Kashkari, A ‘Resounding No’ And The Norwegian Blue

If you’re waiting around on someone to explain how Donald Trump’s steel and aluminum tariffs are actually a good thing, you’re going to be waiting literally forever, because there are no “tremendous” reviews forthcoming.

That’s probably clear to you by now what with the scathing analyst commentary, the universal backlash from the international community, and the bevy of economists who have, for the better part of two years, tried desperately to explain why the protectionist bent is a road to nowhere at best and a road to economic hell in America at worst.

One of the points we and others have made over the past several days is that this complicates things for the Fed at a time when things didn’t need to get anymore complicated.

There was already a material risk that the normalization effort would go off the rails in the event inflation suddenly picked up and forced a Yellen-led FOMC to try and manage expectations and engineer a soft landing in the event they were forced to hike more aggressively than the market was anticipating.

Then Trump (basically) fired Yellen.

About two months after that, he signed a deficit- funded tax cut into law, ensuring that Treasury’s borrowing needs would increase just as the Fed embarked on an effort to let the balance sheet rundown. Then, Trump plunged further into the fiscal abyss with the spending bill, further exacerbating the situation and again raising the odds that inflation overshoots.

Now, with the tariffs, he’s simultaneously jeopardizing the economy (the downstream costs of the tariffs will invariably outweigh whatever benefits accrue to the aluminum and steel industries) and inviting more upward pressure on prices at a time when the fiscal stimulus he’s piling atop an economy at full employment all but ensures that the Fed will be forced to accelerate the timeline on hikes.

And because he just couldn’t stand the prospect of not being able to say he changed something when given the chance, we now have to navigate this without Yellen.

It’s a fucking disaster in the making and someone who apparently realizes that is uber dove (and man who has some crazy ass eyes) Neel Kashkari.

In an interview with FT, Kashkari tried to come across as measured in his assessment by conceding that he “could understand” the complaints of the protectionist contingent, but his take on the tariffs themselves was unequivocal. Here’s what he said:

If you raise steel tariffs, are the steel jobs in the US going to more than make up for the economic effect [on] everybody who is a steel consumer?

If you look narrowly at that, the answer is going to be a resounding no.

Right. And you don’t have to be an economist to understand that (of course Neel is good at crafting bailout packages, so maybe he can help when shit hits the fan).

“I am sympathetic to the desire for fair trade but I am nervous that there will be economic cost to the US economy in trying to show that the threat is credible,” he continued. And by “show that the threat is credible” he means “tilt at Chinese windmills” at the possible cost of undercutting the U.S. economy in the interest of vindicating that lunatic Peter Navarro.

Worse, it is manifestly cruel to give workers in these dead American industries a false sense of hope. They need to be integrated into the modern economy, not made to feel even more nostalgic for something that, in the final analysis, is like the parrot in the Monty Python sketch.

These industries aren’t coming back. They aren’t competitive anymore and that means that populist promises aside, they cannot be resurrected.

They’re not “just resting.” Like the Norwegian Blue, they’re “deceased”. They’ve “expired and gone to meet their maker.”

If Trump does manage to reanimate these industries temporarily, it won’t matter in the long-run. They’ll fail again eventually and at that point we’ll be right back to the Norwegian Blue scenario:

I examined these industries and I discovered that the only reason they had been sitting on their perch is because they had been nailed there.

End of story.

*****************