The Peter Schiff Show Podcast

Episode 1007: Tariffs Harm Most the Nations That Impose Them
Host: Peter Schiff
Date: February 3, 2025

Overview

In this episode, Peter Schiff reacts to the latest round of tariffs imposed by the Trump administration on Mexican, Canadian, and Chinese goods. Schiff challenges the prevailing narrative in both the media and political discourse—that tariffs harm foreign exporters while benefiting the U.S.—arguing instead that tariffs predominantly harm the consumers and economy of the nation imposing them. Schiff uses real-world examples, analogies, and fresh market data to critique the political and economic logic behind protectionist policy, and discusses the possible global and domestic fallout.

Key Discussion Points & Insights

1. Market Reaction & Public Perception

• Schiff opens with market data reflecting strong turbulence in response to the announced tariffs:
  • Major U.S. indices down sharply (Dow -1.3%, Nasdaq -2.4%, Russell 2000 -3.4%).
  • Global currencies fell against the U.S. dollar, including those of countries not directly affected by tariffs (Euro, Yen, Pound, Australian Dollar, etc.) ([00:38 – 05:00]).
• He highlights the prevailing misconception that America "hits" other countries with tariffs, creating the illusion that the U.S. is winning at others’ expense:
  • "Everybody believes... it's great for America... But if the currency traders understood economics, they would be selling dollars right now, not buying them." ([04:55])

2. Who Pays for Tariffs?

• Schiff rebuts the notion that foreign exporters absorb tariffs, comparing tariffs to sales taxes:
  • "They are not going to eat the tariffs any more than a store eats the sales tax." ([09:25])
• The costs of tariffs on goods like avocados, maple syrup, and lumber are passed directly to American consumers; U.S. businesses and households must pay higher prices ([08:15 – 14:40]).
• He gives the example of avocados:
  • “If we have 25% tariffs on avocados,... they're not going to eat it. The margins aren't that high.” ([10:30])

3. Trade Deficits and Comparative Advantage

• Schiff revisits the fundamentals of trade:
  • Countries export to pay for imports. The U.S. is unusual in that it pays for imports with dollars, which are simply IOUs due to its reserve currency status ([16:15]).
  • He uses his well-known “apples and oranges” farmer analogy to explain that when one side consistently gives IOUs without returning value (goods), it’s that side who is exploitative, not the "supplier" ([18:30 – 24:30]).
• He argues the U.S. actually benefits far more than trading partners:
  • “America takes advantage of the world. It's Canada, it's Mexico... It's the world that's getting screwed.” ([13:50])

4. Protectionism: Theory and Reality

• Schiff explains the only way tariffs protect domestic industries is by forcing up the price of imports—not by punishing foreign exporters ([28:00]).
• Foreign competition drives domestic innovation; tariffs simply make Americans buy inferior or more expensive domestic alternatives:
  • "It was foreign competition that made us better." ([29:38])
• Tariffs also raise costs for U.S. producers who depend on foreign inputs—e.g., energy, lumber—hurting global competitiveness ([31:05]).

5. The Domino Effect of Tariffs and Retaliation

• Retaliatory tariffs from Canada or Mexico will hurt their own consumers, as “the dumbest thing... is retaliate by tariffing their own people.” ([07:08])
• As countries seek alternative buyers beyond the U.S., America's ability to reverse tariff-induced damage may be permanently compromised ([49:30]).

6. Economic Consequences for the U.S.

• Tariffs make many goods more expensive, squeezing real household incomes ([55:00]).
• Especially hurt: U.S. middle and working-class families, and sectors like construction and retail ([32:30], [57:00]).
• Schiff warns of decreased disposable income, cutbacks in service consumption, and the risk of a broader recession.
  • “Real consumer spending has to go down if the cost of the stuff we're buying goes up.” ([56:21])

7. Illustrative Thought Experiment: Maximum Tariffs

• What if the U.S. set tariffs so high that imports stopped entirely?
  • “Who was the biggest loser in those circumstances? Is that a big win for America?” ([36:13])
  • The U.S. would face economic collapse; imports are vital and can’t easily be domestically replaced ([36:20 – 43:00]).
• Weakening the global demand for dollars could cause a dollar collapse, hitting the U.S. financial system ([45:00]).

8. Special Interests vs. Public Good

• Politicians cater to the narrow interests of businesses who benefit from tariffs, not the broader middle class who suffer most from higher prices ([58:15]).

9. Gold, Currency, and Investment Implications

• Gold prices hit records (especially in Canadian dollars) as currencies fall and uncertainty rises ([59:20]).
• Canadian gold miners may get a windfall due to weaker currency and lower energy costs ([61:00]).
• Shift recommends buying gold and silver coins, especially before potential 25% tariffs on Canadian Maple Leafs take effect ([60:30 – 62:00]).
• Schiff reiterates: “The winner is going to be gold for sure. Gold's going much, much higher and eventually the dollar is going lower.” ([61:27])

10. Ripple Effects for Global Trade

• If other countries reorient trade away from the U.S., they’d ultimately benefit from retaining more goods and selling to customers who pay in real value, not dollars ([43:40], [46:15]).

11. Closing Themes and Warnings

• Schiff urges listeners to brace for higher inflation and a weaker economy if tariffs persist.
• The longer tariffs last, the more costly and difficult it becomes for the U.S. to resume normal trade ([49:30])—“Once trade deals are made or different trade routes are established, and now all of a sudden we get rid of the tariffs, the prices might not go back down.” ([49:32])
• Critique of financial media and mainstream economic analysis: “Most of the financial media has no idea how to report what's going on and what's going to go on.” ([65:25])

Notable Quotes & Memorable Moments

• On Who Bears the Cost of Tariffs:

  “They are not going to eat the tariffs any more than a store eats the sales tax... Tariffs are exactly the same. They are passed on to the consumer. Who consumes Canadian imports? Americans.” ([09:25])

• On U.S. Trade Deficit:

  “America doesn’t take advantage—I mean, the world doesn’t take advantage of America. America takes advantage of the world. It’s the world that’s getting screwed.” ([13:50])

• Farmers Analogy on Trade and IOUs:

  “All these dollars that we pay are IOUs. That’s what they are. They represent claims on US production. But we don’t have the ability to produce this stuff, right?” ([24:45])

• On Protectionism:

  “It was foreign competition that made us better... If we had responded to the growth of the automobile industry in Japan and in Germany with tariffs to protect General Motors or protect Chrysler... US cars would have stayed crappy.” ([29:38])

• What If Tariffs Ended All Imports?:

  “What would happen to the US economy without those imports? Right. Do you think we could just magically produce them? … The US economy would completely implode.” ([36:23])

• On the Strong Dollar Myth:

  “If you could just tariff yourself into a strong currency, everybody would do it, right? That is not the key. You don't just slap tariffs on your own people and then you get a stronger currency as a reward for taxes.” ([62:50])

• On Politicians’ Priorities:

  “The biggest losers from these tariffs are the middle class and the poor. Right. Because they’re the ones that are most impacted by higher energy prices, higher food prices, higher prices for all these goods.” ([58:12])

Key Timestamps

• Market reaction & confusion over tariffs: [00:38 – 05:00]
• Who pays for tariffs—avocado case: [07:55 – 13:00]
• Sales tax analogy: [09:25]
• Comparative advantage/trade deficit basics: [16:15 – 24:30]
• Protectionism and domestic industry: [28:00 – 32:30]
• Extreme scenario—tariffs stop all imports: [36:13 – 44:00]
• Global realignment away from U.S. trade: [45:00 – 46:15]
• The effect on U.S. consumers and inflation: [55:00 – 57:00]
• Retaliatory tariffs & permanent consequences: [49:27 – 51:00]
• Gold and currency dynamics under tariffs: [59:20 – 62:00]
• Special interests vs. the public: [58:15]
• Final warnings on U.S. economy and dollar: [62:45 – 65:00]

Conclusion

Peter Schiff emphatically rejects the idea that tariffs are a weapon against foreign competitors; rather, he insists tariffs backfire, harming American consumers and ultimately the entire economy. He underscores that the U.S. enjoys a privileged position by running deficits—a privilege tariffs threaten to undermine. Schiff warns that prolonging protectionist policies can spur global realignments detrimental to America, with the ultimate winners being holders of real assets, like gold, and the losers being ordinary Americans facing rising prices and shrinking economic prospects.

For actionable recommendations and deeper coverage, Schiff advises listeners to stay diversified globally and to hedge with precious metals before further policy-induced shocks arrive.