There is No Plan
Just in case that wasn't already obvious.
I begin to wonder how long it will take for business leaders to utterly rebel against Trump’s trade war, as well as how long it will take at least some significant portion of the electorate to realize what a grave mistake they made.
To be clear: I am not holding my breath on any off that mattering.
Moreover, many will never admit that this was all a mistake. Even those who realize the error will more likely than not keep that fact to themselves.
While it has been obvious to me for some time that there is no actual plan here save for Trump’s weird fantasies about the McKinley era, surely this has to be starting to become obvious even to some of the people who voted for him.
There are are least three arguments being made by the administration for these policies, and they are based on dubious propositions, and those propositions are contradictory and illogical.
First is the notion that all of this “medicine” will lead to the onshoring of more manufacturing and that more stuff will be made in America. This is problematic for a variety of reasons, not the least of which is that there are fewer manufacturing jobs more because of automation and productivity increases than because of global trade.
There is also the problem that even if the US builds a big, beautiful protectionist wall around the US that there is still the rest of the world to sell to. Some of these companies may decide to stay out there and just sell to everyone else.
But the most significant barrier to this theory of the case (if it deserves such an appellation) is that it only works if companies think the tariff regime is permanent (or, at least, very long-term). Let’s note that if this president can impose these tariffs, then the next one can take them away. If I am trying to decide my long-term investment strategies as a major corporation, I am likely to just wait it out at this point.
Worse, however, is that the next major theory is that this is all a negotiating tactic, and soon we will have “tailor-made” deals with all these countries. But if that is the goal, the whole on-shoring argument makes no sense whatsoever. If the goal is to somehow make trade freer, then that would increase the incentives to produce goods abroad (or, at least, create no specific incentive to reshore).
How much time and effort will it take to negotiate individual, bespoke tariff deals? How much uncertainty will that cause? We are talking about replacing a system built over decades and via multi-lateral processes.
Of course, if there is any logic to any of this, it is that Trump loves to look like a master negotiator and loves, loves, loves to feel like people have to come to him hat-in-hand. Other countries will come and try to fix this because they understand the stakes.
In addition to the notion of better tariff terms is the insane notion that we need no trade deficits with trading partners. This makes no sense. If the US wants coffee (and I assure you, the US does), then apart from some production in Hawaii, it has to buy it from abroad. If the US buys coffee from, say, Colombia, and that was all we traded, the US would have a trade deficit with Colombia. But, the transaction would be a free exchange of something we have (dollars) and something they have (coffee beans), and it is a mutually beneficial exchange. It is a win-win. Where is the downside? Why must Colombia then buy the equivalent of something we produce to make the relationship worthwhile?
I remember years ago George Will quipped that he has a trade deficit with his barber, but so what?
A final argument I have heard is that we will raise so much money via tariffs that we could cut income taxes and do away with taxes on tips and on social security payments. But this, of course, only works in theory if these tariffs are permanent. As noted above, not only could the next president do away with these tariffs, but Trump himself is offering to negotiate. Beyond that, if the tariffs work as advertised, Americans would buy domestically produced goods at a far higher rate than imported ones. And if consumers buy fewer imported goods, tariff revenues fall. This group of “policy makers” seems to operate under the tortured assumption that even with a massive trade war, we would all continue to buy imported goods at the same clip, and hence generate all this additional revenue.
And, of course, there are the little problems that the worker who earns tips and the retired persons on social security both probably currently like the low prices at Walmart, which are directly a result of low tariffs on imported goods. So even if they get a moderate tax cut, their dollars will buy less than they did.
This is all, to put it kindly, a dog’s breakfast of “policy.”
Companies have no idea what to do, and it will affect how they spend, including whether they hire new employees or not. As was noted on The Daily yesterday, if Apple does not know how these tariffs are going to affect iPhone production and cost, they will be cautious about hiring. They may buy fewer advertisements (which affects, for example, Meta and the TV networks, who would then see ad revenue going down). If they absorb the costs of the tariffs, that affects their profits, which in turn influences investors, who might not see their stock as being as valuable. If they charge consumers more, then the same problem happens, because they will sell fewer phones, driving down profits. And if they make fewer phones, they need fewer employees. I would add that this, in turn, has follow-on problems for AT&T, Verizon, etc., whose business model is driven by the new iPhone cycle. Then they buy fewer ads during sporting events, and maybe need fewer stores, and hence fewer employees.
All of this is a recipe for higher prices and higher unemployment.
And so one, and so on, and so on across the economy.
This is a major reason why Trump is on track to turn what was projected to be GDP growth via the healthy economy that he inherited into a recession.
As Jim Geraghty put in at National Review yesterday (I commend the piece, which reinforces a lot of the points I am making here).
In short, the Trump administration officials are so gung-ho on the tariffs because they are not a negotiation and also are a negotiation, because they are permanent and also temporary, because they will be a lasting source of new revenue for the government and also a declining source of new revenue for the government, because they’re mirroring the other country’s tariffs and because they’re not mirroring the other country’s tariffs, and because they’ll have the U.S. start making medicines again, make ships again, and make semiconductors again, notwithstanding the fact that the U.S. is already making medicines, ships, and semiconductors.
I have paid attention to politics since I was a child. I have actively studied it since I started college in 1986. I hold a Ph.D. in the subject and have taught and researched the subject for decades, including actively studying other parts of the world. I cannot think of a policy choice/process that is more counterproductive, and quite frankly, stupid as this one. The closest I can come to is Brexit, but even that pales given the scale of it all. And at least there I understood the theory behind it, although I thought it incorrect at the time, and history has borne out that view.
The best I have heard from Trump voters I know is to get some version of “let’s just hope it works out” or “it is what it is.” On one level, sure. None of us can make it stop at this point, and it would be nice if we were all wrong and that this all brings about great economic prosperity. But I can’t help but think that this is like being in a car that is speeding towards the rim of the Grand Canyon with a driver who is insistent that once you reach the rim, you will fly, and sitting there saying “let’s just hope it works out.” I mean, sure, maybe the car will fly because the driver is a mad genius who modified in some way we mere mortals can’t understand or guess, but I wouldn’t bet on it. Moreover, I would have told you not to get in the car with the fool who keeps saying that “flying cars” are his favorite words and who has insisted for decades that if got the chance he could make the car fly (especially since he has not demonstrated one iote of understanding about how to make things fly over all that time).
The same care and thoughtfulness has gone into DOGE’s work in creating “efficiency” in the federal government by engaging in mass firings and the shuttering of programs, I would add.
Destruction is easy. Fixing the aftermath of all of this, assuming it can be fixed, which is a dubious proposition, will be hard.
One would hope, but I have never come across a subset of humans so impervious to facts and reality. And I worked in Republican politics.
We were warned. There is no plan or policy, only retribution. Enjoy the ride, Trump voters.
Steven, you’re very good at restraining yourself from screaming you fucking morons. I mean, it’s there, we can all hear it, but you frame it so maturely.
But I will keep an open mind, because surely, any minute now, Drew/Panko/Guarneri/Tarragon/Connor – The World’s Greatest Businessman – will come along to make sense of why it’s really a good thing that Trump has single-handedly made 7 trillion dollars evaporate, tanked the dollar, also the bond market, and every other exchange on planet Earth.
Wealth no longer matters, you know. Money? Pah! What is money, after all? It’s not like anyone voted for Trump thinking it would actually help the economy. Right?
I’m telling you, it’s 9-dimensional chess and people will realize it just as soon as, well, in maybe a decade when we can get our next iPhone. For $10,000.
Trump always plays to his cult (of personality) members. They are happy about all of this since it is making people on the left unhappy. It is also helping to define the RINO/not loyal to Trump people on the right who would dare to criticize Trump.
Steve
Yeah, but there’s a concept of a plan. I Promise.
What is confusing to me is that every single argument this administration makes is so obviously incompatible with reality.
How TF do people not realize that “onshoring” or bring back manufacturing would take DECADES if it is even desirable?
How TF do people not know that these jobs pay very low wages?
How TF do people not realize that bringing back coal mining jobs assumes that there’s somewhere to SELL the coal TO, which is not the US, because most of those plants have been decommissioned and even if we wanted to bring them back online, it would take YEARS?
How TF do people not understand that bringing manufacturing jobs back would mean purchasing equipment FROM OTHER COUNTRIES to outfit factories, which isn’t going to happen with tariffs?
All of this stuff is just so so so obvious and it is wrecking my brain that there are apparently huge swaths of the public that don’t get it. HOW???
Drill, baby, drill!
Oil Drilling stocks down more than 40% since inauguration. They are underperforming even a crashing market.
@Jen:
HOW???
There is no logic in a cult, there is only faith. Now drink the Kool-Aid and stop stressing.
@Michael Reynolds: The price per barrel is cratering too. What’s the magic number, $60/barrel? Below that, it’s not profitable to “drill baby drill.” Wells get capped, workers laid off.
Meantime, the natural gas that would normally get extracted from those wells won’t be, so come next winter home heating bills will skyrocket due to a short supply of natural gas.
Which might be manageable, except the Trump administration killed the program that helps low-income people afford to heat their homes. So people will likely freeze to death.
Classic question; “Then what?”
Bueller???
I read somebody saying that once the power of finance is broke the combination of deregulation and tax cuts will spur industrial reinvestment. It’s just a crazy mixture of nationalism and supply-side economics, which makes no sense at all, even if you’re talking about a Year Zero approach to America and its rebuilding.
I’m finishing up a two-week jaunt in Costa Rica, and there’s inked expatriates in New Age bubbles talking about tariffs and their effect on their bespoke business ideas, and wealthy Yoga Moms discussing their portfolio losses. I’m wondering if this will be the last time I leave America without paying some sort of exorbitant exit fee punishing me for not spending my dollars in MAGA-land. I’m also wondering if this is the last time I will walk through customs without some troglodyte wanting to see my phone and look for any bad words about Trump on it.
I find myself wondering if this isn’t some sort of hostility toward the finance industry that is being unleashed. For the first time I can remember, Republican voters are brushing off the concerns of the financial industry. There have been times when the finance industry has been divided, but they really aren’t divided now.
To be fair, not everyone in finance is a Republican, but they all pretty much favor Republican-associated economic policy. Or what was once thought of as Republican-associated economic policy.
And now the MAGA aren’t quite saying – but maybe they are? – “eat the rich”, but it’s getting close. I still think this represents opportunity for – let’s call them people like me, rather than calling them “Democrats”. It also represents suffering and loss, very much.
From Jamelle Bouie at NYT. Gift link.
@Michael Reynolds:
The struggle is real.
“A final argument I have heard is that we will raise so much money via tariffs that we could cut income taxes and do away with taxes on tips and on social security payments. But this, of course, only works in theory if these tariffs are permanent.”
Or at least long enough got the “big, beautiful bill” with all the tax cuts to get passed first.
@Joe: Well played.
@Moosebreath:
This math doesn’t come close to mathing.
@gVOR10: I think this is accurate and forms its own ideological guidance to Trump’s actions.
@Jay L Gischer:
But at the same time, MAGA is a movement overseen by billionaires.
For the Brits in the audience, the FT has noted that the US is working out its own “moron risk premium”. So far they still think Truss was the larger moron, so that makes you number one. However, there is still plenty of time for the US to overtake you and claim that #1 spot.
https://archive.ph/Nn8F0
Steve
The market is shooting upward because Trump has backed down on all ‘reciprocal’ tariffs aside from China:
So his imbecilic tariffs caused markets everywhere to panic. . . and when he backs down, things improve. More Trump. . . market burns. Less Trump. . . market is ecstatic. Apparently he thinks he’s going to negotiate with basically every country on Earth. (He should start with the penguins.) I wonder if, when he’s negotiating, he’ll remember that services are also a thing in international trade.
@Steven L. Taylor:
And, it seems, not all those billionaires want the same thing. Some want to bring about a theocracy. Others want to pay less taxes. The contradictions continue to heighten.
Only Trump could probably have ridden this horse, which is plumb loco. And he seems like he cares less and less every day about keeping the coalition together. I’m pretty sure he doesn’t care at all about the finance industry elite, who have never, ever been his friends.
Maybe the felon aspires to be the capitalist version of Pol Pot.
@Michael Reynolds:
Ah, if only there was something like the World Trade Organization to facilitate global trade rules and negotiations…
One can dream, though, One can dream.
@Michael Reynolds:
Get real. He still believes, deep in his bones, that gold bullion is the only real money. I’ve known schnauzers with a better grasp of economic theory than Trump’s.
@Jen:
Seeing as how the markets take a beating when tariffs are announced, and rise when the felon pauses them, the conclusion is inescapable: they vote for the rapist to hit them in the head with a hammer, because it feels so good when he stops.
Markets currently way up, Trump 90 day pause on most tariffs, pointedly excluding China.
Regarding “tariffs replace other taxes” argument.
A small problem.
Total US goods imports value is around
Assuming a 20% average tariff, the rough estimate of current policy averaged out (subject to change on the daily), and assume no change in import value (unlikely), that would produce a revenue of $600 billion per year.
All non-defence discretionary US federal expenditure is $355 billion
Both combined don’t eliminate the deficit, which is about $1,800 billion.
So tariffs as eliminating the deficit and thus enabling tax cuts is rather naive.
Given the rumblings in the bond market, and the impact of tariffs on global dollar liquidity, assuming unconstrained continued debt finance may be an assumption liable to painful adjustment.
@JohnSF:
Dammit, missed out a crucial bit from that post somehow.
Third line should read:
“Total US goods imports value is around $3,000 billion”
@JohnSF:
That’s perfectly logical wrt/ math/accounting/finance. But we have a GOP Congress.
@Jen:
Just on the desirable front — I think the PPE shortages at the beginning of the Covid pandemic showed us that we do want some manufacturing capacity in the US. We should have an industrial plan that encourages, or even flat out subsidizes, a bunch of key manufacturing needs.
We had that with agriculture until very recently, where USAid bought up a lot of grains from US farmers.
The entire Trump program, as the adventures with USAid demonstrate, are pretty much the exact opposite of protecting American anything.
@Jen:
Patriarchy and white supremacy are a helluva drug cocktail.
@steve:
Ha! The UK kicked Truss to the curb after one month. With the notable exception of blacks, gays, most college-educated whites, households making under $30k, and a few other politically san demographics…
…the US of Amerikkka is still trying to figure out whether or not it tolerates deranged, incompetent, rapist whackjob and criminal Trump.
America took the world’s #1 post-pandemic recovery and threw it away because trans woke DEI hire cat-eating Haitian migrant CRT pronoun drag shows Biden’s age. There is no contest that modern America is by far the bigger moron here, apologies to the aforementioned exceptions.
@Gustopher: I agree with you that for some things, we absolutely should have manufacturing capacity. I was more thinking of the guy from the administration who was on TV the other day, talking about Americans screwing together iPhones or some such nonsense.
@steve:
Dear Liz “Lettuce” Truss was an epic fail.
You might think that Trump, with the US dollar reserve currency status, could avoid the bond market revolt that did for her.
But given enough effort, many things are possible…
The US problem, of course, is that replacing a President is rather more difficult then replacing a Prime Minister.
The traditional US answer would have been for a co-equal Congress to take the reins, and assert its prerogatives regarding trade policy, mandated spending, etc.
But given the Trump/MAGA lock on Republican primaries, that seems unlikely.
Unless economic and political damage is sufficient to drive enough Republican electeds to revolt against subordination to MAGA.
I think something that is almost never brought up with respect to the tariffs ‘bringing’ jobs back forgets many of the reasons they left in the first place. The most important one being costs, so even if we could bring those jobs back, and the factories magically appear with fully trained staff on day one we could only do so at much higher prices, so massive inflation by design. Let alone how long it would take in the real world for all of that production to come online and what would happen in the mean time would be worse.
I predict zero factories will be built as a “result” of these tariffs.
Under Trump’s first term, he started tariffs on China…. and after 7 years, zero factories have been built in the US.
Private companies are naturally risk averse, and so the country attempting onshoring has to also execute an industrial policy of free money to inspire the movement from where they used to be. However, Trump’s attempting radical austerity.. exactly the opposite of what you actually need if you want factories.
The post-ww2 prosperity was also a result of both 30+% union density and a labor shortage from basically 1945-80, which meant owners had to compete with each other to hire new staff.
Unless these billionaires plan to massively increase wages, that’s a recipe for sweatshops rather than high-paying middle-class jobs.