Tariffs, Trump, and the Real Estate Cycle
Navigating Tariffs, Trump, and the 18.6-Year Real Estate Cycle: Liquidity, Market Volatility, and Economic Realities
This article can be summarized in short as follows:
Tariffs - The Curtain
Trump’s Policies - The Liquidity
The 18.6 Year Real Estate Cycle - The Reality
Tariffs - The Curtain
The defining narrative of 2025, marked by the inauguration of Donald J. Trump’s new U.S. administration, has been the upheaval in global trade resulting from Trump’s assertive tariff policies. News outlets have repeatedly warned that these tariffs could lead to inflation, market volatility, higher consumer prices, and potentially a broader economic downturn, with businesses, investors, and consumers bearing the financial burden. For instance, Trump’s ‘Liberation Day’ announcement triggered a staggering $6.6 trillion market loss in just two days, highlighting the immediate market sensitivity to his trade policies.
Yet, within weeks, the market fully recovered those losses, which brings me to my first point: in the short term, the tariff-driven volatility may be masking deeper, systemic risks in the economy that extend beyond trade policy.
Reflecting on my previous article on tariffs during Trump’s first administration, I observed that the targeted tariffs on China had a minimal effect on inflation. Data from that time indicated that most U.S. impacted by the tariffs varied stock performance, with many continuing to grow despite increased costs, as businesses often absorbed or mitigated these effects through adjustments in their supply chains. This historical perspective implies that the immediate inflationary concerns related to tariffs may be exaggerated.
To comprehend Trump’s current strategy it is essential to identify the rationale behind the deployment of tariffs. Trump employs tariffs as a negotiating instrument to reinforce U.S. dominance in global trade negotiations. Considering that the U.S. maintains considerable leverage over many of its trading partners, this yields short-term benefits, such as compelling other nations to renegotiate trade agreements on U.S. terms. However, Trump’s tariff strategy constitutes a high-risk endeavor, balancing immediate gains against potential long-term consequences, a dynamic that many don’t seem to accept. For a deeper dive into this strategy, refer to my previous article on the topic.
Let’s break down the key economic pillars at risk to form a clearer conclusion:
Market Volatility - With every tariff announcement made and with every trade deal made, it is evident that the market will experience drastic jumps and falls in relation to this. While these fluctuations are significant, they are largely short-term noise, reflecting market adjustments to policy uncertainty rather than a fundamental economic shift.
Broader Economic Downturn - Once again, this would likely require prolonged and excessive tariffs, which I don’t believe is Trump’s long-term plan. He’s aware that sustained economic pain could jeopardize his party’s midterm election prospects in 2026. However, the real risk of a downturn may stem from deeper structural issues, such as the end of the long-term debt cycle, rather than tariffs alone.
Inflation and Higher Consumer Prices - Tariffs typically result in a one-time price increase for goods and services as the economy adjusts to them. This does not lead to sustained inflation unless tariffs continue to rise—an unlikely scenario given that Trump implemented a highly aggressive approach from the outset. By going all-in, his strategy not only reflects his ‘Art of the Deal’ negotiation style but also contributes to an inelastic supply curve, where businesses and consumers face limited short-term flexibility in response to the tariffs. This means that he is essentially halting economic activity. But what no one talks about is how can there be inflation with no extra liquidity behind it? If you cut off liquidity, which the Federal Reserve is currently doing, you choke off aggregate demand. Sustained inflation requires broader demand pressures, which are unlikely without significant increases in liquidity. The Federal Reserve’s current policy of tightening liquidity—through higher interest rates (e.g., 4.25% to 4.50% as of March 2025) and reduced money supply growth—constrains aggregate demand, making sustained inflation less likely. It is impossible to create net inflation without adding new money. Otherwise spending just moves from once place to another. Consumers become more selective. Like Milton Friedman said, inflation is always a monetary phenomenon.
Instead, what will slow down is GROWTH, which is deflationary. Slower economic growth can create deflationary pressures, as it often constrains consumer spending. For example, if you have $100 with no raise or additional income (i.e., no increase in liquidity), you’ll likely be more selective with your purchases. Meanwhile, companies selling goods and services may struggle to raise prices, as doing so could price them out of the consumer market. As a result, if their costs rise—due to factors like tariffs or supply chain issues—their profit margins may shrink, since revenues may not keep pace with expenses. This can lead to reduced business earnings, further slowing economic growth by limiting investment and hiring, which in turn curbs consumer spending. This cycle can contribute to deflation, where prices broadly decline due to weakened demand. Conversely, inflation typically emerges when liquidity increases—such as through wage growth, credit expansion, or monetary policy—boosting consumer spending and allowing companies to raise prices without losing customers. Therefore, sustained inflation often depends on INCREASING LIQUIDITY in the system to drive demand. Thus, inflation.
This is why I call the tariff chaos, THE CURTAIN.
Trump’s Policies - The Liquidity
If Trump’s current tariff strategy does not compel the Federal Reserve to inject liquidity into the system, there are alternative methods to achieve this. Recently, the weakening of U.S. dollar (USD) has reintroduced some liquidity into the global financial system; however, continued devaluation of the USD is not a deliberate objective. As discussed my recent article on Michael Howell’s perspective, he argues that central banks, including the Federal Reserve, should focus on liquidity management to financial instability a potential debt refinancing crisis. Yet, as is often the case, the Federal Reserve tends to act belatedly.
So, what can Trump do in the short-term to aid this? Well, it will likely be presented in Trump’s first bill to Congress in 2025. The following list highlights some of these actions, to provide a comprehensive perspective on one of the more ambitious objectives.
Deregulation - To mitigate the short-term economic impacts of tariffs, the proposed bill may incorporate tax credits, subsidies or deregulation aimed at supporting U.S. industries such as manufacturing, agriculture, and energy, which have been identified as priorities for protection. These measures could range from providing temporary relief to farmers and small businesses to expediting for energy projects to enhance domestic energy production.
Tax Cuts - Permanent extensions of the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which are set to lapse at the end of 2025, and introduce additional tax relief measures, like No Tax on Tips, as Trump has championed. This would reduce tax burdens across income levels and boost capital investment.
Increased Spending - Trump announced plans for a $1 trillion defense budget for fiscal year 2026, representing a 12% from current levels. Achieving this without significant reductions in non-discretionary spending would be highly challenging Consequently, this may necessitate the inclusion of a provision to raise the debt ceiling, thereby increasing liquidity. This would represent just one specific area of increased expenditure.
And this is what I call, THE LIQUIDITY outside of any Federal Reserve actions.
In fact, a new policy move by the Trump administration in 2025 reinforces the need for increased spending. Here are the key points:
Deep-Sea Mining Initiative: The administration is pushing for the exploration and extraction of minerals from the ocean floor, aiming to reduce U.S. dependence on China for rare earth elements1.
Strategic Goals: This effort is framed as an economic and national security strategy to control critical resources used in technology and defense industries.
Executive Action: Trump is leveraging emergency powers to accelerate permitting and mapping of mineral-rich seabed areas.
International Concerns: The move faces resistance from global organizations like the International Seabed Authority (ISA), which sees deep-sea resources as "the common heritage of mankind."
Investment Opportunities and Risks: Several companies, such as The Metals Company and Impossible Metals, are eyeing this as a lucrative opportunity, but uncertainties remain regarding environmental impact, regulation, and economic viability.
Cycle Analysis: This policy is framed within the context of economic cycles, indicating that it signifies a late-stage effort consistent with historical trends in real estate and commodity markets—a boom in real estate and commodities preceding a significant crash.
And that is what we will get into next.
The 18.6 Year Real Estate Cycle - The Reality
The 18.6-year real estate cycle is a theory that suggests real estate markets follow a predictable long-term pattern of booms and busts, roughly spanning 18 years. This cycle is primarily associated with land values, property prices, and construction activity, driven by economic, demographic, and psychological factors.
Key Phases of the 18.6-Year Real Estate Cycle
The cycle can be broken down into distinct phases, typically repeating every 18–20 years, with slight variations depending on local market conditions or global economic events. Here's a breakdown of the phases:
Recovery (2–3 years)
The market begins to recover from a crash or downturn.
Property prices stabilize, and demand slowly increases as confidence returns.
Vacancy rates decline, and construction activity remains low due to lingering caution from the previous bust.
Investors start to re-enter the market, sensing undervaluation.
Mid-Cycle Expansion (5–7 years)
Rising demand drives property prices higher.
Construction activity picks up as developers respond to increasing demand.
Economic growth, low interest rates, and optimism fuel speculative buying.
Land values appreciate significantly, often outpacing inflation.
This phase often sees the "winner's curse," where speculative buyers overpay near the peak.
Boom/Peak (2–3 years)
Prices reach unsustainable levels, driven by speculation and easy credit.
Construction peaks, often leading to an oversupply of properties.
Market sentiment is euphoric, with widespread belief that prices will keep rising.
Warning signs emerge, such as high debt levels, unaffordable housing, and tightening monetary policy.
Crash/Recession (1–2 years)
The market collapses as prices become detached from fundamentals.
Oversupply, rising interest rates, or an economic shock triggers a sharp decline in property values.
Foreclosures and bankruptcies increase, and construction halts.
Sentiment shifts to fear, with widespread selling or market stagnation.
Depression/Stagnation (4–6 years)
Prices remain low, and market activity is subdued.
Excess inventory is gradually absorbed.
Investors and developers are cautious, waiting for signs of recovery.
Economic conditions stabilize, setting the stage for the next recovery phase.
Why 18.6 Years?
The 18.6-year duration is an average, derived from historical observations of real estate and economic cycles in Western economies, particularly the U.S. and U.K. Several factors contribute to this timeframe:
Economic Drivers: Real estate is tied to broader economic cycles, including credit availability, interest rates, and GDP growth, which tend to follow long-term patterns.
Demographic Trends: Population growth, migration, and generational shifts influence housing demand over decades.
Land Supply and Speculation: Land is a finite resource, and speculative bubbles in land values often take years to build and burst.
Psychological Factors: Human behavior, including greed during booms and fear during busts, amplifies the cycle's duration.
The 18.6-year figure is also linked to the work of Fred Harrison, who correlated real estate cycles with the 18-year lunar nodal cycle (a celestial phenomenon tied to tidal patterns). While this connection is speculative and not widely accepted, Harrison argued it aligns with economic rhythms.
Historical Examples
Historical data, particularly from the U.S. and U.K., supports the existence of long-term real estate cycles:
1920s–1930s: The Roaring Twenties saw a land boom, followed by the Great Depression crash.
1970s–1980s: The post-WWII economic expansion led to a real estate peak in the late 1970s, followed by a crash in the early 1980s.
1990s–2000s: The housing bubble of the early 2000s peaked around 2006–2007, followed by the Global Financial Crisis (GFC) in 2008.
This is THE REALITY.
Putting it All Together
The cycle suggests that after the 2008 GFC crash, the recovery began around 2009–2011, with a mid-cycle expansion through the 2010s, a boom fueled by low interest rates and post-COVID demand in 2020–2022, and now a potential downturn driven by high interest rates, affordability issues, and geopolitical uncertainties.
As of April 2025, the U.S. real estate market is in the late boom or early crash phase of the 18.6-year cycle, approximately 16–18 years from the 2008 GFC trough. High prices, slowing growth (-1.7% forecast by Zillow), rising inventory, and affordability strains suggest a correction may unfold in 2025–2027, though structural factors (high equity, low supply) make a severe crash less likely than in 2008. Regional variations and external risks (e.g., rates, policy) will shape the exact timing and severity.
While tariffs dominate the headlines, liquidity remains the true force shaping inflation and economic cycles. Investors must watch the interplay between fiscal policies, Federal Reserve actions, and real estate trends. As the market adapts, understanding the underlying cycles can provide a strategic advantage.
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