautiously approving of it. And I would say cautious, because I’m not sure that we can count on Doug Ford not to go too far or say too much and make things worse.
Hi Dennis….very much enjoyed this article and all the valid comments of your readers…..you guys are such very smart people!!…..and I enjoy reading all your thoughts.
I ac see both sides of the retaliatory tariffs….so maybe, as with most things, the middle ground/position is the best.
Keep up the blogs….so much enjoyed
Thanks for the comment Don. I’m happy to know that you’re enjoying the blog.
The middle ground is often the best position… The trick is to get the opponent to meet you in the middle when he appears to be a madman.
Well Dennis, Your analysis is bleak, but not wrong. I am sanguine enough, or naive enough to dismiss Scenarios 4 and 5, perhaps because there’s not a whole hell of a lot that one can do if they eventuate. And maybe because I already live in the back of beyond and rely on a (communal) drilled well.
With respect to Scenario 2, I agree that “dollar for dollar” sounds brave but, after everybody loses an eye, and a small fortune, we’ll be no better off. But it might be the only way to drag some sane Americans to the negotiating table (There SOME sane Americans, right?) What I would add to the Response to Scenario 2 is to put into high gear plans to export oil, natural gas, aluminium, lumber, potash, and vital minerals to somebody other than the USA. Of course, this will require a massive investment in infrastructure like pipelines, ports, gas liquification plants, and possibly railroads. And it will absolutely require a massive change in our approach to completing planning and environmental assessments for these projects. And if Quebec says “not on my land” (as the PQ said a week ago) we need to be able to stomp on them – hard! Some human rights might need to get gently put aside for 5 years, and the gloves might need to come off between the Federal government and the Provinces. But if we want to survive living next door to a Trumpian USA, we need to do more than wave flags! (BTW, I have no faith that our Federal and Provincial leaders are anywhere near capable of making this happen; they still haven’t enabled the sale of Ontario beer in NS!)
As a last issue to be addressed in our Brave New Tariff World, what should we be doing about the American rapprochement with Russia and the likely sacrificing of Ukraine to the Russian Bear. I believe that Canada and the rest of NATO, less the USA, should be arming Ukraine with everything we can give them; tanks and F18s in Canada are of no value whatsoever if Russia is allowed to keep stolen lands in eastern Ukraine. Who’s next – Estonia? Latvia? Lithuania?
Thanks for the reply, Terry. I agree with much of what you say, but I cannot agree with your suggestion that it necessary to Trump on individual freedoms over the next five years. That would feed directly into the ammunition pouch of the hard right, and would push the country towards the right in an attempt to restore those stolen freedoms. Certainly though the need to remove inter-provincial barriers and to have the country operating to a national plan for independence from the USA is going to require a new understanding of how this Federation works.
I certainly agree that it is time to give all the military aid we’ve got to Ukraine. I think it’s time for Europe to put boots on the ground in Ukraine, to show the Russians that further escalation on their part will not advance their cause in Ukraine. I think that NATO, or the European rump of NATO, assuming the US declines to participate, cannot advance into Russia, because that might precipitate a nuclear war. But I think that entering Ukraine and telling Putin that military action against European forces will result in those forces fighting back and that you’ve entered into a treaty to protect the internationally, recognized boundaries of Ukraine might bring things to a halt.
Probably not going to happen… Might be too risky, and of course it does put European lives at risk.