The Meb Faber Show - Better Investing UBS’ Paul Donovan on Tariff Trouble, Swiftonomics & Republican Swings | #579
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Apr 11, 2025 Join Paul Donovan, Chief Economist of UBS Global Wealth Management, as he demystifies economic trends with clarity. He discusses the ramifications of tariffs on inflation and consumer behavior, observing a notable shift from goods to experiences. The conversation delves into Japan's economic transformation due to demographic shifts and examines the reliability of economic data amid rising political polarization. Paul also touches on how the emotional dynamics between Republicans and Democrats impact consumer sentiment and economic outlooks.
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Tariffs: A Consumer Tax
- Tariffs are ultimately paid by the domestic consumer, not foreign producers.
- This can lead to both direct price increases and second-round effects like profit-led inflation.
Washing Machine Tariffs
- When Trump imposed tariffs on washing machines, US manufacturers raised prices by 17%.
- This demonstrates how tariffs can lead to domestic companies increasing profit margins, further impacting consumers.
Profit-Led Inflation
- Tariffs applied early in the supply chain can cause disproportionate price increases due to markups at each stage.
- Consumers, expecting higher prices, may tolerate inflated markups, creating profit-led inflation.