Today I’m extremely happy to be bringing you the latest from my friend Lyn Alden.

Lyn’s background bridges the fields of engineering and finance. She holds a bachelor’s degree in electrical engineering and a master’s degree in engineering management, specializing in engineering economics, systems engineering, and financial modeling. Her early career included roles as an electrical engineer and later an engineering lead at the Federal Aviation Administration’s William J. Hughes Technical Center.

Alden has been a passionate investor for years. From 2010 to 2015, she ran her first investing website as a part-time venture, eventually selling it to a larger publishing company. In late 2016, she founded Lyn Alden Investment Strategy, a research firm that grew significantly, leading her to leave engineering management in 2021 to focus on finance full-time.

Now an independent analyst, Alden aims to deliver institutional-level research in clear, accessible language for both professional and retail investors. She also serves as an independent director on the board of Swan.com and is a general partner at the venture capital firm Ego Death Capital. In 2023, she published the best-selling book Broken Money (congrats on more than 100,000 copies sold, Lyn!) exploring the history, present, and future of money through a technological lens.

Lyn is an investor I always read and always love to hear from, so I was grateful she gave me permission to share this month’s research with my subscribers. I’m sure you’ll find it as valuable as I do.

August 2025 Newsletter: Tighter Fiscal, Looser Monetary

August 24, 2025

This newsletter issue analyzes the shifting nature of fiscal and monetary policy in the United States.

Fiscal policy is tightening somewhat, and monetary policy is likely to loosen, and that combination has economic and investment implications worth analyzing.

Tariff Impacts

The United States has implemented the largest tariff increase in modern history. Tariff revenue is currently running at upwards of $30 billion per month, or $360 billion per year.

During President Trump’s first term, annualized tariffs jumped from about $40 billion to about $80 billion, and then were largely kept in place by the Biden Administration. This primarily affected businesses in certain sectors rather than the broad economy. Put simply, a ~$40 billion tax increase is beneath the radar of the aggregate level of consumption.

Tariffs, however, are a much bigger deal here in President Trump’s second term. They’re up to ~$360 billion annualized as of July, and in August a series of new tariffs came into effect that aren’t yet accounted for in that number.

With napkin math, there are about $3.2 trillion in annual US goods imports, so 15-20% average tariff rates equates to $480 billion to $640 billion in total tariff revenue. In reality, such numbers also include exemptions, and will likely affect purchasing decisions which can lead to reduced import volumes, which makes the math murkier and generally lower. So, let’s suppose that 15-20% headline tariffs results in $400-$500 billion in total tariff revenue.

As of July, there has been no reduction in import prices since Liberation Day, which are measured pre-tariff. Thus, foreign exporters in aggregate are not absorbing the tariff costs by reducing prices. This means most or all of the tariffs are being paid by American consumers and American businesses. For context, it takes about a 13% reduction in prices to offset a 15% tariff, or a 16% reduction in prices to offset a 20% tariff.

The numbers are pretty clear, but if we go ahead and ask ChatGPT who is paying the tariffs with citations, it’ll say Americans:

If we ask Grok, we get the same result:

This shows up in a combination of higher consumer goods prices and/or compressed business margins of goods-heavy businesses, depending on how quickly businesses are able to pass those prices on to consumers (which will vary by industry and company; those with in-demand products can eventually pass on price increases, and those with thin margins have to eventually pass on price increases).

Consumers on the higher end of the income spectrum are less likely to change their consumption behavior and thus will basically just pay the tariffs, giving the government more revenue. Consumers on the lower end of the income spectrum are more likely to have to curtail consumption because their disposable income is scarce.

Relocating a large manufacturing base takes a lot of time and is expensive. The reason so much manufacturing occurs in China, for example, is that they have abundant power and cheap skilled labor. The US will have to build out significant power generation to move manufacturing here, and to the extent that humans are employed rather than robots, those would be at higher wages (including higher benefits, given how expensive our healthcare system is).

From 2014 through 2021, about $80 billion per year was spent on the construction of manufacturing facilities in the United States. During that time, overall US industrial production was flat. Therefore, we can call $80 billion per year to roughly be the maintenance cost of the current industrial base. To actually increase industrial production and relocate manufacturing here would require investment above that level.

During the 2022-2024 timeframe, there was a noticeable uptick in construction spending on manufacturing facilities (hitting a $240 billion annualized rate). This was in large part because the CHIPS and Science Act and the Inflation Reduction Act (both passed in 2022) provided subsidies to semiconductor manufacturers and certain other industries that were targeted as being of strategic importance.

In the first half of 2025, annualized construction spending on manufacturing facilities is decreasing, not increasing, indicating that there is thus far no major investment into relocating supply chains to the United States in response to tariffs. Generally speaking, carrots (subsidies) have a bigger impulse to action than sticks (tariffs) because the former de-risks business decisions whereas the latter does not. Many businesses don’t know what tariff rates will be one year, three years, or five years from now, and thus don’t want to make investment decisions with decade-long implications based on them.

In terms of magnitude, it would require something like a trillion dollars of manufacturing investment to really make a sustained dent in the US goods trade imbalance, and it would take years for those facilities to come online.

Pushing the Fiscal Brake, Slightly

I have a popular “Nothing Stops This Train” thesis which refers to the idea that the US is in fiscal dominance, and that US fiscal deficits will remain structurally large for the foreseeable future (i.e. for any investment time horizon of relevance, such as the next decade).

I outlined six reasons for this in my September 2024 newsletter, and they were the following:

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