Trump Is Overplaying His Hand And Gold Will Win The Pot

Isolationism for America is economically foolish, bordering on economic suicide. It ignores the reasons that Canada and America are excellent trading partners. But, the tariffs that Trump is imposing on Canada could turn out to be the best thing that could happen to Canada.

American car makers rely on Canada because the US dollar goes a long way in Canada which helps their bottom lines. If Trump forces the American car makers out of Canada it will immediately hurt their bottom lines. Plus, it takes a lot of time and money to build out what they need to make it happen, which puts further economic strain on their balance sheets.

They don’t need that when they aren’t in great financial positions as it is. When it all is said and done, American car makers benefit from making cars in Canada which is why they do it.

The same thing can be said for Mexico. American car-makers build cars in Mexico because it makes business sense. The strong US dollar goes further in Mexico, building factories in Mexico is cheaper and they have a strong workforce that costs the American car-makers less.

When Trump points his finger at other countries and blames them for taking advantage of America, he is losing sight of a couple important economic realities. American companies are the ones building their factories in other countries for economic reasons to be able to make products that American consumers want at the prices they are willing to pay.

If Trump wants to point fingers, he need not point them outside America, instead he can accurately point them at American companies and consumers.

Offshoring manufacturing didn’t happen for any other reasons than it made economic sense for American companies because consumers wanted stuff that could be made outside of America cheaper.

Coming to terms with those factors may not get funding for political campaigning and votes, but make no mistake about it, they are reality. It may not play well with the MAGA crowd wearing their made in China hats, but it is the truth.

Those MAGA hats are worn to show support for Trump, but they are made in China because they are cheaper to make in China and those that buy them want to pay that price, not the price of making them in America. And the American companies that sell them enjoy the profits from getting the hats made in China and selling them to MAGA supporters.

In the past, China would make the stuff Americans wanted for the price they wanted to pay, and receive US dollars in the business transaction, then buy US debt to support the foolish spending of politicians on the left and right. It was a reciprocal arrangement.

This was until after the 2008 GFC, when the Chinese realized that America had a Death Spiral of Debt that was a ticking time bomb. So, they stopped buying US debt and started to sell it instead, and for several years now they have been selling it to buy gold at record levels. They still have a lot of US debt to sell, and they have zero interest in buying it as they would rather own gold.

The Chinese aren’t the only ones that are coming to terms with America being in a Death Spiral of Debt that is getting much worse due to the cost of servicing the debt. It is about to get much more problematic because there is $9 trillion of debt that was built up during the Free Money Era that needs to be rolled over in 2025.

When that happens, it will add a few more percent onto that $9 trillion and drive the cost of servicing the debt alarmingly close to $2 trillion. Keep in mind that the income from taxes is $5 trillion, so servicing the debt is going to consume an unsustainable amount of the income from taxes.

Creating a government agency (DOGE) to attempt to make the government more efficient sounds good on paper. It is fairly meaningless unless the government spends less on the big ticket items. Sure they can make some difference at the margins, but to make a meaningful change requires the support of politicians in Washington.

Changing Washington politicians is a major undertaking that is failing and doomed to continue to fail. The GOP controls the House, and they just voted to increase the debt to $40 trillion and keep Biden’s spending going. Then the Senate (also controlled by the GOP) voted to allow them to keep up the prolific spending.

If Trump was serious about cutting spending and limiting the growth in the debt, he could have threatened to veto the CR and tell the GOP led House and Senate to go back to the drawing board to put a hard cap on the debt ceiling and slash spending. He didn’t, he was perfectly fine with growing the debt and keeping the spending exactly like it was during Biden’s term.

The entire Washington political system is a cruel joke. The Democrats voted in favour of Biden’s spending, but all voted against it because Trump is in the White House. While the Republicans all voted against it when Biden was the President, but now voted it through the House and Senate they control.

When it comes to spending, there is absolutely no difference between the Democrats and Republicans. The last two Republican presidents (G.W. Bush and Trump) spent like drunken sailors, as did the last two Democrats Obama and Biden.

G.W Bush tacked $4.2 trillion onto the debt, Trump in his first term added $7.8 trillion to the total. Obama was good for $7.6 trillion and Biden was the worst ever in one term with $8.6 trillion which beat Trump’s record for one term. The debt is at $36.6 trillion today, with the last four presidents responsible for $27.2 trillion of the total. The left can blame the right and vice versa, but those are the numbers, they are alarming.

This brings us to the point of how Trump’s isolationist policies with tariffs and trade wars could become economic suicide. The dirty little secret that he and his supporters don’t talk about is that they need foreign buyers of debt to keep the house of cards from falling.

The debt and cost of servicing the debt is not something that the Fed and domestic investors can support. The debt is held by the Fed, American investors and foreigners. If Trump keeps fighting with everybody, the foreigners will stop supporting the Death Spiral of Debt. They should because it is a risky bet, giving them another reason with trade wars is insane.

Trump is making the short-term pain for long-term gain pitch, but his tariff policies and desire to cause trade wars, is frighteningly dangerous. Made worse by the Death Spiral of Debt and alarming growth in the cost of servicing the debt.

If those issues weren’t bad enough, the economy has been struggling with stagflation for several months. You wouldn’t know it from the farcical government economic statistics. But, consumers understand it because they live in the real world. Which is why consumer confidence (and the Atlanta Fed) are dropping when it comes to economic growth and predicting inflation to rise much higher.

Does this sound like stagflation? It should because it is and with mass deportations and tariffs, it will slow economic growth and drive inflation much higher. Most on Wall Street, the Fed and financial media haven’t paid much attention to the stagflation because according to the government stats on economic growth and inflation did not show a significant margin.

Consumers know that the economic stats were overreporting growth and underreporting inflation. They also know that the growth is slowing and inflation is gaining strength to the point that the margin between growth and inflation is about to get much larger. Instead of a percent, it very well could grow to a few percent or more.

Trump’s trade wars using tariffs as the weapon, has the potential (more likely high probability) of causing a recession, while inflation is stubbornly persistent which adds up to stagflation. Of the sort that happened in the 1970s when Carter was in the White House. I don’t think Trump wants to be considered the second coming of Carter.

Trump’s stagflation could be worse than Carter’s stagflation. Back in the 1970s, there wasn’t a Death Spiral of Debt and alarming growth in the cost of servicing the debt. Trump is ignoring economic history and risking repeating it.

When Zelensky came to Washington, Trump said to him that he doesn’t have the cards. What Trump and his team are doing is overplaying their hand.

Lutnick is nothing more than a cheerleader that is overplaying the cards that America is holding. While Trump and Bessent are talking about economic pain for gain and a need for the economy to go through a detox period from insane government spending.

Meanwhile the GOP led House and Senate just voted for business as usual when it comes to growing the debt and to continue being spending junkies. Bessent is trying to put the spending problem all on Biden, while ignoring that Trump during his first term was a spending junkie.

The more things change, the more they stay the same.

MAGA folks may love the isolationist stuff, but it is economically foolish and easily could turn into economic suicide.

The tariffs on Canada very well could be the best thing that could happen to Canada. It might just force the Liberal Party dimwits in Ottawa, led by Trudeau for the past 9 years and now Carney, to come to terms with the economic realities of Canada.

Canada is rich with natural resources, it has everything the world needs. Canada is a natural resource exporter nation that has depended on the American economy for too long. The tariffs could force the politicians into coming to terms with these issues and focus on being a natural resource based exporter and diversify their customer base.

Trump and Lutnick try to play bullshit poker and say that America doesn’t need Canada. Which isn’t true because if they didn’t, they wouldn’t be such large trading partners with each other.

The truth is that Canada provides heavy oil that is needed by America, lumber and electricity, plus manufacturing that benefits from the strength of the US dollar against the Canadian dollar as well as metals from mining. The economies are intertwined. Economies of Mexico and America are also intertwined.

While Trump tries to make the case that America doesn’t need anybody else and that everybody else is taking advantage of America, he also said that the USMCA agreement was the greatest trade deal ever when he negotiated and signed it.

Instead of fighting with his friends in Mexico and Canada, he may want to look at the global economy. Whether he likes it or not, the global economy is moving toward regional alliances.

The Eurozone is one, which is the same size of economy as America. The BRICS nations are aligning and will be the largest economic zone in the world. While America should be fostering stronger ties with Canada, Mexico and South American countries to create an economic powerhouse on the global economic stage.

The economic world is changing by the day. Trump and his MAGA team may think they can go it alone while fighting with their trading partners to put America first and everybody else last, but that is a farce.

Canada could start opening markets to the east and west for its natural resources instead of just going south. Mexico has plenty of natural resources, plus it can make pretty much everything that China can for the same price. Mexico also has a lot of fertile land for farming, if all the Mexican farmers that do the farming in America are sent back to Mexico, they will start farming in Mexico and shipping the food to America. Mexico also has a vibrant tourism business.

Fighting with Canada and Mexico is economically dangerous.

Another economic reality is that the world is in a Death Spiral of Debt made worse by a stagflation problem that has no borders. The global fiat currency and debt system is broken. Which is why gold is trading at record highs against every fiat currency, including the world’s reserve currency the US dollar.

In 2024, gold made a series of record highs against every fiat currency and the same is happening in 2025. Actually, it is on a path to have an even better year in 2025 than in 2024. Gold surpassed the Euro in 2024 to become the second largest reserve currency held by central banks. It has the US dollar in its crosshairs.

What not many in the West realize is that the world is headed toward the Gold Standard 2.0. Before going off the Gold Standard in the early 1970s, gold was the top reserve currency and an important part of international trade. It is heading toward regaining that position.

As gold is heading toward the Gold Standard 2.0, the gold miners are making money hand over fist. High-cost gold miners are making around $1000 per ounce on what they produce and the low-cost gold miners are producing gold for around half the price of what they receive when they sell their gold. The gold miners are free cash flow machines and will see that get stronger as gold goes much higher.

The gold supply chain is broken. The gold miners are struggling to keep up with the demand and aren’t able to increase their production as an industry.

There aren’t enough high-quality gold mines in the development pipeline to help the miners increase production or replace their old mines with new mines. Locking in that the supply chain will stay broken for decades is that in addition to not enough gold mines in development, there aren’t enough gold explorers with important discoveries.

The same problems with broken supply chains are happening in silver, copper and other metals. For too long, investors have ignored the mining sector and have pumped money into overvalued tech stocks and Bitcoin. When they should have been investing in mining because nothing gets made or works with the metals from mining.

Wall Street stocks, tech stocks and Bitcoin are overvalued. While gold, silver and copper are cheap and headed much higher. The miners of these metals, mine developers and explorers with important discoveries are even cheaper.

The Gold Standard 2.0 will be extremely bullish for gold and the gold stocks all along the food chain.

It will also be very bullish for silver which is the most coiled spring I have ever seen in a metal. The menu of silver miners, silver mine developers and silver explorers with important discoveries is tiny and they are primed to go much higher.

Copper and the copper stocks also have compelling arguments to be bullish as there just isn’t enough copper production to meet the growing demand and the pipeline is not prepared for the demand of the future.

For much too long generalist investors have ignored precious and base metals, and the stocks have gone underloved. But, now we are on the cusp of a metals bull market that will make the 2001 to 2011 metals bull market look like child’s play.

All the best,

Allan Barry Laboucan