On the Trade Wars…
(Donald Trump is not backing down on the tariffs in spite of the crash in the stock markets, the rise of which he was proud to pronounce is a good thing when it was going up. Now that it is going down, he says that the American economy needs to take medicine. After his proposed cure, he thinks that America will be wealthy again.
Really? The problem with Trump’s policy is that it is not proven. He is defining the health of the US economy is a limited way. By any ranking, including his own, America is a very prosperous country. That’s why he does not want it to lose to China. If the US is really in bad shape, then Trump should just admit China has won, and there is no need to get into all these tariff wars to reclaim greatness.
First of all, is America lacking wealth? Of course not. It is now the largest economy in the world although it is possible to argue that China is ahead based on Purchasing Power Parity. The size of China’s economy even in US Dollar terms is also understated because unlike the US, its education sector is not fully priced in, since college education is almost free in China, and more importantly, health care is free. Just these two sectors alone will probably enable the two economies to be on par with each other in nominal terms.
But Trump has no such concept. As far as he is concerned, he thinks in terms of US Dollar GDP, and by his own standard, the US is already ahead. So what is he bitching about? I guess he is concerned about the vast American national debt. Which is a humongous $35-36 trillion growing at a trillion every 100 days. This debt is the accumulation of American extravagance since Clinton was president. He wants all the other nations of the world to pay for American extravagance, through tariffs because he cannot get away with it by taxing more.
This is a strange way of looking at how this debt came about. If you all remember, this is a self created problem in several dimensions. Firstly, it was America, under Biden that threw money out of helicopters, literally, to keep the economy out of trouble during Covid. Nobody asked them to do it.
And it spends 900 billion on military expenditures and wars, more so than any other country on the planet. So now when the country has overspent, why should the rest of the world pay for this?
Secondly, the use of the US Dollar to pay for goods by just printing money, which is free consumption, is a particularly American trait, and it is not something anybody else in the world is indulging in. And if it is an American indulgence, why should anyone else pay for it? As such, the better way of solving the problem is simply for the Americans to be thriftier, save more and cut consumption, in terms of its expenditures, especially in what it consumes by importing. The IMF used to tell all manner of countries to be more conservative in terms of buying more imports but there is no similar advice to the US. So if you spend too much, the only way to solve the problem is to cut your own spending, not charge more tariffs to make it more costly for its population to import and spend money. Cannot cut spending ? Then it is nobody else’s problem except your own.
Finally, I have already covered the most important fallacy in the Trump tariff argument. That the formula for calculating the tariff is just wrong. The US economy is most competitive in services, and it has surpluses with most countries on this item. This is not taken into account in the way they calculate the tariffs. So there will arise great distortions in trade under the Trump tariffs.
The stock markets are crashing. They are expecting a recession. The analogy will be the Great Depression in the 1930s which were affected adversely by the Smoot Hawley Act, the last time tariffs were this high. Will the world enter recession? Possibly. If we remove America from the world economy, there will no doubt be an impact. An economy the size of the USA cannot become isolationist without any adverse impact on the world. China has already retaliated against the US. And if the non US countries can trade more, such as among BRICS countries, the world economy will just leave the USA behind. This is a self inflicted wound or a self goal.
The losses in the US stock market, already in several trillions are already more than double the gains that Trump envisages from the commitments to manufacturing recovery which he has so far announced. This will not work out.
As the BBC writes:
Worst week for US stocks since Covid crash as China hits back on tariffs
Natalie Sherman
BBC News, New York
Stock market turmoil deepened on Friday, as China hit back at tariffs announced by US President Donald Trump, raising the likelihood of an extended trade war and damage to the global economy.
All three major stock indexes in the US plunged more than 5%, with the S&P 500 dropping almost 6%, capping the worst week for the US stock market since 2020. (As of today, they are down 11% from the peak.)
In the UK, the FTSE 100 plunged almost 5% - its steepest fall in five years, while Asian markets also dropped and exchanges in Germany and France faced similar declines.
Trump, who has vowed to remake the global trade order, dismissed concerns about the market shock, noting that the US labour market is strong.
"Hang tough," he urged his followers on social media. "We can't lose."
The global stock market has lost trillions in value since Trump announced sweeping new 10% import taxes on goods from every country, with products from dozens of countries, including key trading partners such as China, the European Union and Vietnam, facing far higher rates.
Analysts say the moves, some of which are due to go into effect as soon as Saturday, amount to the biggest tax increase in the US since 1968.
They expect the measures to lead to a contraction in trade, and have warned they could drive many countries into an economic recession.
China responded to Trump on Friday by hitting US goods with import taxes of 34%, curbing exports of key minerals and adding American firms to its blacklist, describing Trump's actions as "bullying" and a violation of international trade rules.
Other countries appear to be hoping they will be able to negotiate deals, despite conflicting signals from the White House about its appetite for talks.
Maroš Šefčovič, the trade commissioner for the EU, which has been planning to retaliate, said on Friday that he had had a "frank" two-hour exchange with US officials, and wrote on social media the trade relationship needed a "fresh approach".
"The EU's committed to meaningful negotiations, but also prepared to defend our interests," he said. "We stay in touch."
Trump's moves are consistent with promises he made on the campaign trail last year.
But they were more far-reaching than some analysts had expected, triggering the worst week for the stock market since 2020, when the Covid-19 pandemic led to global shutdowns and other disruption.
The sell-off started with firms such as Apple and Nike, which rely heavily on suppliers in Asia. But on Friday, it moved into sectors that would typically not face the direct impact of tariffs, such as consumer staples, healthcare and utilities.
"Candidly the mood is pretty sour and it should be," said Mike Dickson, head of research and quantitative strategies at Horizon Investments in the US, warning that it will take weeks to understand the impact of Trump's tariffs.
"What we're really worried about right now is what we saw at 6am-ish [when China retaliated]," he said, "How much more of that is out there?"
In a note to investors, JP Morgan said it now put the odds of a global economic recession this year at 60%, up from 40% previously, noting that the shock from the tariffs could drive growth in the US down by two percentage points this year.
Some investors downplayed the losses, noting that they follow an astonishing run-up in the value of share prices in the US over the past few years.
"These shifts in the market that we're seeing - they're violent because things go down a lot quicker than they go up," said Tim Pagliara, chief executive of Tennessee-based CapWealth.
He said the White House was attempting a "big reset" in global trade but the effort was needed.
"We've talked about trade imbalance my entire career," he said. "Nothing's ever happened. So something has to happen.
"We are going to level the playing field on some of these relationships that have just gotten out of balance."
Speaking on Friday, Jerome Powell, the head of the Federal Reserve, the US central bank, said he thought the economy remained "solid", pointing to the latest data showing strong hiring in the US in March.
But he acknowledged a high degree of uncertainty.
"What we've learned is that the tariffs are higher than anticipated, higher than almost all forecasters predicted," Mr Powell said, warning that growth would slow and prices were likely to rise. (In other words, the economy will tank.)
Pat Muscaritolo, owner of Jacobson Appliance in New Jersey, says the tariffs could force him to shut down after 40 years
In New Jersey, small business owner Pat Muscaritolo, said the changes may force him to shut down his appliance shop, Jacobson Appliance, after 40 years in business. He has been urging customers to make any necessary purchases now.
"We don't know what the price is going to be at the end of the month," he said, though he is bracing for prices on items such as refrigerators that could be 30% or even 40% higher.
On the markets, housing-related firms were a bright spot, perhaps rallying on bets that the turmoil could lead to lower interest rates for mortgages and help the US housing market.
Shares in Nike, and other clothing retailers, which had been hammered on Thursday, also clawed back some ground on Friday, buoyed by hopes of a deal after Trump said he had a "very productive call" with the leader of Vietnam.
Cambodia also sent a letter offering to reduce tariffs and asking the US to negotiate.
But other parts of the market remained bleak.
Shares in Apple, which relies heavily on China for manufacturing, fell more than 7% on Friday. The iPhone maker's market value has dropped roughly 15% since Wednesday.
• The Dow Jones fell 5.5%, bringing it down 10% from its February peak
• The Nasdaq dropped 5.8%, wiping out roughly a fifth of its value since December, putting it in "bear market" territory
• In the UK, the FTSE 100 index closed 4.9% lower, the biggest one-day drop since 27 March 2020
• In Europe, France's CAC 40 dropped 4.3% while in Germany the Dax fell almost 5%
• Earlier, in Japan, where the prime minister called the situation a "national crisis", the Nikkei 225 fell more than 2.7%
• Brent crude, the international oil price benchmark, also dropped almost 6%
As the rout continued, even some White House allies started to criticise the measures.
On a podcast devoted to tariffs, Republican Senator Ted Cruz of Texas said Trump's moves could lead to benefits for the US, while warning of "enormous risks".
"If we're in a scenario 30 days from now, 60 days from now, 90 days from now, with massive American tariffs, and massive tariffs on American goods in every other country on earth, that is a terrible outcome," he said.
(Stocks have crashed around the world. Here is the story from Indian media:)
Stock market crash 2025: What's different from the past market meltdowns?
Credit event risks have been a feature of nearly all the past crises such as the global financial crisis in 2008 and the more recent Covid-triggered scare in 2020.
Puneet Wadhwa New Delhi, Business Intelligence
4 min read Last Updated : Apr 08 2025 | 6:51 AM IST
The sweeping tariffs imposed by Donald Trump last week on major world economies has triggered a stock market correction across the globe.
Though a market correction is healthy and brings new investors to the markets, analysts suggest a broad-based sell-off triggered by an event, on the other hand, could result in panic selling and a prolonged risk-off phase.
Trump’s tariffs, according to analysts at Nuvama, seem to be wrecking ‘Pax Americana’ rather than reordering it. In just a few days post-tariffs, S&P 500 and oil are down 10 per cent and US high-yield bond spreads have widened 75–100 basis points (bps).
Such a synchronous sell-off in risk assets occurred only in the global financial crisis in 2008 and the Covid pandemic of 2020. If left unchecked, Nuvama feels that asset class reflexivity could snowball into a crisis now, as the global economy and US private sector are weak.
That said, credit event risks have been a feature of nearly all the past crises such as the global financial crisis in 2008 and the more recent Covid-triggered scare in 2020.
While the current crisis this time too is originating in the US, there are a few differences, Nuvama said.
First, unlike 2008 the policy response seems to be less coordinated both between the US and global peers (retaliatory tariffs imposed), Nuvama said, and also between US treasury and Fed–which is focused on inflation rather than growth, thus risking a delayed response.
“Domestically, we are entering the crisis with much weaker growth. However, strong corporate balance sheets this time are comforting,” wrote Prateek Parekh, Tanisha Gupta and Jatin Somani of Nuvama in a recent note.
Drawing parallels with the past suggests that the markets are entering a new phase of global growth with risks of capitulation. This, Nuvama said, is unlike the post-Covid corrections (2022 and 2024) where global commodity prices were stable, but liquidity tightening caused havoc.
“In the near term, markets should brace for volatility and investors should focus on capital preservation. Earnings yield minus bond yield (average of US and India 10Y) is a good guide for inflection point. Typically, during risk-off, equities tend to undershoot sharply (1SD cheap). Now, equities are still 1SD expensive compared with bonds," Parekh, Gupta and Somani wrote.
That said, the four key phases of market sell-off from the 2008 crisis according to Nuvama were as follows.
Markets first sold off owing to liquidity scare: High valuations coupled with rising oil prices and Reserve Bank of India's (RBI’s) liquidity squeeze sapped sentiments.
Second phase of sell-off owing to growth scare: The Nifty corrected 45 per cent in three months in tandem with oil and yields fell. Cyclicals such as metals, realty, industrials clocked over 50 per cent correction. The US Fed rate started to cut interest rates, but the market sell-off continued.
Markets bottomed only when policy response reached a mature stage: Markets made a bottom in November 2008 after a steep correction (~60 per cent, 10x one-year forward price-earnings), cheapening valuations and policy response reaching critical mass (Fed’s QE and fiscal packages). However, they were range-bound until March 2009.
Reflation post-synchronous global stimulus: Emerging markets (EMs) including India and China, too, imparted large stimulus along with the US resulting in strong rebound.
Investment strategy
As an investment strategy, Nuvama suggests sectors with less cyclical demand/oligopolistic industry/input price tailwinds (FMCG, cement and telecom) and those with potential lowering of competitive intensity (private banks) should be preferred.
"While a recession would inflict near-term pain, it may necessitate policy coordination among G7 and a synchronised global QE to allow for expansionary deleveraging of the US. This should result in a sustained upcycle à la 2000s when the tide turns," Nuvama said.
The following article in TaxPolicy reviews some key evidence about tariffs:
Historical Evidence: Tariffs Raise Prices and Reduce Economic Growth
Economists generally agree free trade increases the level of economic output and income, while conversely, trade barriers reduce economic output and income. Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for US businesses and consumers, resulting in lower income, reduced employment, and lower economic output.
Tariffs could reduce US output through a few channels. One possibility is a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income. Because higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output.
Alternatively, the US dollar may appreciate in response to tariffs, offsetting the potential price increase for US consumers. The more valuable dollar, however, would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower US output and incomes for both workers and owners of capital, reducing incentives for work and investment and leading to a smaller economy.
Many economists have evaluated the consequences of the trade war tariffs on the American economy, with results suggesting the tariffs have raised prices and lowered economic output and employment since the start of the trade war in 2018.
• A February 2018 analysis by economists Kadee Russ and Lydia Cox found that steel‐consuming jobs outnumber steel‐producing jobs 80 to 1, indicating greater job losses from steel tariffs than job gains.
• A March 2018 Chicago Booth survey of 43 economic experts revealed that 0 percent thought a US tariff on steel and aluminum would improve Americans’ welfare.
• An August 2018 analysis from economists at the Federal Reserve Bank of New York warned the Trump administration’s intent to use tariffs to narrow the trade deficit would reduce imports and US exports, resulting in little to no change in the trade deficit.
• A March 2019 National Bureau of Economic Research study conducted by Pablo D. Fajgelbaum and others found that the trade war tariffs did not lower the before-duties import prices of Chinese goods, resulting in US importers taking on the entire burden of import duties in the form of higher after-duty prices. (In other words, the other side does not pay for the tariffs, they are paid by Americans, and this is called inflation.)
• An April 2019 University of Chicago study conducted by Aaron Flaaen, Ali Hortacsu, and Felix Tintelnot found that after the Trump administration imposed tariffs on washing machines, washer prices increased by $86 per unit and dryer prices increased by $92 per unit, due to package deals, ultimately resulting in an aggregate increase in consumer costs of over $1.5 billion.
• An April 2019 research publication from the International Monetary Fund used a range of general equilibrium models to estimate the effects of a 25 percent increase in tariffs on all trade between China and the US, and each model estimated that the higher tariffs would bring both countries significant economic losses.
• An October 2019 study by Alberto Cavallo and coauthors found tariffs on imports from China were almost fully passed through to US import prices but only partially to retail consumers, implying some businesses absorbed the higher tariffs, reducing retail margins, instead of passing them on to retail consumers.
• In December 2019, Federal Reserve economists Aaron Flaaen and Justin Pierce found a net decrease in manufacturing employment due to the tariffs, suggesting that the benefit of increased production in protected industries was outweighed by the consequences of rising input costs and retaliatory tariffs.
• A February 2020 paper from economists Kyle Handley, Fariha Kamal, and Ryan Monarch estimated the 2018–2019 import tariffs were equivalent to a 2 percent tariff on all US exports.
• A December 2021 review of the data and methods used to estimate the trade war effects through 2021, by Pablo Fajgelbaum and Amit Khandelwal, concluded that “US consumers of imported goods have borne the brunt of the tariffs through higher prices, and that the trade war has lowered aggregate real income in both the US and China, although not by large magnitudes relative to GDP.”
• A January 2022 study from the US Department of Agriculture estimated the direct export losses from the retaliatory tariffs totaled $27 billion from 2018 through the end of 2019.
• A May 2023 United States International Trade Commission report from Peter Herman and others found evidence for near complete pass-through of the steel, aluminum, and Chinese tariffs to US prices. It also found an estimated $2.8 billion production increase in industries protected by the steel and aluminum tariffs was met with a $3.4 billion production decrease in downstream industries affected by higher input prices.
• A January 2024 International Monetary Fund paper found that unexpected tariff shocks tend to reduce imports more than exports, leading to slight decreases in the trade deficit at the expense of persistent gross domestic product losses—for example, the study estimates reversing the 2018–2019 tariffs would increase US output by 4 percent over three years.
• A January 2024 study by David Autor and others concludes that the 2018–2019 tariffs failed to provide economic help to the heartland: import tariffs had “neither a sizable nor significant effect on US employment in regions with newly‐protected sectors” and foreign retaliation “by contrast had clear negative employment impacts, particularly in agriculture.”
2018-2019 Trump Trade War Timeline
The Trump administration imposed several rounds of tariffs on steel, aluminum, washing machines, solar panels, and goods from China, affecting more than $380 billion worth of trade at the time of implementation and amounting to a tax increase of nearly $80 billion. The Biden administration maintained most tariffs, except for the suspension of certain tariffs on imports from the European Union, the replacement of tariffs with tariff-rate quotas (TRQs) on steel and aluminum from the European Union and United Kingdom and imports of steel from Japan, and the expiration of the tariffs on washing machines after a two-year extension. In May 2024, the Biden administration announced additional tariffs on $18 billion of Chinese goods for a tax increase of $3.6 billion.
Altogether, the trade war policies currently in place add up to $79 billion in tariffs based on trade levels at the time of tariff implementation. Note the total revenue generated will be less than our static estimate because tariffs reduce the volume of imports and are subject to evasion and avoidance (which directly lowers tariff revenues) and they reduce real income (which lowers other tax revenues).
Section 232, Steel and Aluminum
In 2021 and 2022, the Biden administration reached deals to replace certain steel and aluminum tariffs with tariff rate quota systems, whereby certain levels of imports will not face tariffs, but imports above the thresholds will. TRQs for the European Union took effect on January 1, 2022; TRQs for Japan took effect on April 1, 2022; and TRQs for the UK took effect on June 1, 2022. Though the agreements on steel and aluminum tariffs will reduce the cost of tariffs paid by some US businesses, a quota system similarly leads to higher prices, and further, retaining tariffs at the margin continues the negative economic impact of the previous tariff policy.
Tariffs on steel, aluminum, and derivative goods currently account for $2.7 billion of the $79 billion in tariffs, based on initial import values. Current retaliation against Section 232 steel and aluminum tariffs targets more than $6 billion worth of American products for an estimated total tax of approximately $1.6 billion.
Section 301, Chinese Products
Under the Trump administration, the United States Trade Representative began an investigation of China in August 2017, which culminated in a March 2018 report that found China was conducting unfair trade practices.
In March 2018, President Trump announced tariffs on up to $60 billion of imports from China. The administration soon published a list of about $50 billion worth of Chinese products to be subject to a new 25 percent tariff. The first tariffs began July 6, 2018, on $34 billion worth of Chinese imports, while tariffs on the remaining $16 billion went into effect August 23, 2018. These tariffs amount to a $12.5 billion tax increase.
Section 301 tariffs on China currently account for $77 billion of the $79 billion in tariffs, based on initial import values. China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than $106 billion worth of US goods, for an estimated tax of nearly $11.6 billion.
WTO Dispute, European Union
In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union. The WTO ruling authorized the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, 2019, tariffs of 10 percent were to be applied on aircraft and 25 percent on agricultural and other products.
In summer 2021, the Biden administration reached an agreement to suspend the tariffs on the European Union for five years.
Section 201, Solar Panels and Washing Machines
In January 2018, the Trump administration announced it would begin imposing tariffs on washing machine imports for three years and solar cell and module imports for four years as the result of a Section 201 investigation.
In 2021, the Trump administration extended the washing machine tariffs for two years through February 2023, and they have now expired.
In 2022, the Biden administration extended the solar panel tariffs for four years, though later provided temporary two-year exemptions for imports from four Southeast Asian nations beginning in 2022, which account for a significant share of solar panel imports.
In 2024, the Biden administration removed separate exemptions for bifacial solar panels from the Section 201 tariffs. Additionally, the temporary two-year exemptions expired and the Biden administration is further investigating solar panel imports from the four Southeast Asian nations for additional tariffs.
We estimate the solar cell and module tariffs amounted to a $0.2 billion tax increase based on 2018 import values and quantities, while the washing machine tariffs amounted to a $0.4 billion tax increase based on 2018 import values and quantities.
We exclude the tariffs from our tariff totals given the broad exemptions and small magnitudes.
Trade Volumes Since Tariffs Were Imposed
Since the tariffs were imposed, imports of affected goods have fallen, even before the onset of the COVID-19 pandemic. Some of the biggest drops are the result of decreased trade with China, as affected imports decreased significantly after the tariffs and still remain below their pre-trade war levels. Even though trade with China fell after the imposition of tariffs, it did not fundamentally alter the overall balance of trade, as the reduction in trade with China was diverted to increased trade with other countries. (Americans just cannot stop consuming…)
Trump’s tariffs are an economic emergency for Americans
Misplaced nostalgia is not a good enough reason for something that will only hurt voters MICHAEL STRAIN FT Published APR 3 2025 487
Donald Trump announced his new tariffs in the White House Rose Garden to an audience that included workers from the steel, oil and gas, and auto industries, steam fitters and truck drivers
Trump’s tariffs are an economic emergency for Americans
The writer is director of economic policy studies at the American Enterprise Institute
“Liberation day” (or is it “Obliteration Day”?) has arrived. Unfortunately, it threatens to liberate Americans from robust real wage growth, low unemployment and a good chunk of their retirement savings. (WTF??) Trump’s tariffs are an economic emergency. If implemented, the US’s average tariff rate would be higher than under Smoot-Hawley. They would constitute the largest tax increase since the 1968 levies to fund the Vietnam war. Our trade partners would retaliate.
By raising taxes and prices, they would erode household income and spending. Business investment spending and US exports would be hit hard. If sustained, this trade war would be likely to cause a recession.
And for what?
Around half of US imports are intermediate goods used domestically to produce final ones. High tariffs raise the costs of production for US companies, hurting competitiveness.
Take steel. For every one job in US steel production, there are 80 that use steel in production. Trump’s tariffs might indeed help that one steel producer, but they will hurt the 80 others by reducing the competitiveness of their employers. The economists Aaron Flaaen and Justin Pierce estimate that during Trump’s first-term trade war, the manufacturing employment losses from higher input prices were five times as large as the gains from import protection.
In addition, the losses from retaliation were nearly three times as large as gains from import protection. Already, prominent companies are responding to economic reality. Ohio-based steelmaker Cleveland-Cliffs announced last week that it was laying off 600 workers in Michigan and 630 in Minnesota in order to mitigate falling demand due to Trump’s tariffs. Over the week ending April 1, the company’s share price dropped by 11 per cent. Vice-president JD Vance argues that Trump “believes in economic self-sufficiency”.
Well, to see the benefits of economic self-sufficiency, look to North Korea. Still, Vance is right. Trump is a true mercantilist who views trade deficits with hostility. (So will the US become self sufficient like N Korea??)
But his tariffs shouldn’t be expected to reduce the deficit, which is driven by the fact the US invests more than it saves. For evidence, look again to his first term, which saw the US current account deficit increase by 18 per cent from the first quarter of 2017 to the first quarter of 2020.
Moreover, we should not pay special attention to manufacturing or be excessively concerned about the trade deficit. The average wage of a service-sector worker overtook the average manufacturing wage in late 2018.
Misplaced nostalgia for an imagined past and the rank politics of swing states are not good enough reasons to attempt to move workers from higher-paying jobs to lower-paying jobs. Similarly, the trade deficit means the US can consume more than it produces. This is a good thing.
Deficits offer consumers greater product variety and give US businesses a competitive edge by allowing workers to focus on higher-value-added productive activities. Again, we should not wish for American workers to return to the days of sewing tennis shoes together in factories.
What about Trump’s other goals? These tariffs will generate revenue to finance tax cuts — but if his objective is to help the working class, then increasing taxes on the consumption of working-class households to finance lower income taxes for well-off households is bizarre.
Intentionally slamming the brakes on global economic growth will weaken national security. Flipping the bird to businesses in allied nations will not strengthen supply chains or advance economic resilience.
Trump should be very worried that his working-class tax hike will politically weaken him and other Republicans, making it harder to pass his tax bill in 2025 and keep control of Congress in the 2026 midterms.
A CBS News/YouGov poll last week shows that only 23 per cent of Americans think his policies are making them better off financially — down a whopping 19 percentage points from January.
On Tuesday, Democrats performed much better than expected in two House races in deep-red Florida districts. The next day, a handful of Republican senators broke with Trump on trade policy and voted to undo his Canada tariffs.
GOP Senator Rand Paul argued that Trump didn’t have the constitutional authority to raise taxes. The political reality that Americans will aggressively rebel against a president who intentionally jacks up consumer prices and increases unemployment could be the instrument of economic salvation. If Trump cares about Republican success in 2026 and 2028, then he will reverse course before too much economic damage is done. When the dust settles, “liberation day” may end up liberating Americans from the mercantilist fantasies of a deluded president.
(In short, these tariffs will not work.)
By:
Wai Cheong
The writer has been in financial services for more than forty years. He graduated with First Class Honours in Economics and Statistics, winning a prize in 1976 for being top student for the whole university in his year. He also holds an MBA with Honors from the University of Chicago. He is a Chartered Financial Analyst.
Recent Posts
