One of Donald Trump’s biggest flaws is that he thinks he is smarter than everyone else and that his ideas and the consequences of those ideas are always right. Then when things don’t work out like he said they would, he either blames others or ignores those bad consequences. The market tanked on the announcement of these incredibly stupid tariffs, and let’s call them what they are–a tax paid by American consumers, a huge tax. Markets on the whole are pretty smart. The dollar sank against other currencies, which is bad for the US. US debt yields declined, as bond investors anticipate a recession and the Federal Reserve reducing interest rates. But these tariffs will fuel inflation, so I don’t think we will see much of a reduction in interest rates.
Every dollar that consumers have to pay for the tariff tax is a dollar less that they can spend elsewhere, and US companies will raise prices to the new level importers charge, so no relief there. Trump claims we will raise hundreds of billions from these new tariff taxes, but we won’t and whatever we raise won’t make up for the damage caused to the US economy. Other countries will view us as less reliable trade partners or just general allies. And the notion that the US will somehow replace all the foreign manufacturing is just ludicrous. We can’t and we won’t. And if we tried to it would be enormously costly and divert investment from more profitable sectors.
I would like to think that Trump is just doing this to get freer trade from and for everyone, but now I don’t think so. Egged on by Vance, who should now better but apparently learned nothing in business school, he seems determined to do this in the false belief it will bring manufacturing jobs home. He is pissing off farmers, businesses and consumers. It isn’t good for Reps or conservatives and a number of Republican Congresspeople and Senators are properly alarmed. Hopefully Trump will listen to them and back off this insane plan.
I think most everyone agrees that trumps imposition or planned imposition of various tariffs are idiotic. Apparently Trumps goal is to bring A ) fairer trade and B) return some manufacturing back to the US.
Warren at coyote blog has a good explanation on why simply raising or lowering tariffs wont work. interesting and good read.
https://coyoteblog.com/coyote_blog/2025/03/the-madness-of-tariffs-aluminum-example.html
I’m not fully onboard with the tariffs and I’m not defending them. However, using the markets as any kind of accurate barometer of the economy is silly. The markets are quite irrational (stupid), sometimes more sometimes less, always nearsighted. They often react in huge swings to a single piece of news that may or may not have any real short or long-term economic impact. And they’re often overvalued seeing huge corrections. Tech boom/bust anyone? How many stocks got pummeled when tariffs will have little to no bearing on them? Why? The frequent panic and euphoria of the markets is irrational, reacting like an overly emotional person – not on facts but feelings – and rarely an accurate indicator of the health of or impact to the economy.
Overly negative take, IMO. We have already seen evidence that TONS of money is to be invested in the US. I agree that overconcern about manufacturing at the expense of service industries and technology is problematic. But I believe that Trump, as in his last term, will adjust the tariffs to a more realistic level as he negotiates with other countries. Europe and the rest of the world have protected their native interests at the expense of the US for 80 years now … some rebalancing is called for.
I would just point out that most of the money supposedly being committed in these big announcements is not new money, it was already in the companies’ plans. No one has done anything at the expense of the US, other than potentially in the defense arena. American consumers have benefited from less expensive overseas goods, while our economy has shifted to far higher value service and tech industries. The standard of living in the country has risen rapidly, much more rapidly than in Europe, Japan or elsewhere. So who took advantage of whom?
i am in full agreement that real free trade would be a great outcome, but I will again point out that Trump wants elimination of the trade deficit–that is a very different thing. And why tariff Australia, which imposes no tariffs on goods from the US? This is irrational stuff. And once more, if we had complete free trade, we would run a trade deficit with almost every country, but we would run a huge foreign investment surplus, and that foreign investment props up our debt and creates lots of new jobs in the US. Remember the flip side of a trade deficit is a surplus in foreign investment
One additional thought. You say that markets aren’t stupid, but Warren Buffet, Benjamin Graham and a ton of other value investors suggest that the markets – which are, after all, a reflection of both analysis and emotions – are OFTEN dead wrong.
I think if you actually look at the data, more often than not major market turns correctly reflect either coming good times or bad times. Markets may occasionally be wrong, but not often
Pretty soon, we’ll see who is right. Essentially, Trump has sent up a flare, exposing the worldwide tariff regime that the US is facing. Access to our markets is valuable and other countries are already responding to higher barriers, by offering to reduce theirs. It’s early in the game.
I will say again, not sure what Trump’s goal is, if he wants no tariffs or trade barriers, we will have a higher trade deficit. Think about it for just a minute and you will understand why. If he wants to try to reshore manufacturing to the US, then, aside from being impossibly foolish to accomplish, he will have to keep these tariffs no matter what other countries do, which will result in inflation, fewer jobs, and a worsening economy.