Prices going up on tariffed goods are not inflationary across the whole price level. If no new money is created, prices going up on one good (because of tariffs, which will happen) means less money to spend on other goods. So tariffs are “inflationary” in that the item being tariffed may go higher, which will feel like inflation, but it does not speak to the WHOLE PRICE LEVEL, which is what inflation is supposed to measure. YET, I believe tariffs ARE inflationary, in that inflation is “too much money chasing too few goods and services” – and the result of tariffs will be less production of goods and services, which brings down supply, with the same money supply, ergo = inflation.
~ David L. Bahnsen, April 22, 2025

It is beyond my pay grade to know what China is going to do and when regarding Taiwan, but it is very much within my pay grade (and then some) to know that (a) Media reports don’t know either, and even more importantly, (b) Newsletter writers don’t know. The amount of “foreign policy” expertise one can get from “insiders” on the internet is amazing, especially for $9.95/month.

Here is what I can tell you: I do not trust China and do not believe they operate in good faith on the world stage. And at the same time, I cannot think of anything China could do worse for its interests than invade Taiwan. They have behaved remarkably well in terms of their bond market and currency, demonstrating far more credibility, discipline, and sobriety than Japan, Europe, or, yes, the US of A, in these regards. Their bond market has become credible, their currency reliable (other than a lack of capital flows), and they have begun (in the early innings) to achieve what they set out to do – gain trading relationships by being a more responsible fiscal and monetary actor. Attacking Taiwan would undermine many, many years of effort in this regard. But again, that doesn’t mean it won’t happen.
~ David L. Bahnsen, April 22, 2025

You bring up two different subjects here and inadvertently lump them together as if they were one and the same. The issue of how comparative advantages are built is one thing, and the issue of national security concerns is another. I think both are important. There is no part of the setup or concern underlying your question that should lead one to “disregard national security concerns.” This is the frustration a free trader and national security hawk (all at once) like me feels in the current moment – none of the present policies have anything to do with national security, or are doing anything to deal with our critical infrastructure dependency on global supply chains. I would rather be laser-focused on that, and less concerned with t-shirts in Vietnam, chocolate in Switzerland, coffee in Brazil, and component parts in China, which, you will forgive me, are not national security concerns. So that part of your question feels forced into me, and is separate from the other issue of what fundamentally creates comparative advantages.

There are a lot of ways a comparative advantage can be built. The primary job of an economic actor is to find comparative advantages, not necessarily to care how they came to be – when we select our favorite restaurant, we are generally focused on the best food and service, and not studying the resume of the head chef. But all that to say, from agricultural abundance, to climate, to access to natural resources, to educational focuses, to cultural or vocational focus, and yes, to government intervention, a country develops comparative advantages in a lot of ways. I believe the best thing a free society can do to develop advantages is remove impediments to growth, cultivate risk-taking, enforce the rule of law, encourage entrepreneurship, and allow robust capital markets to evolve. Those things work for countries that want to be superpowers, and offer an opportunity society with dynamic mobility to their citizens. If, on the other hand, one country’s idea of comparative advantage is to favor one sector and subsidize it, well, they may create an advantage in one space – but they do so at great loss and opportunity cost in the rest of their economy.
~ David L. Bahnsen, April 21, 2025

“It is a tautology that inflation reduces returns in the sense that they reduce purchasing power, and investment returns are there for the purpose of future purchasing.  If inflation is 3% per year, then purchasing power is cut in half in 24 years.  At 2% per year, purchasing power is cut in half in 36 years.  So, another way to see it is that the nominal (gross) return of a portfolio is reduced by the inflation rate to get a real rate of return.  Historically, asset classes returning 9% had a 6-7% real return, whereas asset classes returning 4-5% had a 2-3% real return.  It is hardly rocket science to say that, therefore, one should one their investment returns to outpace the rate of inflation.

As for the U.S. tax level forecasts, no, I do not believe they will be at European levels in ten years or twenty years.  I realize many people think they should be – but the argument that higher tax rates are needed to balance the budget is (a) Untrue, and (b) Irrelevant as we have learned from history, and (c) Naïve about the political reality.  I will take the under.”
~ David L. Bahnsen, April 17, 2025