No sense spending time unpacking Trump’s grievances masquerading as economic analysis, or the math that resulted in the stunning tariffs he has announced. It has no basis in anything other than the administration’s desire to seem scientific. He has seen trade deficits as an unmitigated evil long before descending the Trump Tower escalator. Never mind that during the 50 years of alleged misfeasance by his predecessors real GDP per capita increased from less than $28,000 to about $70,000. As songwriter Jimmie Webb might put it, that “cake has been baked, we can’t unbake it, ‘cause it took too long to bake it, and we’ll never have the recipe again”.
It is perhaps worth noting that so-called reciprocal tariffs are to be levied on Israel and other countries that have eliminated their tariffs, and that this batch will hit Vietnam and other countries that serve as label-changing stations for Chinese-made goods. Red faces on American CEOs who relocated links in their supply chains to those countries, many of whom contributed to his campaign, apparently assuming that he did not mean what he has been saying about trade policy for over 50 years.
Après Trump Le Sell-Off
Immediately after Liberation Day, investors rushed to sell, consumers rushed to buy. Investors’ sell-stampede wiped more than $5.4 trillion in value off prices of major stocks and counting Some put the total including all markets at $10 trillion), while consumers rushed to supermarkets to stock up on everything from diapers to toilet tissue, after cleaning out many dealers’ auto inventories over the weekend. To them, tariffs are a pandemic by a different name. Such was the effect of the “little pain” Trump predicted until domestic manufacturing facilities are expanded.
Panic in the corridors of power, as the man elected by Americans to manage their economy, to bring lower prices and rising share prices, proves to have brought his wrecking ball with him to the Oval Office. Voter unhappiness at being duped has turned most polls against the President. Whether that will offset their support for his border, DEI and no biologic men in women’s support we do not yet know.
Investors Bleed, Consumers Groan
The cost of Making America Wealthy Again will hit lower earners where it hurts, in their wallets. The cheap clothing derided by JD Vance will cost more, as will imported fresh foods. Foreign manufacturers are already planning to withdraw their lowest-priced models from the American market. This is regressive policy on steroids.
Not that higher earners escape. Billionaires will become millionaires, no long eligible for reserved seats at the Mar-a-Lago head table. Households with incomes of about $250,000, America’s top 10 per cent, account for nearly half of all consumer spending and will respond to the collapse in share prices by cutting back, adding to the downward pressure on the economy and increasing the probability of a recession, which many seers have raised to 60 per cent.
Game On
China has already retaliated by adding a 34 per cent tariff to the 20 per cent already laid on all US goods, and restriction of rare earth exports, effective later this week. Trump initially promised thumping responses to any retaliation, but under mounting pressure from big donors and congressional Republicans expecting a mid-term wipe-out, has reversed his no-negotiation intransigence, and announces himself ready to negotiate with countries taking “significant steps” to reduce their trade surpluses. But treasury secretary Scott Bessant warned over the weekend that negotiations will take more than “days or weeks… After 20, 30, 40, 50 years of bad behavior you can’t just wipe the slate clean.”
So there will be negotiations of tariffs above the 10 per cent level, but no immediate relief for these bad actors whose aggregate behavior produced an economy that is the envy of the world. Game on, a game in which Trump holds the card that is highest and wildest of them all – the massive American market. Our partners need us more than we need them.
Amid the uncertainty about the final outcome of tariff negotiations is one over-riding certainty. The day when China can use subsidized companies and IP theft to destroy American companies and communities is over. The day when the EU can impose 10 per cent tariffs on American cars while America imposes 2.5 per cent tariffs on EU cars is over. The day when taxes on profits and incomes bear the burden of financing the federal government is over. Tariffs, in effect taxes on consumption, into the breach.
What The New World Trading Order Looks Like In The US
The effect of this restructuring of global trade will be to induce Americans to buy more made-in-USA stuff and spend $900 billion less, a cut of one-third, on cheaper imports, reckons the non-partisan Tax Foundation. Tariffs will produce $600-$650 billion in annual revenue, roughly equal to what the treasury gets from the corporate income tax, a bit of help for Republicans running out of accounting gimmicks to allow Trump to end taxes on tips, overtime pay and pensions (social security). If the promised $7 trillion inflow of investment materializes, America’s industrial base will have expanded to include manufacturing facilities relying on tariffs rather than their efficiency.
Powell Stalls, Republicans Panic, Trump Golfs
Fed chairman Jerome Powell points out that democracies produce new administrations, which in turn produce new policies, and not only in trade, but in regulatory, immigration and other economic policies. He feels the economy is in a good place, and points to Friday’s report that the economy added 228,000 jobs in the pre-tariff month of February.
Republicans faced with the prospect of entering the private-sector jobs market next year, and investors who have learned that up is not the only direction, have panicked. Whether Trump will respond with “Buck up” (no, not the dollar, which he wants down) or calming actions no one knows, not even the President, who at this writing is consulting his inner whim and preparing himself for months of negotiations and the unfortunate photo ops and media attention that inevitably accompany such negotiations.