Trump’s ‘Day of
Liberation’ is upon us. Everyone stands to lose, according to the vast majority
of economists. It is a risky experiment. It has alienated most of our “friends”
who no longer seem like friends. I have nothing against reciprocal tariffs since
they can level the playing field and make trade more fair, but these punitive
tariffs are nuts. Trump has championed the use of tariffs as a threat, mostly
to allies. The level of disruption from this tariff war seems to already be
high. The stock market has not been doing well. Prices at the grocery store are
already rising again. Both of these hit me hard. The mood is one of doom. This
isn't some carefully crafted plan by shrewd economists, it's a chaotic leverage
play by a leader not well-versed in economics and non-mainstream economic
advisors.
“The Federal Reserve told us that inflation was
transitory in 2021. They were wrong. Very wrong. In 2022, they ate crow and
embarked on the most hawkish monetary policy since Fed Chair Paul Volcker broke
inflation back in the 1980s.”
“Higher interest rates successfully wrestled inflation
down below 3% from 8% in 2022, allowing the Fed to switch gears to rate cuts
last fall. However, prices have been creeping higher, putting pressure on
already cash-strapped consumers.”
“A total of 172,017 people lost their jobs in February,
according to Challenger, Gray & Christmas, the most in the month of
February since 2009.”
Jim Cramer thinks the effects
of these widespread tariffs will be “horrendous.” These notions, which were
pushed by Howard Lutnick, Peter Navarro, and others, about tariffs leading to
prosperity and the notion of an External Revenue Service, are bunk.
International trade is about to be disrupted in a big way. If I had more money,
I would buy some things before they kick in. I don’t understand the usefulness
of punishing our best trade partners, Canada and Mexico. This level of
reorganization of international trade orchestrated by a few extremely wealthy
men seems to have few upsides. Sure, some sectors will benefit but others will
be hurt, some badly.
Fair trade is a worthy goal.
As economists well know, trade imbalances generally do not reflect fairness.
Free trade is also a worthy goal, one that benefits all countries involved.
Using tariff threats as leverage is not generally recognized as a useful
action. Tariffs are the same thing as import taxes. There is no difference.
Retaliation will involve both reciprocation of rates and searching for new
buyers, and new markets for products. The level of disruption won’t be small.
With increasing inflation, rising unemployment, and a high level of market
uncertainty, it seems unlikely that things will get better soon unless he
abandons the big tariffs. It also seems unlikely that he will do that since it
would admit defeat. Free trade is one of the things that made the world
prosperous. To take that away is just not smart.
JP Morgan Chase CEO
Jamie Dimon, when asked about tariffs, said “Uncertainty is not a good thing.”
Stagflation and recession are very real possibilities. Dimon thinks the effects
on businesses will be worse than the effects on consumers. The 25% tariff on
all steel and aluminum imports is not looking good for American workers.
“Alcoa CEO William Oplinger has said that tariffs could
mean 100,000 Americans lose their jobs, including 20,000 aluminum industry
workers, given that 58% of aluminum imports are produced in Canada.”
Many American industries rely
on affordable imported steel and aluminum. The oil & gas industry is one
that relies heavily on imported steel. While onshoring steel production and
other manufacturing has its merits, low cost is not one of them due to higher
U.S. labor costs. U.S. oil and gas CEOs recently cast doubt about tariffs in an
anonymous survey. As I noted in my previous post about tariffs:
“nobody wins with a headbutt.”
References:
Jim
Cramer offers blunt one-word reaction to 20% tariffs. Todd Campbell. The Street.
April 2, 2025. Jim
Cramer offers blunt one-word reaction to 20% tariffs
Jamie
Dimon sends curt 6-word response to tariff war. Todd Campbell. THe Street.
March 13, 2025. Jamie
Dimon sends curt 6-word response to tariff war - TheStreet
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