By Jamal Mecklai, CEO, Mecklai Financial
It is a mathematical identity that a country’s current account deficit is simply a reflection of the difference between what a country invests/consumes and saves. In other words, irrespective of tariffs, until the US saves more and/or consumes/invests less, the country will continue to run a current account deficit, much of which consists of the deficit on trade.
In an elegant coincidence evidencing this, the US current account deficit widened to a record $1.13 trillion in 2024, while US credit card debt outstanding in December 2024 increased to a record $1.21 trillion. The nature of modern America is to buy now and think about how to pay for it later — the essence of spending more than you save. Unsurprisingly, the US has run a trade deficit virtually every year since 1971, which marked the start of the era of floating exchange rates and the power of the market.
Tell all that to Donald Trump, who has slapped horrendous tariffs on virtually every trading partner, demanding that the US trade deficit be brought down. Of course, with most prices sure to rise as a result of the tariffs, it is very likely that Americans will start to consume less, which would start bringing the trade deficit down. However, growth will be collateral damage, but then, when did Trump ever say he was going to generate huge growth?
Wait a minute — but he did, didn’t he?
Doesn’t Make America Great Again (MAGA) mean a strong economy, low prices at the supermarket, and high-paying jobs everywhere you turn?
Many Americans have already started protesting the tariffs, the job cuts, and, indeed, the targeted attacks at Trump’s perceived enemies. The pure-MAGA crowd is still riding high, of course — Fox News is triumphant — but cracks are beginning to show amongst “normal” Republicans.
The Wall Street crowd is in shock running for cover from the worst equity collapse in decades — the NASDAQ is already down more than 20% (definition of a correction) and the Dow is close (down 17.5%). With Dow futures down more than 1,000 points (another 3+%) before the US market opened on Monday, there is widespread alarm in markets, with some analysts even pointing to Black Monday in October 1987, when the Dow fell 22% in a single day. It is without doubt significant that Warren Buffett, long known as the grandfather of investing, has been holding the highest share of cash in his portfolio ever.
China has struck back with retaliatory tariffs and it is likely just a matter of time before other large trading partners do something similar. But Trump is (appears?) unperturbed. “A little bit of pain before we get the greatest economy the world has ever seen” or some such. What is worse is that Trump had threatened to double the tariffs if anyone retaliates and it is conceivable that we will see some such action next week.
It seems clear that there’s no turning back — even if Trump were to relent on tariffs, the market will not believe he won’t impose them again. Frighteningly, a recent article in the Financial Times (The philosophy behind Trump’s Dark Enlightenment, March 26, 2025) tries to explain the philosophical underpinnings behind the MAGA movement developed by two intellectuals (Curtis Yarvin and Nick Land) and articulated by the Silicon Valley billionaire and prominent Trump supporter, Peter Thiel.
“I no longer believe that freedom and democracy are compatible,” Thiel wrote. The fate of the world “may depend on the effort of a single person” able to make the world “safe for capitalism”. Interestingly, Land honed his thinking over a dozen years spent in China, which he considers a “competent government” which balances “radical innovation and profound conservatism”. This set believes that “a properly constituted state is one that has been cured of democracy. Its guiding principle is ‘no voice, free exit’: the residents or clients (not citizens) of such a state have no rights, but do have the ability to take their custom elsewhere”.
Clearly, we will remain in a high volatility downward spiral in equities until such time as the Trump show is soundly thrashed — he’s still babbling on bravely, but he doesn’t understand economics and he has no clue as to how strong a force the market is. As the market continues to tank, inflation starts to rise. People will feel increasing pain and the Republicans will start to revolt, and only in such a case would things possibly calm down. The big question, of course, is when.
The Indian markets, although falling sharply, are blessedly contained in comparison. Of course, that is poor comfort for companies who have built their businesses on exporting to the US. Clearly, they will have to reduce prices, but by how much? Their customers are doubtless in equal turmoil and unable to provide much guidance in terms of what price they would be willing/able to buy at. Again, with this sort of madness certain to negatively affect growth, customers are likely uncertain about how much they would be willing/able to buy.
Reduce your risk as much as you can.
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