Sunday night, April 6, 2025.
Headlines :
These happened on Monday morning — Asia is ahead of us.
The weekend is brimming with negative articles on the tariffs catastrophe/disaster.
Here’s the Economist:
Here’s the Economist Leader:
IF YOU failed to spot America being “looted, pillaged, raped and plundered by nations near and far” or it being cruelly denied a “turn to prosper”, then congratulations: you have a firmer grip on reality than the president of the United States. It’s hard to know which is more unsettling: that the leader of the free world could spout complete drivel about its most successful and admired economy. Or the fact that on April 2nd, spurred on by his delusions, Donald Trump announced the biggest break in America’s trade policy in over a century—and committed the most profound, harmful and unnecessary economic error in the modern era.
Speaking in the Rose Garden of the White House, the president announced new “reciprocal” tariffs on almost all America’s trading partners. There will be levies of 34% on China, 27% on India, 24% on Japan and 20% on the European Union. Many small economies face swingeing rates; all targets face a tariff of at least 10%. Including existing duties, the total levy on China will now be 65%. Canada and Mexico were spared additional tariffs, and the new levies will not be added to industry-specific measures, such as a 25% tariff on cars, or a promised tariff on semiconductors. But America’s overall tariff rate will soar above its Depression-era level back to the 19th century.
Mr Trump called it one of the most important days in American history. He is almost right. His “Liberation Day” heralds America’s total abandonment of the world trading order and embrace of protectionism. The question for countries reeling from the president’s mindless vandalism is how to limit the damage.
Almost everything Mr Trump said this week—on history, economics and the technicalities of trade—was utterly deluded. His reading of history is upside down. He has long glorified the high-tariff, low-income-tax era of the late-19th century. In fact, the best scholarship shows that tariffs impeded the economy back then. He has now added the bizarre claim that lifting tariffs caused the Depression of the 1930s and that the Smoot-Hawley tariffs were too late to rescue the situation. The reality is that tariffs made the Depression much worse, just as they will harm all economies today. It was the painstaking rounds of trade talks in the subsequent 80 years that lowered tariffs and helped increase prosperity.
On economics Mr Trump’s assertions are flat-out nonsense. The president says tariffs are needed to close America’s trade deficit, which he sees as a transfer of wealth to foreigners. Yet as any of the president’s economists could have told him, this overall deficit arises because Americans choose to save less than their country invests—and, crucially, this long-running reality has not stopped its economy from outpacing the rest of the G7 for over three decades. There is no reason why his extra tariffs should eliminate the deficit. Insisting on balanced trade with every trading partner individually is bonkers—like suggesting that Texas would be richer if it insisted on balanced trade with each of the other 49 states, or asking a company to ensure that each of its suppliers is also a customer.
And Mr Trump’s grasp of the technicalities was pathetic. He suggested that the new tariffs were based on an assessment of a country’s tariffs against America, plus currency manipulation and other supposed distortions, such as value-added tax. But it looks as if officials set the tariffs using a formula that takes America’s bilateral trade deficit as a share of goods imported from each country and halves it—which is almost as random as taxing you on the number of vowels in your name.
This catalogue of foolishness will bring needless harm to America. Consumers will pay more and have less choice. Raising the price of parts for America’s manufacturers while relieving them of the discipline of foreign competition will make them flabby. As stockmarket futures tumbled, shares in Nike, which has factories in Vietnam (tariff: 46%) fell by 7%. Does Mr Trump really think Americans would be better off if only they sewed their own running shoes?
The rest of the world will share in the disaster—and must decide what to do. One question is whether to retaliate. Politicians should be cautious. Pace Mr Trump, trade barriers harm those who put them up. Because they are more likely to cause Mr Trump to double down than retreat, they risk making things worse—possibly catastrophically so, as in the 1930s.
Instead, governments should focus on increasing trade flows among themselves, especially in the services that power the 21st-century economy. With a share of final demand for imports of only 15%, America does not dominate global trade the way it does global finance or military spending. Even if it halted imports entirely, on current trends 100 of its trading partners would have recovered all their lost exports within just five years, calculates Global Trade Alert, a think-tank. The eu, the 12 members of the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), South Korea and small open economies like Norway account for 34% of global demand for imports.
Should this effort include China? Many in the West think that China’s state-owned enterprises violate the spirit of global trading rules, and they have in the past used exports to soak up surplus capacity. Those worries will worsen if more Chinese goods are redirected away from America. Building a trading system with China is desirable, but will be viable only if it rebalances its economy towards domestic demand to ease worries about dumping. Also, China could be required to transfer technology and invest in production in Europe in exchange for lower tariffs. The EU should centralise its investment rules so that it can strike deals covering FDI and it should overcome its aversion to big trade pacts and sign up to the CPTPP, which has ways of resolving some disputes.
The madness of King Donald
If this seems gruelling and slow, that is because integration always is. Throwing up barriers is easier and faster. There is no avoiding the havoc Mr Trump has wrought, but that does not mean his foolishness is destined to triumph. ■
The most powerful article I read was Steven Rattner’s piece in the New York Times:
In the past, the one constituency President Trump has sometimes listened to has been our stock market. Well, it has spoken, falling 10.5 percent in one of the largest two-day stock market swoons in decades.
In the 50 years I have been immersed in markets and economic policy, I have never before witnessed a signature economic policy initiative that was met with such unalloyed criticism. What’s worse, the damage was entirely self-inflicted.
Why such a reaction? One reason the S&P 500 fell was that the tariffs Mr. Trump rolled out were so much greater than investors anticipated. (Give the White House an F for failing to prepare the market for what to expect.) Then on Friday, China announced its own 34 percent tariff on our goods, making it clear that our trading partners were not going to simply give in to Mr. Trump’s demands, as he had suggested they would.
As Mr. Trump was doubling down, asserting that “my policies will never change,” the Federal Reserve chairman, Jerome Powell, was delivering his own bombshell: Given the higher-than-predicted tariffs, higher inflation and slower growth were likely to ensue, he said. That’s drastically different from just a couple of weeks ago, when Mr. Powell called the potential impact of new tariffs on prices “transitory.”
The business community, which by my count heavily supported Mr. Trump in the election five months ago, seems stunned. Few have spoken publicly, but the Business Roundtable, the premier corporate trade association, on Wednesday warned that universal tariffs run “the risk of causing major harm to American manufacturers, workers, families and exporters.”
Privately, several chief executives told me that they recognized that imposing the tariffs, as well as Mr. Trump’s intractable support of them, was a potentially cataclysmic mistake. “Few of us ever imagined he would go this far,” one told me. “He could well bring down the economy and himself.”
The Trump-supporting business leaders I’ve spoken to in the last two days don’t yet regret their votes, mostly because of their intense distaste (if not hatred) for the Biden-Harris administration. And they remain broadly supportive of the efforts by the tech billionaire Elon Musk to reform the federal government, even if they acknowledge that his DOGE team may be going too far in its slashing of spending and personnel.
But I wonder how some other major Trump-supporting leaders whose stock prices have been particularly hard hit now feel, like Stephen Schwarzman, chief executive of Blackstone, the investment group (down 15 percent in two days), and Safra Catz, chief executive of Oracle, the database company (down 12 percent).
Mr. Trump’s actions aren’t the only problem. Almost as important is the lack of clarity as to what policies he is pursuing and why. At times, Mr. Trump implies that the purpose of the tariffs is to bring back manufacturing, which suggests that they will stay in place indefinitely. At other times, he suggests that the goal is to negotiate tariff reductions by other countries (even though much of what Mr. Trump asserts about their tariffs is inaccurate).
The dithering takes a real toll. I see this from my role as a professional investor. How do we evaluate a company that imports goods or engages in international commerce? We seek a lower price, or we grit our teeth, or we pass on the opportunity. As a result, our pace of investing has slowed sharply this year.
And it’s not just us. In the year’s first quarter, the number of newly announced mergers and acquisitions dropped to its lowest level since the financial crisis. “Folks are looking but not pulling the trigger,” one leading investment banker told me. Equity offerings have become similarly challenged; multiple companies planning to go public have postponed their fund-raising since Wednesday.
Even experts inside the Trump bubble are flummoxed. In a recent private call with investors, one senior official in the first Trump administration confidently predicted that autos coming from Mexico would get more favorable treatment than those originating in Canada. The following day, Mr. Trump imposed the same duties on vehicles coming from the two countries.
The outlook is bleak. Prediction markets put the odds of a recession at 50 percent or even a bit higher. And while the jobs figures that were released Friday were sound, the Conference Board recently reported that consumer expectations for the economy hit their lowest level in 12 years, while anticipated inflation over the next year (measured before the tariff announcement) has jumped to 6.2 percent. Domestic manufacturing production is now contracting. Stagflation – that particularly painful combination of inflation and economic stagnation – has become the least harm that we are likely to experience.
In a normal world, when an economy falters, eyes turn to the central bank for help, in the form of reductions in interest rates. But progress on inflation has stalled, making it more difficult for the Fed to come to the rescue. And the new tariffs will only make inflation worse.
Many business people and investors are still hoping Mr. Trump will recognize the havoc he is creating and ease off his tariffs. But so far, he doesn’t seem concerned. And that may be our biggest worry of all.
Steven Rattner is a contributing Opinion writer and the chairman and chief executive of Willett Advisors. He was a counselor to the Treasury secretary in the Obama administration. @SteveRattner Facebook
Ronald Reagan on Tariffs. Totally brilliant.
My own stocks
I’ve been progressively selling. I’m down to 46% cash/treasuries/money market funds and 54% equities.
That’s stupid. I should be 100% in cash/treasuries/money market funds and no stocks.
My logic is simple: Stocks rise when earnings rise.
There’s nothing about this that’s going to make earnings rise. If anything, the uncertainty of whether the tariffs are for negotiating or are permanent will encourage everyone and their uncle to sit on their hands, conserve cash and mull.
Example: British carmaker Jaguar Land Rover just announced it will pause U.S. shipments for a month as it assesses the impact of Trump’s tariffs on vehicle imports. The U.S. automotive industry, which Trump is targeting big-time, employs around 5 million people. It’s a huge employer. A lot of people are going to be hurt.
Normally, when markets go awry, the keys are:
+ Ownership in great companies,
+ Diversification, and
+ Hang in there.
Not this time. Everyone and every company will be affected,. And not in a nice way.
As for Nvidia, …I can no longer figure Nvidia. I still own too many NVDA shares — far fewer than before.
I was turned onto Nvidia because of my love for AI and Nvidia’s super strong position in AI. That continues. AI shows no signs of ebbing. In fact, it’s speeding up. But there are all sorts of other “issues” with Nvidia which I no longer understand — like government restrictions on sales to China and others (like Switzerland and Israel?).
This idiocy is totally charming.
You’ll never get his video out of your brain. Trust me.
Last week I was in Boston. I attended five wonderful classes at the Harvard Business School. One of the professors told the class I had graduated from HBS a year before he was born. After a heavy, cold North-east winter, suddenly the cherry blossom trees, the magnolias, the flowering dogwoods and the redbuds are exploding with pink, white and purple flowers. It’s more than exhilarating. They remind us that joy does eventually return. Who can argue with the blossoms?
See you shortly. — Harry Newton
