About the Trump Tariffs - "Liberation Day" or Liquidation Days?

I don't want to be overtly political, but it’s hard to ignore that one of the most economically misguided decisions in recent memory has come from a U.S. president who continues to demonstrate a troubling lack of economic understanding. The very simplistic (and incorrect) assumption that a trade deficit simply means you're "losing out" has now led to Trump imposing substantial tariffs on basically every country the U.S. trades with.  The calculation to determine the "Tariffs Charged to the U.S." is, let's say, peculiar. These are not tariff rates. It's simply the trade deficit divided by the imports to the U.S. The actual tariffs that do exist (if such exist) are mostly in specific sectors with single-digit numbers which are vastly lower than what's displayed on the presentation chart in the image below. No reputable economist recognizes that as a legitimate calculation. I'm honestly amazed at the amateurishness displayed by the leadership of the most powerful and influential country in the world.  Trump insists this move will bring back factories, save jobs, and prove that free trade was “nothing but a scam.” The immediate result, however, is panic: stock markets are tumbling, gold prices are increasing, and CEO's have pressed the pause button. Worse, the trust at the core of global commerce looks like it may be broken for some time.

US Trade Deficits

For decades, Trump has consistently claimed that if another country sells more goods to the U.S. than it buys, Americans are being “ripped off". In actuality, the U.S. has enjoyed incredible consumer surpluses over a long period of time with very low prices of goods relative to purchasing power. Free trade and the purchasing power of Americans has underpinned their economic structure for decades.

Additionally, what often goes unsaid is that U.S. trade deficits have historically helped strengthen the dollar’s global role. By running deficits, the U.S. pumps dollars abroad, fueling global liquidity and cementing the U.S. dollar as the primary reserve currency. This status has granted America unparalleled power, from influencing international lending to financing its own debt on favorable terms. Ironically, dismantling these trade flows could undermine a cornerstone of U.S. financial strength.

Most of All, Markets HATE Uncertainty

Perhaps the most damaging aspect is how this move undermines the global perception of the U.S. as a stable partner. It seems like there was no coordination with the Federal Reserve, little clarity from Treasury, and no mention of workforce training or tax incentives to offset higher domestic production costs. Instead, it feels like a giant penalty scheme, introduced overnight.

This "policy" is too scattergun and irrational. One day it’s 10 percent, next it’s 25, and who’s to say it won’t vanish in a year or escalate even further? From an investment perspective, CEOs cannot plan 5/10/20-year capex strategies, and no board obviously wants to commit to heavy on-shoring without stable rules and guidelines over time. It’s a sabotage of coherent capital planning. When the cost of imports can change drastically based on a tweet or a whim, capital doesn’t flood in. It’s going to sit on the sidelines and preserve optionality. It retreats. 

No executive will commit to building a factory under the shadow of a four-year political risk outlook, unpredictable tariff policies, and labor uncertainty. Likewise, no investor will finance expansion in a market where import costs can fluctuate weekly depending on which countries happen to post a current account surplus with the U.S. The system that has been introduced is simply not intended to provide certainty.

Tariffs introduced with no labor program, no public-private incentive, and no coordination with allied governments send a clear message: the White House is playing for shock value, not structured growth. Even if Trump walks this back, the memory remains that the U.S. can pivot radically and unilaterally. The systemic damage has already happened to a certain extent. The distrust doesn’t evaporate with one press conference. In a world economy knit tightly together by supply chains and multinational investments, reliability and transparency matter. We are looking at a future in which the cost of doing business with America may come with a built-in risk premium, particularly in the short to medium term.

The frustration for me is two-fold:

1. It should not have happened in the first place. Across-the-board blanket tariffs is counter to basic economic theory.

2. Even if tariffs were imposed, this could have been done so much better. Selective tariffs in limited circumstances can work given the right conditions and framework. Matching auto tariffs with the EU would have been understandable. Addressing China’s IP violations with targeted measures might have rallied global support. But instead, the U.S. administration dumped a blanket tariff system in an incredible shock to the system on nearly everyone, unsettling markets and harming America’s own credibility.

What I Hope Will Happen and What Must Happen

1. The new tariff rates are simply too absurdly high to believe. The baseline 10% is probably the new long-term norm. Despite the alarming numbers being thrown around, my sense is that a permanent baseline of 10% U.S. tariff rate is the most realistic. The current figures, in my view, should simply be more political theater and negotiating leverage than economic strategy as a whole. 

2. There are some signs that Trump wants a deal. The increased tariff rate is set to take effect on April 9, providing an opportunity for last-minute negotiations. Trump has remarked that "tariffs give us great power to negotiate," indicating he might view them more as a bargaining tool than a long-term strategy.

3. Most likely, most of these extreme tariffs will be short-lived. I suspect a flurry of backroom discussions will yield concessions on both sides, allowing the administration to claim victory while ultimately walking back the most punishing rates. Markets and businesses need predictability. Sustaining these extreme tariffs for too long would spark significant backlash at home and abroad. I think Trump will make deals in the end and call them "the best deals ever in the history of the country" simply because the downside of causing a recession will be too great.

Of course, this might not be the case at all. If so, a recession is highly likely.

By J

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