*This is the transcript of an interview conducted by the International Man with Doug Casey.
International Man: Before the income tax, tariffs funded the US federal government.
Was the country better off then?
If tariffs were to replace the income tax today, would it be a net positive?
Doug Casey: Most people have forgotten that the income tax was only imposed in 1913. Before then, the US government was funded almost entirely from tariffs and excise taxes. So, it’s possible to run the government solely on tariffs. But only if the size of the government is drastically cut. It would have to be at least 80% or 90% smaller. Relative to the economy, that’s about what it was before World War I.
It would be a net positive if tariffs replaced the income tax—if that’s all there was to it. For one thing, tariffs are non-invasive. They don’t require agents rifling through your life.
It’s highly unlikely that the government will give up that much power. The best case is that high tariffs might allow a decrease in the income tax. But if it’s adjusted down, it can be adjusted back up. That’s why these things must be pulled out by the roots, with Agent Orange sewn where they grew. Reductions are nice but delusional and counterproductive in the long run.
The chances are we’ll just wind up with an additional layer of tax by virtue of tariffs.
International Man: Suppose Trump sincerely intends to replace the income tax with tariffs.
Is such a plan realistic, and what would it take to succeed?
Doug Casey: Looking at the numbers, the US government spends about $6.75 trillion per year but only collects about $4.9 trillion in revenue. The difference is covered by printing money, which is to say by inflating the currency.
Can tariffs solve that problem? That’s most unlikely. The US imports about $4 trillion of goods per year. Tariffs currently yield about $80 billion on that or less than 2% of government revenue. Could tariffs be increased by 50 times? No. Anyway, the higher import tariffs go, the less imports there will be. At some point, higher tariffs will actually result in less, not more, government revenue.
Don’t get me wrong on this. I want to see the State get less revenue. But not by destroying international trade. And don’t forget—foreigners don’t pay tariffs. US consumers do. Tariffs only cost foreign producers lost sales and lost profits.
Trump’s proposed tariffs could destroy international trade. They’ll destroy foreign businesses that are selling to the US and destroy American businesses which export abroad. That’s what happened with the Smoot–Hawley tariffs in 1929, which made the Great Depression much worse. Foreigners were unable to buy from the US because it became uneconomic for them to sell to us.
Trump seems to think that tariffs will fuel a boom. That’s ridiculous. They’ll only result in a huge reduction in our standard of living. Tariffs amount to placing your own country under embargo. It’s like shooting yourself in the foot.
If the government is cut back to its only three essential and moral functions—defending citizens from foreign attack, protecting residents from domestic criminals, and providing a court system to adjudicate disputes—yes, Trump’s tariffs could work as long as government spending was cut radically.
The trillion dollars of military spending, an epicenter of grift, acts as a provocation to other countries. It’s an insane amount which could be cut massively. Social Security, which has always been a Ponzi scheme, should be replaced by individual retirement accounts with real assets, not government debt. Medicare and Medicaid should be phased out. These things equal 75% of spending.
A lot of income could be generated by selling BLM and Forest Service land, which is now dead capital.
In the meantime, DOGE should continue on its current path. There’s a huge amount of fraud and waste throughout the government, not just USAID and the Dept of Education. Eliminating most regulations and taxes would enable a genuine boom.
Trump is basically planning on using tariffs for two objectives. To generate revenue, which we’ve just discussed. And to force manufacturing back into the US.
The reason businesses have left the US is because of high taxes and regulations. Trying to coerce where manufacturing goes without changing the basic fundamentals is counterproductive. Coercion can’t build a strong economy.
I can imagine Trump saying, "We have a huge trade deficit with Guatemala on bananas. This is a national security risk, and they’re ripping us off on bananas. I’ll tariff Guatemalan bananas, and we’ll build a beautiful and great banana industry in Detroit."
With the same logic, Guatemalan politicians might respond, "We don’t have an auto industry here. Let’s put 200% tariffs on US cars. We’ll make our own Cadillacs."
This is a comical example, but it illustrates the foolishness of tariffs. Nobody wins, and everybody’s standard of living drops—except for Detroit banana growers and Guatemalan Cadillac makers, until they both go bankrupt.
However, if Trump deregulates quickly and radically enough, that may compensate for a good part of the damage his tariffs cause. Although, if things come unglued, the Democrats are likely to win the next election and make things worse than ever by rehiring fired bureaucrats and reinstating old regulations.
Much of what Trump is doing now—deregulating and closing agencies—is wonderful. But it could all be reversed with the next election, while the damage he does by starting a tariff war will linger.
International Man: Many are overlooking the potential delayed and indirect effects of tariffs.
Could they lead to capital controls, a shakeup in the monetary system, and disruptions in global trade?
Doug Casey: Definitely. Remember that since about 1980, the main export of the US hasn’t been Boeings or soybeans. It’s been dollars. Which has artificially raised the US standard of living. Foreigners have been trading real goods for fiat dollars for over 40 years. Now, there are $30 or $40 trillion in US dollars owned by foreigners outside of the US. They’re a time bomb.
At some point, the world will want to dump them on the US in exchange for real wealth. The value of the dollar is strictly a matter of confidence, backed by the faith and credit of the US government and its ability to extract resources from American citizens. However, confidence in the stability and reliability of the US Government is low. If it’s run by Executive Orders, on the whim of the President, confidence could collapse.
If a currency panic occurs, Trump is likely to put on controls in a futile and counterproductive effort to support the dollar. Tinkering the way he is, Trump reminds me of The Sorcerer’s Apprentice. Things that seem like a good idea to start with can easily get out of control.
Constructive things, like massive deregulation and lower government spending, will result in a stronger country and a stronger dollar. Destructive things, like massive tariffs and arbitrary actions, will do the opposite.
Significant tariffs will result in less trade. And if there’s less trade internationally, there will be less demand for the US dollar, which is the medium of almost all trade in the world. Less demand for the US dollar will weaken it.
It’s sad that Trump’s economic thinking is so full of flaws and contradictions because this is America’s last chance to straighten up and fly right. He’s in the position of Louis XV, who observed: "Apres moi, le deluge". Unfortunately, Louis did nothing to prevent the tidal wave that was coming.
International Man: Recently, gold prices have risen amid rumors of surging demand for physical deliveries as investors worry about the effects of tariffs.
What’s your take on the current gold market trends? What do you think could happen next?
Doug Casey: Assuming you can believe what we’re told, a lot of gold is being transferred from London to New York, and people are taking delivery of gold on the COMEX, not just closing out contracts for a profit. It could be that a lot of shorts are being squeezed. Remember, the financial world hates gold. They believe it’s a pet rock, as Warren Buffett said. And they’re being punished as gold crowds $3000.
It’s possible that the US government, under Trump, is buying gold through intermediaries. It’s possible that the sovereign wealth fund that Trump wants to put together is being stocked with gold separate from the gold owned by the Treasury and the Federal Reserve.
Perhaps gold is leaving London for New York because the current British government is even crazier than the Biden regime was. Britain and its government are in much worse shape than the US and its government, as hard to believe as that might be. It’s logical for people to take delivery of their gold. You don’t want to entrust assets to an unreliable custodian. The recent experience of the Russians should be instructive in that regard.
It’s notable that the public is not involved in any of this. One proof of that is that gold coin premiums are close to historic lows. What’s going on now is strictly among the big boys—governments, central banks, and large institutions.
International Man: Do you think tariffs and their ripple effects will create distortions in the market?
How can speculators capitalize on these opportunities?
Doug Casey: Any government action—any additional law or tax—automatically creates a distortion, which eventually must be unwound to the profit of some and the loss of others.
While Trump is adding new distortions with his tariffs, he’s unwinding old distortions by deregulating. For example, the abolition of USAID. It was a veritable criminal organization spending $50 or $60 billion a year of taxpayer’s money on destructive grifts. Many entities and individuals who were expecting funding from USAID will default on their obligations, and have to liquidate. The same thing will happen when the Department of Education bites the dust. And FEMA. And hopefully hundreds more agencies, offices, departments, bureaus, and NGOs. With any luck, thousands of grifters will be jailed or wind up living under bridges.
We’re in a situation of real chaos now. It’s going to become even more chaotic as Trump’s numerous enemies reorient and counterattack. We don’t really know what Trump is planning next. Just yesterday, he announced 25% tariffs on all steel and aluminum imports. That’s a big deal. Many foreign suppliers and domestic buyers will probably be forced into bankruptcy, their margins destroyed by this new tax. With more to come.
Foreign countries will retaliate with similar tariffs. Stupid governments everywhere (including the US, which started all of this) will place their own countries under embargo to show how tough they are.
The best way for speculators capitalize on this is to stay liquid for the moment and wait for the dust to settle. You don’t want to try to catch a falling knife. The one thing that’s for sure is that you want to have as many real assets in your own physical possession as possible. Like gold and silver coins.
This is not a good time to trust paper or conventional institutions, including banks. Build your holdings of gold and silver coins, either in your own possession or stored by some non-governmental entity you trust. Preferably in a stable second country.
Editor's Note: Unfortunately, there's little any individual can practically do to change the trajectory of these trends in motion.
The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation. We think everyone should own some physical gold.
Gold is the ultimate form of wealth insurance. It has preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.
Choosing where to put your gold is crucial to ensuring it doesn't get caught in the crosshairs. We've eliminated the guesswork and found an ideal solution that will help keep your gold safe and within your control, even during the worst of times. Best of all, it meets all the criteria for self-directed IRAs.