Donald Trump’s latest and “greatest” tariff escalations roiled global markets on Monday.
From Taipei to Berlin to New York and back again, from equities to FX, it was all about “Tariff Man” who, unsatisfied with what Chrystia Freeland derided as “utter madness,” “an act of economic warfare” and, most importantly, a “betrayal of America’s closest friend,” threatened America’s second-closest friend too.
Tariffs on the EU will “definitely happen,” Trump told reporters, and “very soon.” His rationale: “They don’t take our cars [and] they don’t take our farm products.” (I’ve always enjoyed “our farm products,” but let’s be honest: “Our cars” suck.)
The Stoxx 600 Autos and Parts gauge “took” it on the chin Monday, diving nearly 4%, for the worst day since September.
Trump carried on. And on and on. Europe, he complained “take[s] almost nothing, and we take everything,” expounding what he doesn’t realize is a hopelessly juvenile conception of trade.
Let me harp on that for a moment. You could argue, quite plausibly, that China’s forcing its exports on the world, where that means deliberately overproducing at home and offloading that overcapacity on the rest of humanity — whether we want it or not. But generally speaking, “take” isn’t the right word for US imports. No one’s forcing us to “take” Europe’s products. We don’t “take” them begrudgingly because we have to, we buy them, willingly, because we want to.
The TAIEX had a rough session too. Taiwan’s economic affairs ministry said Taipei’s trying to “organize delegations to attend SelectUSA events.” If you’re unfamiliar, SelectUSA is a Commerce Department program that aims to streamline the FDI process by, among other things, helping foreign companies “connect to the right people at the local level, navigate the federal regulatory system and find solutions to issues related to the federal government.”
As Bloomberg noted, Foxconn and other Taiwanese Nvidia partners are building or already operating plants in Mexico. Hon Hai Precision plunged nearly 10% at the lows, for its worst session since August 5 (i.e., since Nikkei black swan day).
Taipei said it’s determined to help Taiwanese companies “add investments in the US to create a win-win business model for both US and Taiwanese supply chains.” The TAIEX shed around 3.5% for the session.
Deutsche Bank’s Jim Reid described the tariffs as “a severe shock” for traders who, before now, “refused to take [the] threat seriously, completely underpricing the risks.”
Rabobank’s Philip Marey relished an “I told you so” moment. “[P]eople kept telling me — after first explaining that Biden could still win the election and subsequently that Harris would actually win — that I should not take Trump literally,” he wrote. “Perhaps the pundits who have been thinking that we could take Trump’s tariff threats with a grain of salt should actually start listening to what Trump says, instead of clinging to self-delusional interpretations.”
Trump was scheduled to take calls with Canada and Mexico. “I don’t expect anything very dramatic,” he said. “They owe us a lot of money. And I’m sure they’re going to pay.”
The levels of stupidity involved from Trump down to every single person that voted for him are unfathomable. Even if he yanks the tariffs immediately, damage is being done. Decisions will be made by other governments going forward knowing full well that America can’t be trusted. Much like the damage that Trump is doing to our government institutions and media, these cause long-term problems that are unpredictable and take years to see and understand their full effects.
However, I’m ok with less consumption and the economic pain tied to tariffs. What terrifies me though is Musk doing who knows what with all of our government data. This is one instance where I am rooting for Steve Bannon to have some sway because Elon Musk with unchecked to our information and payment systems that hundreds of millions of people rely on is a very scary thought. We’ll never know how many lives might be at risk either through negligence, incompetence, or malice, but I guarantee Musk’s actions will ultimately result in preventable deaths.
At least we’ll be able to stop a dozen transgender women from competing in women’s sports though right? /s
Also, what would it take to break the market’s Pavlovian buy-the-f*****-dip response?
I am outraged also. However I quickly escape that frame of mind with the though that now is not the time to be outraged. Now is the time to sus out what threatens the future these people pine for.
I think the example comes from someone they have attacked online and suggested should be deported. The bishop who in a sermon called for our government to have mercy.
To me the most destructive thing we can do is to sell to people a two pronged attack. 1. our goverment should be merciful (consistent with Buddha, Confucius, Jesus Christ, Zoroaster and others) 2. We are on the dawn of great things in our economy: AI, 1/3 cheaper automobile fuel (based on my EV), most new power in USA is solar , electricity costs are expected to go down (Credit Suisse report) and we can make everything in the Gulf coast petrochemical industry (largest concentration in the world) using solar power.
The Roman’s had slaves both inside and outside their country. They built their empire on the backs of others. I am not condoning it but that’s the way it was. IMHO the USA has developed a similar system. It has built its empire on the backs of cheap foreign labor. But now our fearless leader has said “No more! We do not want your cheap goods we want to pay more and ultimately build our own. If China want to sell us cheap goods fine, we should be focusing on more elevated tasks like architecture, engineering, science.
We are witnessing Trump trying to make the country in his own image. If uncontained we can guess how that will turn out based on the 6 or 7 times he went bankrupt. Trump has many weaknesses but his biggest may be the inability to self correct. Last time he was president he had some around him who were able to moderate him. With his new cast of sycophants it could be a lot worse this time.
And with Jr and Musk pulling the strings of power we can be assured it will most definitely not be something that benefits the average or below average man.
I’m guessing Trump won’t do any deal with Canada until Trudeau, who he dislikes, is gone and replaced by the Conservative leader Poilievre, a man more to his liking. Since Sheinbaum is not going anywhere, he’s more likely to haggle with her. If so, this continues into the expected launch of tariffs on the EU.
I think EU trade policy is not up to individual countries, but the European Commission, who have some big juicy American exports to target, those being social media and technology, and after Brexit the EC knows about waging trade wars. TSLA and X have some exposure to Europe, n’est-ce pas?
The overriding question, however, is whether Trump actually has specific things that he wants from each country/region, or if he simply wants money – to return the US to the era of President McKinley and his Tariff Act of 1890 (50% import tariffs) when there was no federal income tax to trouble the rich (or the poor, but mostly the rich). I’ve heard Trump admires McKinley, maybe almost as much as Hitler. His insistence on renaming Denali as Mt McKinley isn’t just anti-indigenous-people-ism.
We’ve discussed this before, but watch the budget talks. If the budget includes a huge permanent increase in tariffs as an offset to a decrease in income tax, then we know the goal is to replace income tax with tariffs – which Trump has spoken of, right? I lose track of it all – and then nothing other countries do will be good enough to roll back the tariffs. Maybe they can get 25% down to 18%, but McKinley wouldn’t accept 5%. Our tour through history will have reached Smoot-Hawley, and we know what happened next.
Then we’ll see serious action by the bond market (which currently can’t decide if this is inflationary, deflationary, or transitory) joined by the equity market (which currently thinks this is all a brief negotiation), and the markets are probably the largest force that could possibly change Trump’s mind.
We should be in late 2025 by then, about when attention is really turning to the midterms. If the above plays out, then the Republicans are headed for a drubbing. Unless Musk can do his tech thing.
That’s not even my two cents. More like 1/32th of a cent.
And we know what happened to McKinley.
Replacing income tax with tariffs would be like saying “let’s double the sales tax on everything to fund the government”. In effect it would apply doubly as the tariff hit on prices would also increase the return on sales tax. I don’t see how that would be an improvement for anyone who isn’t already incredibly wealthy. It’s just a shell game, but I guess if you believe in fake election lies and peddle in conspiracy theories; it would be enough to convince you that you’re somehow paying less in taxes.
Correct. It really does look like a backdoor effort to create a consumption (sales) tax to replace taxes on income and investments. Good, old fashioned Calvinist philosophy of punishing consumers and rewarding thrifty savers.
It is an idea which was pushed ten years ago (or maybe more) but failed to gain traction for the reasons you mentioned.