Trump: Owner Manager? VAT meets Art of the Deal
April 2025
Below I suggest a different perspective on Trump and his tariffs. I suggest he has some of the Owner Manager traits I often see in the founders we invest alongside. This does not make his actions right, but it does explain why many find him so hard to fathom. I also look at tariffs through the eyes of a sales tax. Finally, I recommend all during this time should re-read Buffett’s famous Spendville and Thriftville article.
When ‘high uncertainty’ is confused with ‘high-risk’ great opportunities can be offered. This is my best guess as to where markets are now.
First Brexit, now tariffs – The political cycle matters after all!
Political cycles are often just a distraction for investors. Suddenly they matter. I remain of the view that there are three distinct cycles investors should be aware of. These being the political cycle, the economic cycle and the market cycle. The market cycle is normally by far the most important to investors (ref Howard Marks) and I split it in two. The first part being the market sentiment swings of fear and greed. The second is the capital cycle flows within specific industries.
Political and economic cycles tend to dominate the airwaves. Mostly they have less relevance to investors than commentators and tea-leaf readers (forecasters) would like you to think. Sometimes one cycle kicks off another, i.e. a market crash can lead to a recession.
Rarely however does the political cycle drive the economic and market cycle. Courtesy of Donald Trump’s tariff bombshell, we are now living through one of those unusual times.
Trump – A misunderstood Owner Manager/Maverick
If I have a replicable skill, it is not finding cures for diseases, nor singing!! But it might be pattern recognition. I know when I have seen a business model before. I also now clearly see the main traits/patterns in Owner Manager behaviour that other investors seemingly do not. My fascination with Owner Managers (they lead >90% of our portfolio companies) has even led me to write research on the common traits they exhibit.
With a chequered financial track record and highly debatable integrity, Trump would/will never be a businessman I’d invest with. That said, the other day I found myself wondering if thinking about him using my Owner Manager lens might help our understanding of him and his actions:
Trump – A misunderstood maverick…?
- Clearly Trump’s blunt language and aggressive approach to almost all policy matters is highly unusual.
- But Michael O’Leary (MOL), Mike Ashley and many other Owner Managers are like this
- The trash talking of the EU and Canada Trump has done is actually pretty similar to how MOL talks about competitors and politicians
- Trump’s approach to many issues seems to be move fast and break things. A world used to bland and slow-moving politicians finds this approach hard to comprehend (but the public love it!). Many therefore assume it/he is not credible. I think that a mistake.
- This is how many great disruptive entrepreneurs behave
- And oftentimes they are dismissed too
- He was an ‘outsider’ to politics wanting revolution, not evolution of the status quo
- This is exactly what we see in Owner Manager CEOs who sweep in and change old industries
- The change agents are always outsiders, never insiders
- Most Owner Managers will accept way longer and deeper investment phases that any hired hand CEO
- Ref: Zuckerberg and his Metaverse spending. This shows a tolerance for unpopularity and pain. They are not trying to please people but doing what they think is right
- Crucially, however, Owner Managers are ultimately pragmatists
- Looking at Trump this way, we see the near-term depths he will go to against China, but that ultimately, he wants a good outcome
- Even the issue of tariffs itself is interesting. With a landslide victory and DOGE efficiencies to come, tariffs was not a hill that Trump needed to die on
- As Buffett’s piece articulates, the trade deficit has been a thorny issue that so many past Presidents have failed to tackle
- Whilst few will admire the blunt, panic inducing way he has gone about it, his desire to tackle and not avoid hard problems is a trait Owner Managers have too
- The above point also seems to fly in face of the view that Trump is just self-serving. If so, why not let an issue like the trade deficit ride, like the last 30y of Presidents have?
- We can still assess him as wrong and reckless if we choose, but the decision to tackle this point head-on is arguably brave
Market and importantly China’s reaction to Trump’s escalating tariffs suggests bad and long-lasting outcomes are clearly possible. But at this early stage with events changing fast, this is far from the guaranteed endgame. Markets and businesspeople hate uncertainty and right now this situation is uncertainty squared. However, when high uncertainty is priced like high-risk great opportunities result. If I had to guess, and it is no more than that, I’d say that’s where we are today, hence I sense opportunity.
Trumps tariffs – VAT meets the art of the deal
Since liberation (!) day last week I have tried very hard to be objective about what is being said, rather being than too reactionary. That is Mr Market’s job. As such a couple of things are relevant to mention:
- The US has for a very long time had double deficits (Fiscal and Trade)
- Many respected economists and investors have worried for decades about the long term implications of the trade deficit
- That said the US has a secret trump card, that few ever mention…. it has no national sales tax. As such, with a huge consumer economy, implementing such a tax would solve a lot of budget shortfall issues
- But who in US politics would be crazy enough to announce a whole new tax that will cost consumers billions…?
- However, tariffs on imports amount to the exact same thing, but at the same time tackle some of the trade deficit issues
- I.e. the US could have a flat 7.5% sales tax or a 15% tariff on imports say (imports are c.40% of durable good consumption)
- This would raise huge sums and arguably be an invisible tax to many voters
- In turn likely allowing the lower income tax rates as per Trump’s plans
- If this all seems crazy to some readers, here is Perplexity on the UK starting VAT in 1973. “The initial reforms were designed to be revenue neutral with reductions in income tax offsetting VAT’s introduction.”
- Emotions on the new tariffs, implemented by this man are running very high. Most reactions are still partisan. Also, everyone (politicians, investors and media) are just reacting to hourly events rather than trying to understand/consider them more fully
- This confusion is Trump 101 and gives him power and leverage. We just have to hope he uses these levers wisely
- Crucial context to the trade deficit background is available from no other than Warren Buffett. He and Trump are both old enough to remember when everyone worried about the trade deficit. Today it is larger than ever, but no-one seems to care. Few will listen to Trump on this subject. However, I think they would be wise to read closely a famous piece Buffett wrote in 2004 about two countries: ‘Spendville’ and ‘Thriftville’. Here is the link and some extracts:
“Our country has been behaving like a rich family, that possess an immense farm. In order to consume 4% more than we produce (that’s the trade deficit) we have day by day been selling a piece of the farm and increasing the mortgage on the part we still own”
“At the time of Smoot-Hawley (1930 Tarriff Act) we ran an unreasonable trade surplus that we wished to maintain. Now we run a damaging deficit that the whole world knows we must correct”
- This piece does not prove Trump’s actions as correct, but it does highlight this as an important and forgotten issue
- The more I reflect on it, the more I admire Trump for trying to tackle it. Albeit there might have been calmer ways to do so!
Art of the Deal
Trump’s aggressive approach to tariffs has led to investor shock – not unreasonably. However, it is seemingly already getting quick responses from those known to drag their feet (EU). Logically many other countries (Japan/UK/Israel) should be able to find negotiable solutions, seemingly quite quickly. Crucially some tariff level (10%) might stay on the US end to counter the lack of sales tax (and raise $$$). As country after country sides with the US in new trading agreements, the isolated one will be China. This was likely the endgame Trump’s team had in mind all along.
Buffett’s piece again is inciteful here describing China as effectively ‘Mercantilist’ in choosing to over-produce and under consume so as to own more global assets.
Bad news doesn’t travel well
How this China/US endgame is handled, and on what timeframe is going to be the big swing factor driving global growth and inflation in the coming years. For decades it has been clear that China has needed to raise consumption, but that cannot happen overnight. If Trump concedes this point, and unlike Scott-Hawley, China does not try to defend a huge trade surplus then an agreed move towards fairer trade with higher Chinese consumption might occur. Without it, things could get nasty between the two.
Markets might not like that the China/US situation is escalating so quickly, but this could be good news. How so? Going to c.100% tariffs in 7 days is an act of economic war, but doing so over 7 days is better than over 3 years. The scale of US/China tariffs is what scares markets today, knowing that global trade will cease up. However, the length of time they last for is what matters more. Having so quickly got to this acute point, Trump will be hoping for a big deal with China quickly. We will be hoping for that too. This might be his Trump’s Achilles heel.
The Chinese take a very long-term view on economic developments and are clearly offended by Trump’s aggression. Surrounding Taiwan, threatening to embargo chip exports is possible in extremis. Or just hanging Wall Street out to dry for three months as the global economy collapses. Both are within China’s pain threshold. The latter is clever as there is no aggression on China’s part, just an allowance of time for all to see the damage Trump’s tariffs will have. Such bad news will not travel well in markets!
Endgames: it’s all about China
My hunch is that there might be a lot less uncertainty in a few months (even weeks) time, but the thorny issue of US/China relations might not be resolved.
Reflecting on Trump through my Owner Manager lens I think he and his team are likely way more capable than many perceive. There is I believe a huge desire by Trump to agree tariff deals quickly, but you don’t say that while you are waiting for the offers to come in. However, this is not a psychologically comfortable ride for investors. That I accept. His misjudgement (and it is a big one) might be China. Ultimately a US/China deal might be done, but they will not kneel before Trump like others are lining up to do.
After reflection, what I do not accept is that the President is unthoughtful or incapable in his actions. He is blunt, sometimes even rude, and in a rush to solve difficult issues. Do I like and admire Donald Trump and his way of tackling important high consequence global problems? Not really, no, but I admire his bravery and bias for action. His fictitious tariff card was a lure that would never be real for most countries. But 7 days on they look to be working as already the EU and Japan are singing to Trump’s tune.
“A fishing tackle manufacturer I knew had all these flashy green and purple lures. I asked, ‘Do fish take these?’ ‘Charlie’, he said, ‘I don’t sell these lures to the fish!” Charlie Munger
My conclusion
As risk averse investors we see the danger in an escalating tariff war and confrontationist agenda. I conclude there are other, far better outcomes. I also conclude that Trump might be far more competent and thoughtful than his language and actions suggest.
- With markets down a long way, partly due to Trump’s unpredictability, concluding that he is acting rationally therefore might be an important finding on its own
- My worry, and it is not a small one is China. I don’t think Trump understands the intense, long term-oriented culture of this country. Cornering them and expecting them to blink first might be terrible mistake. Both sides will blink, of that I am sure, but maybe not before more economic and investor blood has been spilt.
Great global businesses will always be those with the best innovation, lowest unit-costs and high customer-centricity. A tariff (read US sales tax) might ease America’s trade deficit pain, but it will not change this fact. Nor will it create protected high unit-cost industrial champions.
I’ll concede it is more fun to have a Fund that is up 15% YTD, than down 15%. However, I’ve now seen a lot of cycles, and if you want bargain prices you have to understand and navigate them. As Buffett says.
“It’s not that we like bear markets per se, but we like the prices they bring”
Happy fishing.
Andrew Hollingworth
(Note: This piece was written 8th-9th April, i.e. before Trump’s 90 day delay)
The Directors and employees of Holland Advisors may have a beneficial interest in some of the companies mentioned in this report via holdings in a fund that they also act as managers to.
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