They call economics "the dismal science". And now I know why.
We are all, unfortunately, learning more about international trade policy than we ever wanted to know.
What a crazy day it has been today -- either Trump cancelled the tariffs because he panicked when his idol Goldman said there would be a Trump recession. Or he engineered a blatant insider trading scheme so he and his sycophants could buy low, announce the tariff cancellation, and then sell high. Or maybe both?
There are always wheels within wheels when dealing with Trump:
Here's a good analysis:Daniel W. Drezner / Drezner’s World
Here's another piece about the economics of China tariffs, from Cole Bennett:
And here's a funnier take on the whole tariff mess -- or maybe its actually more dismal:The Trussing of Donald Trump
Notes on the minor pause in the dumbest trade war in history.
...So where are we now? Equity markets loved the announcement. Goldman Sachs reversed their recession call. But anyone who thinks that either the turmoil or the threat of stagflation is over is not thinking everything through. Consider the following:
Trump kept the tariffs in place on Canada and Mexico, kept the auto tariffs, kept the 10 percent tariffs on pretty much everyone and everything, and raised tariffs on China to 125%. So compared to a week ago the U.S. economy is still more closed off.
China is not going to back down anytime soon. As the Wall Street Journal’s Lingling Wei explained, Beijing has been prepping for this day for a while now: “While Trump has focused on tariffs as his trade weapon of choice, China’s strategy goes well beyond imposing its own levies, relying on the lure of the Chinese market for U.S. companies. A central thread running through its calculus is how to inflict hardship on companies that bank on their ties with the world’s second-largest economy. Tools that Beijing has already used and is likely to expand include export controls of critical materials American companies use to make chips and defense-related products, regulatory investigations designed to intimidate and penalize U.S. companies, and blacklists intended to bar U.S. businesses from selling to China.” This trade war is gonna persist for a spell.
The European Union is also unlikely to back down, although their planned retaliation had been more targeted. This means that 90 days from now the three largest trading states could be locked in a trade war. That would be bad for the global economy and the U.S. economy.
The uncertainty tax that Trump’s tariffpalooza has created is considerable and will not subside. Diane Swonk, the chief economist at KPMG, vented her frustration to the New York Times: “This is nuts. Damage done. Market relief is a headfake, unless the administration makes a major course correction. Uncertainty is its own tax on the economy.”
Trump’s staff has not exactly distinguished itself during this chaos. U.S. Trade Representative Jamison Greer seems out of the loop. Elon Musk and Peter Navarro are sniping in public. The White House keeps claiming that lots of foreign countries want to negotiate, but none of them are getting much of a response from Trump officials. As Politico reports, “Trump officials have not spelled out exactly what concessions the administration is seeking that could pave the way for a negotiated solution.” To repeat a theme: financial markets are roiled and Trump’s subordinates are a collection of sycophants.
...My advice: buckle up. This is a pause. It’s far from the end of the destructive, counterproductive, no-good trade wars.
Here's another piece about the economics of China tariffs, from Cole Bennett:
Wednesday night brought a brief flicker of good news on the global trade front but not for Canada, Mexico, or China. The United States has paused tariff hikes for about 70 countries, but kept a baseline 10% tariff in place for all of them. For China, the situation escalated sharply: its tariff rate is now sitting at a staggering 125%.
Canada and Mexico remain on the penalty list a clear sign that Trump is not eager to strike deals with countries unwilling to bend first. While the pause offers temporary relief for some of America’s smaller trading partners, the economic war with China is only deepening.
And here’s the thing: China has been preparing for this moment for years.
Why the U.S. May Not Win This Trade War
While the U.S. economy is still the largest in the world by GDP, China holds critical advantages that make it far more capable of sustaining a prolonged economic battle.
First, Chinese President Xi Jinping does not face elections, nor does he answer to a divided legislature like the U.S. Congress. This allows him to drag the trade war out for as long as necessary without worrying about public opinion or political blowback. It’s a long game, and Beijing is built to play it.
Second, China has spent the last decade quietly expanding its global footprint through trade, infrastructure, and diplomatic relationships across the Global South. From Africa and Southeast Asia to South America and the Middle East, China has embedded itself deeply into key supply chains, raw materials, and shipping infrastructure.
And critically, China dominates global manufacturing. The U.S. can impose tariffs, but it cannot easily replace the flow of goods especially electronics, machinery, and rare earth materials that it still heavily relies on from China. American consumers are already feeling the sting, and small businesses will feel it even more as costs continue to rise.
And no this isn’t coming from a pro-China perspective. Even critics of Beijing’s politics have to acknowledge the reality: China has spent years laying the groundwork for this conflict. And now that it’s here, they are not backing down.
Ryan Broderick / Garbage Day
Maybe the capitalists will get it right next time
...it’s also important to remember that, as New York Times columnist Jamelle Bouie wrote, "Trump’s tariffs are not a policy as we traditionally understand it. What they are is an instantiation of his psyche: a concrete expression of his zero-sum worldview.”
They’re also only one half of Trump’s zero-sum worldview, with the other half being tax cuts. Republicans in both the Senate and the House Of Representatives are fighting over how to pass Trump’s tax plan, which would extend his 2017 tax cuts along with possibly ending taxes on tips, taxes on Social Security benefits, and even abolish income tax. Which has always been the closest thing Trump has had to a grand political project — America reimagined as a country club for the world’s corporations. The tariffs are the membership fee. And he’s scrambling this morning over the possibility he might not be able to pull it off. The president frantically wrote on Truth Social this morning, “It is IMPERATIVE that Republicans in the House pass the Tax Cut Bill, NOW! Our Country Will Boom!!!” Written like a true panican.
Prominent Trump supporters are freaking out, as well. Massachusetts trash bag Dave Portnoy, Joe Rogan, Elon Musk, even their widdlest fwiend Ben Shapiro are breaking rank over tariffs — likely because China’s escalation this morning means all of the dropshipping scams they funnel incels towards are about to become financially impossible to profit from. But according to a Vox piece this morning, the right wingers turning against the president over tariffs largely thought that they were voting for another four years of anti-woke saber-rattling and breezy market deregulation. There were a bunch of business leaders in Germany’s Weimar Republic who thought the same thing. Anyways, most of them died in jail. Maybe the capitalists will get it right next time.
... I lived through Brexit in the UK. But I also was in Mumbai in 2016 during India Prime Minister Narendra Modi’s “demonetization” scheme, which made existing ₹500 and ₹1,000 banknotes worthless overnight. Basically, imagine if everyone’s $5 and $10 bills just stopped being money. And I also spent most of the Bolsonaro administration living in Brazil, which tanked the real and led to regular inflation. So while I am definitely not an economist, I am somewhat uniquely positioned to tell you what to expect if these tariffs aren’t reversed. And I can very confidently say that the average American can’t actually imagine it. The comparisons to the Great Depression or Great Recession flying around social media right now don’t take into account how connected the global economy is now. The systemic rot I witnessed during the UK’s five-year-long withdrawal from the EU happened slowly. One day I just noticed stuff wasn’t as nice as it once was, didn’t work as well. And we just US-exited over night. While reporting on demonetization in India, we tried an experiment. Go around the city and see if a business could make change for a big banknote. It took all day and after a few hours I actually started to feel a new kind of dread I had never felt before: What happens when your money just doesn’t work anymore? And in Brazil during the Bolsonaro years, it wasn’t uncommon to just not be able to get stuff — cheese, certain kinds of meat, butter, wine — and if you could get it, there was no way to anticipate how much it would cost. Now imagine that with virtually everything.
But if you’re still having trouble envisioning what life under Trump’s tariffs could look like: Remember that boat that got stuck in the Suez Canal? And it shut down the global economy for a while? And everything got sort of expensive for a second? If that happens again, it probably won’t affect us. And that should really worry you...
3 comments:
I wonder who knew the tariffs were going to be paused. That is the big question.
Yes, it stinks doesn't it.
Yes- now questions are being asked. Good.
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