Last year, on October 29th we went out on a limb and predicted Trump would win the election (Delaware Statutory Trusts and Market Anxiety 10/29/2024). He had the ‘Big Mo’ (momentum), Harris did not. We were right.
We are climbing back out on that same limb and predicting that if Trump follows through with his threatened tariffs, it will plunge the United States into recession, pulling much of the world down with it. We hope we are wrong.
Adam Smith, the great Scottish economist and philosopher, who was a pioneer in the thinking of political economy proved conclusively two and a half centuries ago the absurdity of protectionism.
He used wine to illustrate this, positing that “By means of glasses, hot beds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about 30 times the expense for which at least equally good wine can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?”
No one in the intervening 250 years has proved the Scottish sage wrong, least of all Donald Trump.
Sadly, Trump is so poorly read I doubt he knows the difference between Adam Smith and Adam & Eve. And we are all likely to be the poorer for it.
This doesn’t have to happen. The 1930 Smoot-Hawley Tariff Act and its levies on some 20,000 imports is there for all to see.
As a result of its passage, U.S. Trade fell by nearly two-thirds and turned the recession which followed the stock market crash of 1929 into the Great Depression.
We are unlikely to experience anything this dramatic given the economy’s size and service nature: services don’t attract tariffs, goods do.
However, the odds of recession have increased dramatically, along with the pain and dislocation which must accompany it. All this simply to satisfy the hubris and political calculations of one man and his enablers.
How really well informed are they? Trump inherited a real estate business from his father, Fred. Peter Navarro was an economist at an obscure California school and failed Democratic political candidate. As Elon Musk famously tweeted on X “he ain’t built shit.” Robert Lighthizer was an attorney and K Street lobbyist.
These are the people who presume to reorder the global economy for the benefit of working class Americans. Funny, I don’t see any of them pushing their children into coal mining, shipbuilding or “screwing tiny screws into iPhones.”
As CRE investors, you had best prepare yourselves for the fallout of their “vision.” Invest as defensively as possible in property types and industries which will likely survive the Trump Tariff Tsunami, or better yet, the Trump Slump (the Orangeman likes nicknames).
Downsizing and dislocation are always good for self storage. The worse it gets, the better it has historically performed. You can’t break trade without breaking capital flow too. This will disrupt business and commercial real estate demand.
Even the most restrictive trade barriers can’t stop the aging process. This provides for the potential of both stability and predictability from a demand standpoint. Heretofore, senior living has been one of our most reliable DST property types.
Aging also begets greater demand for medical goods and services. Domestically based providers/manufacturers could profit.
Finally, any property type that may benefit from stronger inflationary tailwinds is worth considering. With the cost of many things going up as Trump tries to stuff the genie back into the bottle, its hard to see this diminishing.
There’s an old saying, “You can’t uninvent the atomic bomb,” we’ll see if Donald Trump is better at turning back the hands of time than others.
