America's Financial Health - Part I
- Christopher Gerber
- Apr 21
- 6 min read
April 21, 2025
Understanding Tariffs for Real People Who Want to Sleep Tonight
It is my sincere desire that we both have a useful understanding of the truth about investments, the economy, personal objectives, and risks so that we are on the same page. This empowers us to make the highest quality decisions possible with the information that we have.
This discussion on tariffs aims to provide a clear and unbiased perspective, cutting through media bias and occasional inaccuracies. It's important to note that incorrect reporting isn't always intentional, though it can be at times. The financial landscape is inherently complex, largely because it's managed by humans. Never underestimate our ability to complicate matters. In finance and economics, targets are constantly shifting as we attempt to understand human behavior related to money. Money is crucial and significantly impacts lives. Human behavior is imperfect, necessitating a developed "sense" of it. This is why you hire us—to maintain a deep understanding of markets. We aim to ensure you don't lose sleep over the barrage of media information. Let's delve into the basics of tariffs.
History of Trade Wars
Historically, trade wars have followed a pattern:
Initial Tariff Imposition – A country imposes tariffs to protect domestic industries or fund its costly goals.
Retaliatory Measures – The affected country responds with tariffs of its own.
Escalation Phase – Both sides continue to raise tariffs, leading to higher prices and strained trade relationships.
Negotiation or Resolution – Eventually, diplomatic efforts may lead to free trade agreements or tariff reductions.
A tariff is a tariff when one country charges another country a fee to enter its market to sell a good. But, other fees a country charges another to enter its market are not called tariffs, necessarily. The important one for our understanding, here is the Value Added Tax (VAT). A VAT is currently used by the European Economic Union (EEU) as a de-facto tariff. SO, if a county has a tariff of, say 15% and a VAT of another 20% the total entry fee to sell into their market is 35%. Why do countries impose these fees?
Revenue. Tariffs and VATs keep local taxes low by shifting a country’s tax burden to those in other countries. They are also used to protect industries by giving them a leg up on imports. For example, say Country A wants to dominate the steel industry. Its government funds its steel producers with tax breaks or outright payments. Country A ships steel to Country B. It is undercutting Country B’s price, potentially putting its steel industry out of business. This is known as dumping. Country B retaliates by imposing a tariff on Country A’s steel imports to equalize or overwhelm its price competition.
Now it becomes interesting.
The Cards
Who has all the cards we’re hearing about on the new?
If you run a country, you metaphorically hold a hand of cards, some good, some bad. Americans have “held the cards” starting right after WW2. We supplied the war-ravaged world with goods. We had a great credit rating and could borrow all the money we wanted for "guns and butter". We could even make mistakes and not worry too much over decades. And we did! Mistakes added up. Below, you will see that we are not in a financial position to make many more mistakes.
The Face Cards are Really Important
Card 1: Financial Strength (Do You Have the Ability to Buy and Pay?)
Here’s a ranked list of the credit ratings of the 20 best in 2025, based on S&P Global Ratings. It answers who can borrow with the least trouble. Note that borrowing impacts the interest rates a country pays…a lot! Rates affect taxes, politics, living standards, and economic potential. The US has had its debt downgraded twice in the last twenty years.
While you look at this table on credit ratings, notice that the US is no longer in the top ten.
International Rank Best to Worst | Country | 2025 S&P Credit Rating |
1 | Germany | AAA |
2 | Canada | AAA |
3 | Australia | AAA |
4 | Netherlands | AAA |
5 | Sweden | AAA |
6 | Switzerland | AAA |
7 | Denmark | AAA |
8 | Singapore | AAA |
9 | Norway | AAA |
10 | Luxembourg | AAA |
11 | Liechtenstein | AAA |
12 | United States | AA+ |
13 | Taiwan | AA+ |
14 | Austria | AA+ |
15 | Hong Kong | AA+ |
16 | Finland | AA+ |
17 | New Zealand | AA+ |
18 | United Kingdom | AA |
19 | South Korea | AA |
20 | Ireland | AA |
Card 2: Who is Overloaded with Debt?
Here’s a ranked list of the debt to GDP ratios of the 20 worst in 2025, based on S&P Global Ratings. The higher the number the worse it is. Every country on this list has an urgent problem. When your sister who has maxed out her credit cards wants to borrow $1500 from you to buy a new tattoo, what are you thinking? It's an easy call. You likely will not lend her the money. Now you see where this can go. The US is in the top 20 worst positions worldwide. We are right between Bhutan and Bahrain.
International Rank Worst to Best | Country | 2025 Debt to GDP Ratio |
1 | Lebanon | 283% |
2 | Sudan | 256% |
3 | Japan | 255% |
4 | Singapore | 168% |
5 | Eritrea | 164% |
6 | Greece | 162% |
7 | Argentina | 155% |
8 | Venezuela | 146% |
9 | Italy | 135% |
10 | Bhutan | 123% |
11 | United States | 122% |
12 | Bahrain | 121% |
13 | Cuba | 119% |
14 | Cape Verde | 115% |
15 | France | 111% |
16 | Spain | 108% |
17 | Canada | 108% |
18 | Sri Lanka | 104% |
19 | Belgium | 103% |
20 | Mozambique | 101% |
Card 3: Consumer Spending Portion of Total GDP (Is there Buying Power?)
You can see the US is roughly 50% larger market of consumer buying power than the next closest market based on S&P Global Ratings. It has the infrastructure in credit, pay systems, roads, real estate, advertising, delivery, and Joneses to keep up with. This is a formidable strength. US buyers can make and have made many exporters to the US rich!
International Rank Best to Worst | Country | Consumer Spending Portion of Total GDP | 2024 US$ Size in Billions |
1 | United States | 67.9% | 30,337.16 |
2 | China | 39.1% | 19,534.89 |
3 | Germany | 52.96% | 4,921.56 |
4 | Japan | 52.97% | 4,389.33 |
5 | India | 64.75% | 4,271.92 |
6 | United Kingdom | 61.08% | 3,730.26 |
7 | France | 54.27% | 3,283.43 |
8 | Italy | 54.41% | 2,459.60 |
9 | Canada | 55.16% | 2,330.31 |
10 | Brazil | 63.85% | 2,307.16 |
11 | Russia | 50.82% | 2,195.71 |
12 | South Korea | 37.67% | 1,947.13 |
13 | Australia | 55.80% | 1,881.14 |
14 | Mexico | 70.65% | 1,789.10 |
15 | Indonesia | 53.71% | 1,371.20 |
16 | Netherlands | 41.97% | 1,154.40 |
17 | Saudi Arabia | 41.69% | 1,067.60 |
18 | Spain | 52.20% | 1,620.10 |
19 | Turkey | 59.38% | 1,118.30 |
20 | Switzerland | 50.37% | 884.90 |
The Fed is ever on the job trying to slow inflation from its current hair-on-fire level. Interest rates are the Fed’s blunt instrument of choice. This week it increased the Fed Funds target rate by one-half percent. There are likely increases to come. Here is encouraging perspective on these increases. In the 1970s and early 1980s, higher rates did not work well. Paul Volker determined that the investing public needed reassurance that the federal government would not get a free ticket to cheap money forever and the marketplace would ultimately determine rates. Otherwise, there was little reason to invest in bonds, government or other, that would immediately lose value. Debt funding was seriously harmed. Paul on required government to finance its spending in the public markets at higher rates like everyone else had to finance anything. In the last decade or so, the Fed has financed Treasury deficit spending (initiated by Congress and Administrations) by purchasing government bonds at low interest rates (hence, above-market prices). They are cutting back this program. This is a good sign indicating the Treasury must finance more deficit spending in the public markets at market rates. This is encouraging news for investors. It will ultimately give them assurance that they can invest without being undercut by government borrowing, all else equal.
Recap
Solving an overspending problem starts somewhere. Washington has demonstrated repeatedly over the decades that it does not have the will to solve its spending or borrowing problems. Tariffs are a next realistic next step. An alternative is raising taxes. That is likely difficult when the debt problem is very large. Retaliatory tariffs are another tool. They, however, disrupt the current ebb and flow of trade. People taking advantage of others, as has been the norm for many years, often do not like to be called out for it. They argue and the media ruffles all of which creates market uncertainty.
When making financial decisions, we need to keep in mind that other countries want to continue being rich or perhaps solvent. The hope is that agreements can be made for a more fair and freer trade environment.
About FIDERE
Fidere Advisors sees the value in broad diversification. We may emphasize certain areas but generally it is not to the exclusion of all other areas of the market both foreign and domestic. We feel that this is a prudent methodology when combined with hiring managers that have exhibited successful risk-managed processes and therefore consistent performance.
To discuss your situation or learn more about FIDERE, please connect with us anytime at: www.fidereadvisors.com, call (833) 234-3373, or schedule a web meeting at: www.calendly.com/chris-gerber. To view aggregate portfolio models, visit: www.fidereadvice.com/models.
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Advisory Services through Fidere Advisors, LLC. (dba FIDERE), a Registered Investment Advisor. Information provided has been prepared from sources believed to be reliable but is not guaranteed and does not represent all available data necessary for making financial decisions and is for informational purposes only. FIDERE and its representatives do not offer tax or legal advice through FIDERE. Please consult the appropriate advisor.
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