What happens when you are confronted by an enemy and you fire all the weapons in your arsenal at it but after using up all your ammunition, you still fail to stop it and it keeps coming at you? Your only option then is to run like hell in the opposite direction. This is what Trump is learning.
Trump is finding this out the hard way as we can see from his reversals on tariffs, something that is comical to watch if it were not causing serious gyrations in the world economy. To his ignorant brain, the problem with the US economy was that it was running a global trade deficit in terms of goods. (It is running a global trade surplus in terms of services but since that is not something tangible, he does not seem to care as much about it.) He wants the US to have a global trade surplus on goods and thinks that the way to do that is to hugely raise tariffs on imports, making imports more expensive and thus reducing the local demand. He also wants to raise government revenue so that he can provide a tax cut for the wealthy, the desirability of which has long been an article of faith for Republicans, but which is in stark contradiction to their professed goal of cutting the deficit since their tax cuts would cause the deficits to skyrocket.
One can see how Trump would think that he could solve both problems with one stroke, by massively raising tariffs on imports. This would result in imports getting reduced while also raising revenues for the government, never mind that those two results work against each other since reduced imports would also mean reduced revenues. No doubt he thought that even if imports came down, the extra tariffs would still increase revenues. Of course there is the problem, known to anyone with even the mildest grasp of trade, that tariffs are paid by the importer and passed on to the consumer so any rise in revenues is effectively a tax increase on US consumers. Trump tried to bluff his way out of that by falsely claiming that the exporting countries would be paying the tariffs, something that even he, as ignorant as he is, could not possibly believe but thinks that the rubes will buy it.
So last Wednesday, April 2nd, Trump declared that it was ‘Liberation Day’ and announced the sweeping high tariffs. Trump’s thinking and actions are perfect examples of what H. L. Mencken famously said, that “there is always a well-known solution to every human problem – neat, plausible, and wrong.”
Reality immediately slapped him upside the head, with the stock market going into free fall in the two days after his announcement. What was even more concerning was the drop in bond prices, resulting in yields rising. This was probably caused by people selling their bonds to raise cash to cover the losses in stocks. But rising bond yields mean that the US government has to increase the interest offered on US treasury bonds to get buyers, something that it has to do to finance its deficits, and this means that the interest costs for the government rise sharply, increasing the deficit. Trump is now being compared to the hapless Liz Truss, whose UK premiership ended after just 43 days when her equally precipitous actions sank the bond markets in that country.
When Truss’s chancellor, Kwasi Kwarteng, announced his “mini-budget” in the autumn of 2022, it was initially met by some with hearty cheers and backslapping. The Daily Mail and the Daily Telegraph were among those made giddy by a “real Tory budget” that slashed taxes, just as in recent days some have celebrated the audacity of the US president’s decision to wage a trade war with the rest of the world.
Truss’s move was not, however, balanced with spending cuts or indeed a reassuring official forecast that gave the markets some sense that the government knew what it was doing.
A meltdown in the bond markets saw state borrowing costs rise by one percentage point in four days and an almost immediate rise in mortgage rates. The chancellor was sacked, a new one was ushered in to reverse most of the damaging policies, and Truss was out on her ear soon after.
…Like Truss, Trump tried to hold the line for a bit, playing chicken with the markets. The size of the US economy offered him rather more protection than that enjoyed by the then British prime minister. But there was no hiding place from the political and economic reality facing the White House.
In the face of the drop in stocks and bonds, Trump abruptly reversed course over the weekend and eliminated all the high tariffs, leaving in place the baseline 10% on all countries, except for China. This initially seemed to work as the stock prices rose on Monday and Tuesday but that euphoria was short-lived (the rise was probably due to buyers swooping in to pick up some bargains) and the markets sank again on Wednesday and Thursday, rising a bit on Friday but still much lower than what they were before ‘Liberation Day’.
Trump tried to save face by claiming that the tariffs had been successful because it made world leaders ‘kiss his ass’ and seek deals. He even raised to tariffs just on China by an additional 84% (which with the earlier 20% made it 104%) because they refused to ‘kiss his ass’ and instead slapped high tariffs of 84% on US goods instead. Trump then raised his tariffs to 145% (125% + 20%) with China making theirs 125% and that is where things stand for the moment, though with Trump things could change at any time
Trump has blustered himself into a corner because at this point the rates are just ridiculous. It was pointed out that even when the tariffs on China were a mere 54%, analysts were predicting the the price of iPhones would rise from $799 to $1,142. The 125% rate would raise it to over $2,000. People love their smartphones and this would cause more outrage than the high price of eggs. It would be hard to blame China for the price rise so rather than back down and reduce the tariffs, Trump has quietly exempted smartphones and computers from not only the 125% China tariff but even the baseline 10% global tariff.
Donald Trump’s presidential administration has exempted smartphones and computers from the 125% levies imposed on imports from China as well as other reciprocal tariffs, which experts had cautioned might cause electronic consumer prices to dramatically spike in the US.
The announcement was made late on Friday in a US Customs and Border Patrol (CBP) notice that said the devices would be excluded from the 10% global tariff that Trump recently imposed on most countries, along with the much heftier import tax on China.
…The exclusions were applied retroactively to the products under the reciprocal tariffs beginning at 12.01am ET on 5 April, according to the notice.
“Importers may request a refund by filing a post summary correction for unliquidated entries, or by filing a protest for entries that have liquidated but where the liquidation is not final because the protest period has not expired,” the CBP said.
…Invoking imagery associated with the strongest classification for hurricanes, Ives had previously described the Chinese tariffs as a “category 5 price storm for the US consumer”. He added in a note to investors: “The reality is it would take three years and $30bn in our estimation to move even 10% of its supply chain from Asia to the US with major disruption in the process … For US consumers, the reality of a $1,000 iPhone being one of the best made consumer products on the planet would disappear.”
According to analysts at the investment bank UBS, costs of iPhones would rise exponentially under Trump’s Chinese tariffs. The price of an iPhone 16 Pro Max (with 256GB of storage) could rise by 79% from $1,19( (£915) to about $2,150 (£1,600), the Guardian reported earlier.
Notice that Trump is eager to go before the cameras and announce high tariffs on China and other countries but when it comes to backing down and creating exemptions, he leaves that to underlings to issue a notice on a Friday evening, the slowest of news times that has long been used by administrations to release news that they would rather not like to be prominently reported.
So what does Trump do now? Raising tariffs again would make this whole thing into a bigger farce than it already is. He already looks weak and foolish to anyone but his cult followers. Meanwhile, all the other countries will notice that China has not blinked in the face of Trump’s tariffs threats and instead caused him to back down and they will gauge their own reactions accordingly. Trump may continue to say that that the tariffs caused other world leaders to ‘kiss his ass’ but there have been no deals reported as yet. All that the leaders seem to have done (if we take Trump at his word, never a good bet) is reach out to him for talks, which is what leaders do, when they have disagreements with other leaders with whom their countries are not at war. Until he can show that they agreed to deals that would preferentially benefit the US that they would not have done without the tariffs, all his bluster is just to cover that the tariff weapon is not as powerful as he imagined. Tariffs have been revealed to be a paper tiger.
I’ve said it before, I’m saying it again, “why am I living in a Peter Sellers movie”?
The absurdity of art is paling next to the absurdity of reality.
https://www.facebook.com/wrongreelpodcast/videos/dr-strangelove-1964/1188532618302957/
Just realised I posted a facebook link which is uncool. Here’s another version:
https://www.youtube.com/watch?v=0he-LZNzVg0
(Cue certain individuals desperately hoping I post another comment.
I’m not sure how seriously to take this, but I read an observation that the Chinese tariff response was, in the first instance, a top bit of trolling. Is it a coincidence that their initial retaliatory rate was exactly 1% per Trump felony conviction?
I do hope that was on purpose.
Mano, I agree with you when you said:
This was probably caused by people selling their bonds …
But more specifically, in addition to investors in general doing this, I read that one analyst hypothesized that the PM of Canada worked with the governments of Japan and of Europe to quietly buy US treasury bonds beforehand. Then when the tariffs were imposed, they started all gradually selling them off. This fueled the realization by investors that the value of these bonds was dropping, and thus all wise investors started selling US bond holdings. This would have been a disaster for the US, if Trump’s advisors couldn’t explain it to him. But they did, which is why he paused the tariffs. The world leaders figured out how to make it plain to him!
@silentbob #1
You aren’t living in a Peter Sellers’ movie. You are living in a Philip K Dick novel.
@sonofrojblake #4
While that would be funny, it seems more likely to me that they simply matched the US increase from 20% to 54%. (54-20=34)
Truss didn’t match up favorably against a head of lettuce. To what, Dear Leader, shall we compare thee?
We’re probably going to see more of this. Trump surrounded himself with yes men. And it sounds like he’s become so confident in his own genius with them around that he doesn’t even give them a chance to coddle him and praise him while subtly steering him away from danger. None of them seemed to have a clue what was going on.
The praise at his cabinet meeting looked like an over the top participation award. This is not the sort of environment that will promote him having a much needed realization that he’s very much out of his depth.
And that’s why I think we should get used to these little bouts of stumbling “genius”.
New Republic: Um, It Turns Out No One at the Ports Is Collecting Trump’s Tariffs
To add to the confusion, the tariffs are not actually being collected yet. The Trump administration didn’t check if they could apply a novel maze of tariffs and exemptions with the customs system used by the US today. Customs has not been able to get the system working with the tariffs that Trump wants so they have not applied any yet.
This sort of uncertainty is a big factor in causing the stock and bond market drop. It’s hard enough for a company to plan and order effectively months ahead of time when things are stable. When government policy is changing day by day and it isn’t clear if or when that policy will be applied it becomes impossible.
The penguins won!
“Democratic Penguins Republic -- Victory Day! (Official Music Video)”
.https://youtube.com/watch?v=wOzP87HVCWw
What I find even more disgusting than President Dum-dum’s actions is the cowardly way Mike Johnson and the rest of the Republicans in the House have abrogated their responsibility as a co-equal branch of the government. As I understand it, this is what they did:
1. According to the Constitution, only Congress has the right to levy tariffs.
2. For reasons I still don’t comprehend, Congress decided that there could be a ‘trade emergency’ that might require tariffs to be implemented faster than Congress could possibly act, so they gave the President that emergency power.
3. But the Congress that did that wasn’t being ruled by complete idiots, so they added a provision that after 15 calendar days, Congress could vote to nullify the emergency. The Senate has now voted to do just that.
4. The Republicans in the House, however, are scared to take that vote because if they vote against President Dum-dum they might get primaried out of their cushy positions, but if they vote to uphold the emergency they might piss off their entire constituency and end up losing the general election.
5. So to scuttle that vote entirely, they changed the rules for this Congress by declaring that none of the days this Congress exists shall count towards the 15 days the emergency has to run before Congress can vote it down. In other words, they have invented a magical time stasis bubble around just this “emergency” that prevents the 15 day hands-off period from concluding for the next 21 months.
Once again, the Republicans prove the correctness of this quote from Beau of the Fifth Column: “The Republicans don’t want to represent you, they want to rule over you”.
What Trump will do is he’ll declare victory by either inflating some minor event or making one entirely. Then he’ll pause the tariffs for some longer period and try to manipulate the market and do insider trading (for his own benefit and other rich people of his choosing). I don’t know what the market will do (I wish I did) but significant damage has been done and will likely continue for a while.
As for the rest of the world, the damage is done there too and everyone will continue to move away from the US financially and politically. That’s going to be painful for everyone but in the end mostly for the US. And investment for manufacturing, which is one of the claimed goals, will not return to the US and will actually have some canceled. Welcome to the third world with your very own dictator and fascist government.
I wonder if all of this talk isn’t just a red herring.
OK, I keep reading that the whole point of these tariffs is to get industrial/manufacturing jobs back to the USA. The reasoning is usually stated as “Because those jobs have good pay and benefits”. But there is nothing inherently true about that statement. It’s true that such was the case in the 1950s through 1970s, before manufacturing jobs started going offshore to cheaper labor markets, but if you go back 100 or 150 years or so, industrial jobs were among the worst jobs you could get: long hours, low pay, no benefits, no job security, and hazardous working conditions. What turned that around and made those jobs good was the rise in unionization. It was the unions that brought in the 40 hour work week, workplace safety, child labor laws, health benefits, and so on. Thus, the issue is not one of manufacturing jobs being inherently better than service jobs, it’s really a matter of the workers having access to collective bargaining. If we start to reverse the decline of unions that started in the 1970s, we could reclaim those “good jobs” with our current mix of professions. What is it about the job of someone, say, assembling a car, that makes it better than the job of being an ultrasound tech or proofreading a textbook? Nothing. Indeed, I’d argue that most service industry jobs are more desirable because there’s way less need for physical labor and you’re usually inside with no worries about the weather. Of course, increasing union membership is the last thing that the capital class wants, because to do that would imply that they would not be able to maximize their profit extraction from the workers.
As far as I can tell, the only manufacturing jobs that you really need to have domestically are those that are vital to national security (i.e., infrastructure and military) because you don’t want to be reliant on another country in order for your society to function or even exist (unless of course the interdependencies between the nations are so great that everyone is obliged to be honest and fair with the rest of the world community).
@jimf:
I mean, Trump has said it’s about on-shoring manufacturing jobs. He may even believe it himself; certainly as the folks over at Lawyers Guns & Money have been saying, if you’re confused about whether Trump is stupid, evil, or mentally ill, ‘all of the above’ is still an option. And while the Republican party has long idolized the 1950s (aside from the upper-bracket tax rates that they don’t like to talk about) it’s pretty clear that what Trump is really after is more than 1880s. Robber Barons, no bothering with safety features that will benefit other people… he seems to pretty much want to run the country as a ‘company town’.
Of course, one of the many problems is that businesses that want to stay around really don’t like uncertainty, and Trump’s consistent on-again-off-again announcements are generating lots of uncertainty. Nobody’s going to invest in new factory construction in the U.S. when they don’t know what the trade situation is going to be like next month, much less by the time they finish building the factory in a few years.
This is just perfect (today’s column from Paul Krugman):
https://paulkrugman.substack.com/p/democrats-shouldnt-support-tariffs
What corner? One of the below would have to be true for Trump to be cornered
1. Having a sense of shame (ha ha).
2. Having a effective Congress instead of the current Republican mode of answering how high? (or really how wide)
3. A media that doesnt just repeat -- “We have always been at war with Eastasia”
4. A parliamentary system that could actually act on such matters (like what happened to Liz Truss) -- see also #2. The 25th amendment doesnt count in this case- Trump said he was going to put tariffs and he did -- no one can claim that he is disabled in any way , atleast for this issue -- or atleast a populaton that can weaponize satire and humor (where is our lettuce ?)