“Fake news.”
That was Donald Trump’s response on Monday to a Washington Post sources story suggesting the incoming administration’s considering a more targeted approach to tariffs, where that apparently means limiting levies to critical imports. That, as opposed to the (manifestly silly) notion of an across-the-board duty on everything from everywhere.
That latter characterization’s probably a straw man. If pressed, I doubt Trump would argue for a strict, no-exceptions interpretation of the word “universal” in “universal tariffs.” Even if he did insist on it publicly, all he really wants from other countries are concessions and flattery, not necessarily in that order.
For all the bravado, Trump’s a pushover at the dealmaking table, or if that’s not quite right, it’s fair to suggest he’s not the brightest crayon in the box, which is why it’s perilous to put him on the phone with savvy operators like Recep Tayyip Erdogan (ask America’s Kurdish allies in Syria about that), to say nothing of putting him in the actual room with Vladimir Putin, a trained KGB spy.
Trump seems to think he’s the first person in history to leverage maximalist rhetoric at the outset in order to extract concessions on the way to a compromise. Amusingly — and somewhat disconcertingly given that high stakes dealmaking is their job — a lot of Wall Streeters credit Trump as a pioneer in that regard too. As if that’s not just dealmaking 101. In fact, it’s not even that. It’s just common sense. Every child knows you start by demanding ice cream for breakfast and lunch and dinner under threat of all-day tantrums, and then you go from there.
Anyway, WaPo‘s original article succeeded in torpedoing the dollar, which briefly dropped by the most in months, before paring declines when Trump took to Truth Social to declare the story false.
“The story in the Washington Post, quoting so-called anonymous sources, which don’t exist, incorrectly states that my tariff policy will be pared back,” Trump wrote, in a surprisingly cogent, uncharacteristically blasé, retort. “That is wrong. The Washington Post knows it’s wrong. It’s just another example of Fake News.”
Spoiler alert: It’s not. “Fake news,” I mean. Trump’s inner circle has doubtlessly discussed any number of tariff permutations, targeted levies on critical imports surely being one of them. If team Trump’s not concerned about the inflationary impact of universal, across-the-board levies, they’re even more brazenly incompetent than feared.
On the other hand, it probably is. “Fake news,” I mean. Because there’s no telling where any such discussions are on the list of probable trade policy starting points for Trump. Maybe a targeted plan centered on critical imports is the odds-on favorite, maybe it’s just something someone floated to Trump over a Royale with Cheese dinner at Mar-a-Lago. Who knows. Not WaPo, I can assure you. (I have far less faith in WaPo‘s reporting than the Times.)
Whatever the case, it’s worth reiterating that Trump ran, in part anyway, on a promise to contain inflation. His policy platform suggests he doesn’t care a thing about the “last mile” down to 2% (12-month price growth), but he certainly doesn’t want 4% or 5%.
If we’ve learned anything over the past four years, it’s that Americans are no more patient with inflation today than they were in the 1970s. The MAGA spell would probably hold in all but the most far-fetched inflation scenarios, but… well, you don’t want to play around with the money. Really you don’t, particularly not with every establishment economist and political scientist on the planet warning on the inflationary dangers of populism. That establishment stands discredited on pretty much every front currently, and the last thing you want to do if you’re Trump is toss it (the establishment) a life preserver.
Frankly, that’s (far) more analysis than you need vis-à-vis Monday’s tariff headline hockey, which ING’s Chris Turner aptly dubbed “the pared-back US tariff report that never was.” “The dollar has sold off and then bounced back,” he wrote. “As our traders say: Welcome to the age of ‘Trump 2.0.'”
If I know I will be needing some cash in the next few months, I will be trying to catch the “ups” in US equities (I am terrible at this- but I will try to do my best). Looks like 25 is going to be volatile. I’m not going to get too worried, however, unless long term rates keep going up.
Luckily for my dad (he turns 91 tomorrow), he has some USTs maturing in the next month, which I will be able to roll over at higher rates.
Great job on currency, even the WaPo story is a good mention, if not the full dissection. It is called running it up the flagpole in 1970’s speak. The economically ignorant President and close advisors toss many bad ideas around. Reagan and Trump are wildly ignorant and irrational so advisors flummoxed with the failure of logical arguments run dumb ideas up the flagpole to see how badly the market retches. There is no pressure now so this is a bland one – and quickly corrected – to trading rooms’ glee. Much bigger bad ideas are coming when the pressure is actually on. Trading rooms rejoice as profits reside in every one of these mis-speaks, Fake News, under the table leaks, and plain old confusion. Hooray for the mess ahead – let’s hope it is not really serious (unfortunately at times, it will be!)
“all he really wants from other countries are concessions and flattery, not necessarily in that order”
I respectfully differ with your consensus view. Unlike his 2016 campaign, Trump rarely brought up demands for a level playing field and curtailing subsidies made by foreign governments during the recent campaign.
If you can believe the man at all, his new tariffs goals are to raise revenues to pay for tax cuts and increased spending and as a way to make American industry great again. And in the last days of his campaign and subsequent to his win, he added that they would be used to force other nations to bend to our will when it comes to immigration, drug production and following the US lead on blocking technology exports to China. (The latter have been facing growing push-back from South Korea, Japan and the Netherlands who are weighing the cost to their own vital industries.)
My “out there” take is that he wants to replace Teddy Roosevelt on Mt. Rushmore. He dreams of leaving a legacy as being the man who brought back industry and prosperity to the US. Forcing China to buy more soybeans or the EU to import more LNG are hardly sufficient.
Sure, he could replace one of the other presidents on Mt Rushmore OR he could commandeer the Crazy Horse Memorial and have it turned into one of his masculine fantasies of himself with oversized muscles astride a bull.
Fever dreams.
Tariffs will help congress get to budget neutral on their mega-bill so that they can squeeze it through the Senate under reconciliation. It makes sense for Trump to leave that to them while using the interim time to drive hard bargains where he can.
As for inflation, Trump will never take the blame for any that pops up. He’ll blame the Fed, China, immigrants, whatever, but he will never take responsibility, and his supporters will believe him.
As you suggest (from YahooFinance today):
“Trump’s ongoing tariff rhetoric comes after a weekend where, as part of his endorsement of “one powerful Bill” to implement his early economic agenda, he again promised that tariffs would be deep enough to pay for his expensive tax cut plans.
He wrote that the trillions of dollars in shortfall “WILL ALL BE MADE UP WITH TARIFFS.””
Hey! It finally hit me. Tariffs to fund income tax cuts are a backdoor way to fulfill a n old conservative dream = tax consumption to lift reduce or eliminate taxes on investors and savers. A very Calvinist approach to economic policy. And so much more palatable than a national sales tax or, God forbid, a VAT (too European for Americans).
What a nice gift to Trump’s base of lower income voters!
I should not try to type on a phone!
The national sales tax advocates wanted to use it so that a flat tax of 15% with few deductions could be funded. That brought protests from those who pointed out that it would be regressive, mainly impacting the lower 50% of us who would receive little benefit in return. There’s the “genius” of suggesting tariffs to fund the income tax reduction rather than a sales tax or VAT. “We’re making foreigners pay for it!”
Yet, I doubt that Trump has that side of it in mind. Rather, it smells like something Musk, Vance and Theil thought up to use their figurehead leader’s love of tariffs to sneak this through. It reminds me of a GOP debate last century when Malcom Forbes suggested large tax cuts. Pat Buchanan replied, “That sounds like something the boys down at the yacht basin cooked up.”
The boys down at the yacht basin, indeed!
STEVE Forbes!
Re: “Every child knows you start by demanding ice cream for breakfast and lunch and dinner under threat of all-day tantrums, and then you go from there.”
My non-ambulatory 92 year-old father moved into an assisted living two years ago. His meals are brought to him in his room. Within two weeks he had the staff trained to bring him ice cream with every meal. Our family tried to hold the line at 2 scoops every meal, but half the time I’m there at mealtime they bring him 3 or 4. I think negotiating this second childhood triumph brings him more joy than his other successes in life did!
H-Man, he will not believe that tariffs are inflationary and will use tariffs as a weapon or at least the threat of a weapon. The sycophants that surround him are going to question their sanity for providing the king with fealty.
He discovered that tariffs are an area of unfettered presidential power. That is the reason he uses and overuses this tool. I think it used to be president’s were forced to not use tariffs as a weapon as they have such a poor track record. However this guy only considered the impact of when the tariff lands, not the future it wroughts. Therefore expect him to use and overuse tariffs for it is a stick he can use on anyone he wishes.