Yves here. Rajiv Sethi unpacks the bogus branding of and justifications for Trump’s tariffs. Don’t get me started on Liberation Losers’ Day.
Sethi mentions the omission of trade in services from the Trump computation. That not only shelters tech players like Google but also financial services firms.
I wish Sethi has not used the stock market reaction as a gauge of what a disastrous program this is (particularly since Wolf Richter points out that stocks are still up on a year to year basis); “flight to safety” asset moves, estimates of economic impact, and anecdata would have been preferable.
By Rajiv Sethi, professor of economics at Barnard College. Originally published at his website
If you thought reciprocal tariffs meant the imposition of import duties on others that match those they currently impose on us, you’re probably not alone. But the policies announced yesterday are based on something quite different.
In a nutshell, the tariff proposed for each country is based on our bilateral trade in goods as follows:
Here the numerator is our bilateral trade deficit in goods with the country, which is typically positive—with few exceptions, we buy more goods from our trading partners than we sell to them. If the calculation above results in a negative number (or any positive number below ten percent) a flat rate of ten percent is applied.
For example, our trade deficit in goods with China last year was $295bn, with goods imports at $439bn, resulting in an increase in tariff rate (after rounding) of 34% under the new policy.
Omitted from this calculation is trade in services with China, where we had a surplus of about $27bn in 2023. I’ll have more to say about services below.
The simple formula above is implied by a more complicated equation that has been posted by the White House:
Here the subscript i refers to the country, Δt is the proposed change in our bilateral tariff rate, x and m denote bilateral exports and imports respectively, φ is the pass through from tariffs to prices (a measure of the inflationary effect of tariffs), and ε is the price elasticity of imports (a measure of the sensitivity of demand to prices). The administration economists impute 0.25 and negative 4 for these two parameters respectively, which results in the expression in parentheses in the much simpler formula at the top of this post. This seems to have been multiplied by one half to get the final tariff rate increases, presumably as a gesture of magnanimity.1 The stated goal is to achieve balance in our trade deficit in goods, not just in the aggregate but with each individual trading partner.
There are lots of problems with this approach to trade policy. I’ll mention just a few.
First, consider the omission of services. Imagine a country with which we have trade balance overall, but a goods deficit and an offsetting services surplus. In this case the country will be hit with a tariff, and the size of this tariff will be increasing in the volume of total trade. That is, if our goods imports and service exports rise in tandem, while maintaining overall trade balance, the rate imposed will increase. It is hard to imagine that a country would fail to retaliate against this.
Second, consider multilateral trade flows. Suppose we have a deficit with country Aand a surplus with B such that our trade with the two countries combined is balanced. Under the proposed formula both countries will be hit with tariffs. If the total volume of trade rises while maintaining overall balance and the same pattern of transactions, the former country will face a higher rate, while the latter will continue to face the ten percent lower bound.
Third, it makes no sense to apply the same elasticity and pass through parameters to all trading partners. We import automobiles and dental equipment from Germany and cut flowers and coffee from Colombia. The substitutes available for these goods differ, as do the conditions under which they are produced. An industry with low profit margins, for example, will have higher pass through of tariffs to prices. And a product with many substitutes available will have a higher price elasticity of demand.
Fourth, and most importantly in my opinion, such ham-handed policies will have enduring effects on geopolitical alliances. We have already seen signs of increasing coordination between three Asian powers that have historically kept each other at arm’s length. Canada is trying to extricate itself from its extreme dependence on our economy. The sense of betrayal in Germany is palpable. And so on.
The justification given by the White House for this policy initiative is the following:
Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; inhibited our ability to scale advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.
These are legitimate concerns. But shielding our industries from import competition will be counterproductive. There is a case to be made for a manufacturing revival, and a carefully crafted industrial policy.2 And there are sectors in which we already enjoy global dominance, including the entertainment industries and higher education. The former will be hurt by the tariffs, while the latter is being decimated as we speak. These effects will worsen our trade balance.
The economic problems we face are serious, but this is not a serious way to address them.
Market reaction to the reciprocal tariffs.
______
1 It’s hard to escape the conclusion that the parameter values were chosen by working backwards from the desired endpoint. An earlier version of this post missed the fact that the tariffs had been halved relative to the posted formula, and I’m grateful to an alert reader for pointing this out.
2 Some very prominent economists would disagree with this claim. Larry Summers, for instance, has argued that “it is wrong to suppose that manufacturing-based economic nationalism is a route to higher incomes or better standards of living for the middle class.”
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I’m a naive clown, because I had believed Trump when he ran his mouth about reciprocal tariffs, and was genuinely surprised when his policy was so much different than what he had described repeatedly: “Tariffing them what they are tariffing us”.
There’s a genius to the deliberate lying though. Reciprocal tariffs are a rhetorically and ideologically easy to defend action: “what is wrong with putting up trade barriers equal to what others erect against us?”
I’m sure we’ll be hearing about the misnamed ‘reciprocal tariffs’ for years, and that the median MAGA man/woman will have no idea that the tariffs imposed aren’t actually equal to half the tariffs received.
Whether or not you like Mr. Trump you have to hand it to him, he is an EXCELLENT gaslighter.
(not defending Trump). IMO, this version of “reciprocal tariffs” is from the West Wing. I can’t believe Trump and a mid-level staffer and Lutnick were debating elasticity values in the Oval Office.
Trump said, I want tit-for-tat tariffs; and he washed his hands of it. His team/staffers gave him big numbers, and he liked it.
Trump has no 4-D plan beyond: step 1. “I got my tariffs”; step 2. something; step 3. America is great again.
The Trump sons really needs to save Trump Sr. from Trump Sr.’s worst ADHD-esque impulses, but won’t and can’t.
(and again not defending Trump)….
how i know mid-level staffers had their grubby lobbyist-infused hands all over this rollout, look at list of exclusions.
beyond reasonable things like metals, children’s books and globes are excluded. Someone on K Street or in the West Wing loves LARPing as a Victorian-era technocrat
https://www.whitehouse.gov/wp-content/uploads/2025/04/Annex-II.pdf
newspaper and newsprint are excluded too
Was this just published yesterday regarding Trump’s tariffs? Or is it an already published list?
Can you link to the book that Trump held up saying that it explains the details? I can’t find the publication to which this is an Annex.
Michael
(1) the full-text of the executive order: https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/
(2) Annex II is referenced as an attachment for the exclusions referenced in (1) and prepared specially for the tariffs executive order.
(clearly???) Annex I and II were not prepared by a white shoe attorney, as I can’t remember the last time an attorney referenced an exhibit/addendum as an “annex”
Thank you. That’s what I needed.
The worse thing about that list is that it reveals the basic incompetency of the Trump government – including his staff. On it is Heard Island and McDonald Islands. Where are they?
‘Heard Island and McDonald Islands, which form an external territory of Australia, are among the remotest places on Earth, accessible only via a two-week boat voyage from Perth on Australia’s west coast. They are completely uninhabited, with the last visit from people believed to be nearly 10 years ago.’
https://www.theguardian.com/us-news/2025/apr/03/donald-trump-tariffs-antarctica-uninhabited-heard-mcdonald-islands
I understand the penguins living there are very worried about their economy. You know, you could have told a junior White House staffer to go through that list and look at unfamiliar names so forget ones like Germany, Ireland, the UK, etc. The names left look up on Wikipedia to find out what they were. But apparently that was too big an effort. Sheer lazy incompetence.
Had an idea though. These tariffs are all about good so that manufacturing can come back to America, right? So all those tarrifed countries could put a tax on services which Yves mentioned in return which would not have an effect on Trump’s idea of re-industrialization. He can’t argue with that, especially if they do not tariff goods from America. Yes, I realize that this will hit mobs like Microsoft, Google, Facebook, etc. but I am sure that Trump will agree that we all have to make sacrifices.
This is an administration that includes Elon Musk and acolytes of Peter Thiel. Not for nothing, but low level “junior staffers” could easily be being replaced with AI. Even that isn’t entirely the case, too many probably believe in its wonders and use it.
Come to think of it, I did hear a story how that original country list was generated by an AI. If so, it would explain the inclusion of Heard Island and McDonald Islands on that list. Still makes them look lazy and incompetent.
When you look at the list though ‘AI eyes’ it does make a lot of sense!
AI trained on ‘classical’ Larry Summers / Arthur Laffer economics? How would we tell the difference from the last thirty years?
Alas, social policy of late has been predicated on the idea that “equality” is bad for Capitalists.
We see here the logical culmination of Thatcher’s ethos of “There is no such thing as society.”
The breakdown of the idea of “Community” is shadowed by the rise of the “Rugged Individualist.” The proponents of that theory forget that it will produce both Elon Musks and Luigi Mangiones. Under that theory, both examples are legitimate.
Thanks. The puzzler here is who might actually be in favor of the just announced policy. Clearly it’s not Wall Street or big business since they are the ones who sent manufacturing overseas in the first place and they did so to disempower labor and not just to seek lower costs.
And the working class will be saddled with inflation while supposedly waiting for those factory jobs to trickle back. Plus the increasing tech era automation of low skill jobs (Bezos would gladly replace all his workers with robots and that is his future goal) then our workers will have to compete with the already skilled workforce overseas. By most accounts the TSMC venture in AZ is having big labor problems.
Seemingly the only real beneficiary will be the idle plutocrats whose taxes are to be replaced with tariffs. Trump has announced this as his dream along, of course, with Jared’s Riviera paved with dead Palestinians.
The conclusion has to be that Trump the golfer is the embodiment of our late stage no accountability era along with his Dem opponents who put him in office via their own off the wall ideas. It’s time for the public to rise up and they may just do so. Nobody voted for this.
Yes, there are supply chain, labor and regulatory problems. Apparently there aren’t/weren’t enough US workers that are skilled enough to work on production so at least 1,000 Taiwanese workers were brought to the US and their work hours are longer than US standards, both of which upset the Americans. There are chemicals that have to be imported and trucked over from LA. And the permitting process is more complex than in Taiwan, which I find hard to believe since PHX tends to bends over backwards for these kinds of projects.
https://techstory.in/tsmcs-arizona-chip-plant-faces-backlash-over-workforce-and-delays/
I have worked with Taiwanese manufacturers and there is a different standard from the US. They were very hard working, accommodating and technically very competent at integrating the specific product needs we had.
I’m wondering if they actually used AI to generate this list because they genuinely didn’t care as long as it was disruptive enough.
Trump posted/retweeted this video on his Truth Social: https://truthsocial.com/@realDonaldTrump/posts/114279679572830449
It’s saying he’s intentionally crashing the market so that rates are cut hard in May and debt can be refinanced at low rates. Maybe this is literally the plan and we should take it at face value?
Or maybe I’m giving them too much credit to be somewhat competent.
But surely the big brained absolutely no-DEI, mega anti-woke super alpha meritocracy of this administration can’t be wrong about this /s
well the gay (I didn’t ask/don’t care, but got told anyway), ex-Democratic Bessent was supposed to be one of the adults in the room.
guess that didn’t play out. womp, womp.
Perhaps if the Dems had delivered material benefits instead of their “let them eat woke,” Trump would be a non-issue. Maybe Corey can do another windbag-o-thon follwed by another dozen fund raising emails while voting to send more military hardware to Israel.
Lest we forget, the Dems were also delivering “let him [Hunter] sniff coke” and claiming he had been doing serious work for Burisma and was now painting art worth six figures … all the while telling us his dad, The Big Guy, was “sharp as a tack” … and that all the empty-shell corporations featuring Biden family members supposedly repaying big undocumented loans to each other were legit.
[Wiped out by Yves for multiple violations of site policies, aka being a self-important jerk, plus blacklisted]
Well voting for Biden four years ago wasn’t the genius course correction promised and also advanced authoritarianism. Unfortunately America has bought the bull that voting third party or writing in a candidate is a vote for lest approved authoritarian on the ballot or rather the tool of the oligarchic authoritarians. And while rejecting the current two parties might not work either, throw out the current bums in office is the only protest most people have.
These are very likely typos on customs entries (how the data is collected) . For example the 2 letter country code for Heard & Mcdonald islands is HM. I think at a guess is that the H was correct but very near the M on the keyboard is K and N so HK Hong Kong and HN is Honduras (similar with Norfolk Island being NF could very well be NG Nigeria) countries that export a lot to the US.
With millions of entries the odd typo is very likely and would only show up if there were revenue implications.
Does suggest that things were rushed and someone should have said hold on a minute is that right.
I saw a suggestion that the tariffs were delineated by domain names, as another piece of evidence that it was AI generated, which would explain the bizarre inclusions.
.HM domain is Heard and McDonald Islands, and .NF is Norfolk Island
This is not correct and is just PMC mud-throwing at Trump. The tariffs have been computed from trade data which will have been collected at least in part according to UN/WTO requirements and will use UN / ISO country/territory codes (as do the internet TLD’s).
Andy Blatch above is correct, fat finger errors in data entry (either the wrong code through a typo or the wrong code through entry of right info into the wrong field) have generated fictitious trade volumes for some micro territories and these have resulted in tariffs.
TLDR: It is not artificial intelligence but human stupidity, in customs data entry and in not sanity checking the tariff formula results.
I love the way that delusional Trump believes that tariffs by themselves will revert present-day United States to William McKinley-era USA of late 1800s to early 1900s.
I love the way he thinks that imposing 50% and 40% tariffs on the respective tiny African statelets of Lesotho and Mauritius will revive America’s prosperity.
What’s more, he is imposing arbitrary 10% baseline tariffs on Kenya, Ghana, Ethiopia, Tanzania, Uganda, Senegal and Liberia despite the fact USA has ZERO trade deficits with any of them.
Lesotho and Mauritius have significant garment exports to the US….protecting US garment jobs is 35 years too late.
the current system has this bizarro-world triangle of Africa-Asia sending new clothes to the USA/EU (using Chinese or Saudi polyester), then the USA “exports” used clothing (see Goodwill Industries) to the wholesale markets for many African countries.
What? How can you not trust the man himself Donald J Trump, memecoin master, seller of sneakers and totally not homo-erotic nft’s alike, Bible salesman, defender of sex pests, destroyer of women’s rights, lover of kitsch 80’s music, idol of wannabe only-fan pimps and socially responsible tech bros alike. His resume practically oozes with deal maker competence right. /s
Wolf Richter apparently got so much push back on his article on tarrifs, he closed comments and retained just one, his own, stating this:
Wolf Richter
Apr 3, 2025 at 4:58 pm
The onslaught from all over the world of manipulative anti-tariff BS that is trying to “flood the zone” created BS-overload and blew the fuse.
Wolf repeatedly states tarrifs are a tax on corporate profits and reduce ridiculously over inflated stock prices and have already started in 2018 to increase corporate spending on US factories (from Trump’s 2018 tarrifs). He also claims it taxes firms like Big Pharma that incorporate in Ireland to evade taxes. Insofar that this is true, count me as a newly converted supporter of these tarrifs or at least the approach if not all the particular applications.
There is a nuanced argument to be had about tariffs – I’d recommend Pettis and Kleins book ‘Trade Wars are Class Wars’ for an argument that mainstream economics fundamentally misunderstands how tariffs and other trade policies work. Pettis & Klein has argued that the impact of tariffs work pretty much the same as a currency devaluation, with the same general distribution of winners and losers – essentially, a transfer from domestic consumers to domestic manufacturers. But if done properly, tariffs are less of a blunt instrument than a devaluation. If Trumps people agree with this assessment, then the way they’ve calculated the rates makes perfect sense as its clear they want a devaluation, they just don’t want one that drives up borrowing costs (a difficult trick to pull off). It will act to make consumers generally poorer, but will create additional profits for domestic companies. This doesn’t just apply to domestic companies that have foreign competitors, as consumers may change preferences. For example, people may put off buying a new car in favour of home improvements.
I disagree with Richters description of the impact of tariffs though – in reality, its the opposite – domestic shortages of goods will enhance the profitability of many companies. And he is completely wrong about the impact of tariffs on Big Pharma – tariffs on pharmaceuticals make no difference whatever to the tax arrangements of the pharm companies, as their dodge involves transfer pricing of IP, not the physical product. To attack that, Trump would have to make fundamental changes to US tax law.
With all due respect, did you miss that the Trump computations omitted trade in services? So it’s garbage in, garbage out.
that part was wild….even Chile and other countries that have a negative balance of payments deficit w/the USA got hit with the 10% min.
I’m not defending his policies, which are obviously going to be enormously and unnecessarily damaging, just pointing out that a lot of the commentary on tariffs in general is misinformed.
As a student in the early sixties, we discussed selective tariffs which we referred to as import taxes or duties as an essential part of a sensible fiscal policy and they were designed to protect infant industries, employment in declining industries, public health, etc. They were an essential part of any annual budget delivered by the Chancellor and fitted into the general scheme of purchase tax and were the most effective single means of covering government expenditues and controlling economic policy.
We also had currency controls limiting the amount of foreign currency available both to individuals and business. Holidaymakers had tight limits on the currency they could take or send abroad and the pre-Vietnam dollar shortage was managed by using the “dollar premium” to attract inward investment and to hold back the outflow of British capital. The getaround was Warburg’s creation of the Eurobond as a way of using a relatively small amount of dollars to finance a growing volume of international business.
At the time, we had a very capable group of civil servants at the Treasury led by senior staff who had managed the economy during the war and the immediate post-war years and they had a real depth of understanding of the way the real economy worked plus the ability to advise the Chancellor on the appropriate level of interest rates. We also had the Central Statistical Office headed by Claus Moser which provided us with good stats based on sound (and disclosed) methodologies, all of which changed with the Thatcher government’s penchant for ignorance.
God knows how politicians and civil servants – if there are any left after DOGE has completed its valuble work in returning the citadel of capitalism to virgin soil – are capable of managing such an enormous shift towards fiscal policy given that most of them, if not all, actually believe that one or other of the assorted schools of monetarism believe that monetary policy provides the only tools required to manage economic activity. But you’ve got the admit that Big Don loves to experiment with the American economy in the biggliest possible way ever, and finally force the EU to crash and retreat to it’s only valuable role as a Common Market with the more contemplative half of it’s members signing up to BRICS.
Call me when the US abandons reserve currency …
Skippy:Call me when the US abandons reserve currency
[1] In a way it probably just has. You can’t have the global reserve currency unless you run a trade deficit so the rest of the world accumulates enough dollars for them to trade in and invest in the first place
Any intellectual contortions to get around that reality are just cakeism, however refined. Also ….
[2] It’s more when the world abandons the US dollar as reserve currency.
Trump has specifically threatened any country that tries to get out of the US dollar and thinks that the BRICS are going to do so as well.
there’s a difference between “shock therapy” tariffs and “nudge” tariffs.
Let’s ask a 1993 Russian how American-imposed shock therapy worked out.
Americans *love* the machismo “go big or go home” mentality. Trump just did the American-thing and “went ugly early” w/tariffs.
Unironic Pangloss: Let’s ask a 1993 Russian how American-imposed shock therapy worked out.
There won’t be any need to ask. Soon Americans will know for themselves as they get their very own Yeltsin era, with a home-grown oligarch class for added effectiveness and immiseration.
Arguably Americans have already got a head start on this if the “deaths of despair” are any indication. The recent fall in overall life expectancy is also indicative l
No idea about time and place dude … all of economic history is not going to inform you now, opposite.
Tariffs affect pharma IP transfer, to an extent. The importation of the finished product to the USA will be subject to tariffs which will alter the revenue in the country of manufacture (either decreased to preserve pricing or increased to preserve margin) and this will alter licence fees to the IP entity (through royalties as percentages of revenue). However it may increase rather than decrease the diversion if profits to IP entities depending on how Pharma reacts!
The effect on offshoring Pharma production will be more dramatic and it will raise the costs of these arrangements. US companies with manufacturing in Ireland will find the arrangement a lot more expensive if they are losing both tariffs and a share of tax shelter on profits.
‘tariffs work pretty much the same as a currency devaluation’
‘essentially, a transfer from domestic consumers to domestic manufacturers’
According to WSJ and Bloomberg, only the top 10% of households still have disposable income and drive the profit margins. According to Business Insider, ‘The stock market has a $1 trillion secret weapon to fight further declines’ — that is the 2025 planned stock buybacks. Let’s see if any of the planned buybacks are cancelled…
Can we then construe the ‘genius’ plan as an attack of the 0.00001% (a random large # of zeros after the dot) on the 10% income? The corporates are saved from being wiped out by the competition from aboard, corporate profit margins go even higher, the profits are then channeled into the stock buybacks — boom! — the upperest of the upper have more cash on hand. The luxury goods can then be exempt from the tariffs. Plus, has anyone noticed this: ‘President Trump pledged to eliminate the double taxation burden on Americans living overseas’? Why that all of a sudden? Expats have complained for years to no avail. Barron’s reports Feb 5, 2025 ‘The Rich Are Moving Assets Abroad’. Tariffs are not really a devaluation. So, what is the end game? — administer and manage the country from abroad, while living in better conditions…?
I am a novice, my wild speculations are not restrained by any formal education… so please disregard this, if this is a total nonsense….
” tarrifs are a tax on corporate profits” well that may be true to an extent but, the profits are/will be determined by how much of those tarrifs/taxes are passed on to the consumer…as all businesses who intend to stay in business will pass these costs on.
If services are not ‘tarrifed’…. then financial services will have a much better ability to further make money through speculation and consumer borrowing because all those tarrifs being passed onto them.
Tarrifs are a direct tax on consumers and, since speculation in the basics of living has become a thing – Housing, food, health – then a further financialization (services) of these areas is sure to happen
End result – governments job has traditionaly been to lower the cost of living and working, whereas now, government now is doing the opposite …increasing the cost of living and working— why? it has been captured by the masters of disasters, the Kings of Kapital.
As Bill Black said – the best way to rob a bank is to own it – ….well, to update that quote … The best way to rob the people/government is to own it.
On top of that… their is no progressive movement or proposals to those who have self-proclaimed to save democracy..It is not the wickedness of predatory wealth, but the weakness of progressive economics which keeps special privilege in the saddle in the United States.
It leads me to believe that the evolutionary process by which monkeys made men of themselves was considerably slower than is the reverse process.
Given that half the US cannot make a $400 emergency medical bill, most Americans are not choosing between home improvements and a new car they are choosing between food and rent. Since the US no longer has a complete supply chain for anything outside maybe (!) food, food will lose. Just go in a Walmart and see all the non-china (directly or indirectly) options for typical needs – they do not exist.
If you are discussing corporate purchases, they will try and pass the cost on, but if the economy tanks they will cut purchasing (and staff).
My main beef with the tariff discussion is it ignores that no manager is going to invest billions to rebuild US manufacturing given Mr. Trump’s volatility. The solution is industrial policy – Aint holding my breath!
Less, tariffs are a corporate tax and are deflationary. they will deflate stock prices.
that is why the media is all up in arms about them as opposed to the firing of the government employees, which is where the real danger lies when the laid off people start defaulting in loans.
Although Wolf can generally be trusted when it comes to his overall take on the US economy, his views on the tariffs are too simplistic IMHO. In a different article, he argued in the comments section that if tariffs could help China build a big economy then the US should be able to do the same. Zero mention whatsoever about industrial strategy. One thing that I’ve noticed through the years is that he loves to belittle China’s achievements and yet would put up China as a good example when the situation calls for it. Oh well, everyone has a blind spot.
The problem I have with current discourse about the tariffs is that when you run trade deficit, it means others are sending you goods in exchange for you printing money. So the idea that US is somehow ripped-off by the rest of the the world is just exact inversion of reality. That the moving of manufacturing to China resulted in decimation of US workers is internal US problem of its own making, or rather of its elites making.
And for that reason I’m highly skeptical just levying tariffs will do anything in that regard, because what US needs to fix is how its riches are distributed, just cutting off goods the world is sending to US will not make things better for average Joe (it will obviously do the opposite). And while the theory is that the oligarchs will suddenly start erecting factories in US so they can pay proper wages… Well, why would they do that on their own? They have enough resources to wait it out. China and Russia have their economies heavily state directed, so they make them do it. I can’t see anything like that happening in US, let alone with Trump/Elon in charge.
Thank you — this is correct. The irony is that the supposed “custodians” of the empire of lies (the ur-lie being all the propaganda that it is NOT an empire) don’t realize that the trade deficit in real goods is the neocolonial equivalent of “tribute.”
And yes, the internally disordered and divided society is a result of domestic policies (a wholly bipartisan project of decades in the making) which have concentrated rather than distributed the spoils.
As they have sown, so shall they reap …
Even if waving the tariff wand magically transforms the US into a resurgent manufacturing powerhouse, the lofty rhetoric about the jobs that will be created in the slipstream is just Trump throwing meat to the MAGA base. Pigs will fly over the Whitehouse before the techbros allow the assembly lines along a resurgent rustbelt to be staffed by pesky humans, they’re funneling eye-watering sums of venture capital into robotics and so-called “embodied AI” to deliver the best in low cost, high throughput manufacturing. The robots will be making stuff, and the logistics of getting the stuff into the hands of consumers will be, from the first mile to the last mile, handled by autonomous fleets of driverless vehicles and drones with no humans in the loop. This is the bright future of US manufacturing the upper crust of the upper echelon of the MAGA base (aka techbros) is actively colluding to lock ordinary Americans out of, even as they trot out the “bringing jobs back to America” soundbite.
Thanks again for this post and the commentary. I went and found the Wolf Richter piece and it confirmed my views. Basically they are trying to re-write the entire ‘software’ that determines how our economy functions and the outcomes it is designed to produce. But, the way they are doing it is tantamount to changing a flat tire while the car is speeding along at 100mph. The chance, probability, of crashing is really high.
I also take away from much of this that even if this is extremely ham-handed that this is the late stage death throes of Neo-liberal economics — i.e., view everything through the prism of Wall Street’s health, not main street’s. The reality remains that most of the country is hurting. When I see headlines that one-third of Americas have stopped buying eggs due to their cost, 401ks are just not relevant.
Finally, for the comment, is too many fund managers I spoke to last night (I had a multi decade career on Wall Street) are waiting for the Fed to come to the rescue. My take is the Fed is caught between a rock and hard place with almost no room to maneuver. This is really complex. They need rates to stay relatively high to maintain foreign investment in the USD denominated financial assets. Many of the current moves are inflationary, for at least a period of time, and it’s unclear that cutting rates will stimulate economic growth. I saw that nearly 20% of US equities are foreign owned. If these investors see FX adjusted returns as being uncompetitive and start pulling their money the market is going to go through a very tough period.
The thing is, they are the drivers sitting inside with their seat belts on, we are the ones changing the tire.
https://m.youtube.com/watch?v=B_1bAnLqlMo
Absolutely, I’ve seen this view elsewhere as well; that foreign money is going home. The theme for 2025. Foreign ownership, particularly in MAG7, has been huge.
So valuations likely reset at a lower level, whatever that might be.
The Chinese just responded big time. Someone needs to put the squeeze on pharma exports to the US. When people start dropping like flies from the lack of medicine, Trump will drop the tariffs, declare victory and move on.
I see what you mean-
‘China will impose a 34% tariff on all imports from the US starting April 10, the country’s Finance Ministry announced on Friday. The decision follows US President Donald Trump’s announcement of a 34% levy on Chinese goods in the latest escalation of a tariff war.’
https://www.rt.com/news/615233-china-us-import-tariffs/
Trump made up a number to hit the Chinese with using tariffs and now the Chinese are going to use that same number to hit Trump with to make it sound like an equal hit back. In reality, the Chinese just did a number on Trump.
Jokes on the Chinese as they only buy $30 billion worth of American stuff every year. /sarcasm (but also a true fact)
When I owe the bank $1,000 that’s my problem, when I owe the bank $3 trillion, that’s their problem. Mutual assured destruction, for the win!
Actually the number exceeded 140 billion for 2024.
And is already over 20 billion for 2025, with only January and February data.
Yves, click the manufacturing revival link, it will bring back a memory (Andy Grove on industrial policy)
By “services” are they referring to banking, consulting, cloud computing etc.? Surely these countries are looking at that? How would one go about putting tariffs on services?
There is evidence the Trump team came up with the tariff list by using ChatGPT. The inclusion of strange islands and separation of regions within a country is because the list is based off TLD domains. The “formula” is also how GPT says tariffs should be calculated. In a just world, AI companies should be held liable for unleashing this malformed tyranny on us.
During the punishing 2012-16 drought here in Cali, I did a lot of research on the subject and came across a state report in regards to the 1976-77 drought which stated how many food bearing trees were in the Central Valley and there was almost nothing in the scheme of things, versus 350 million almond trees presently, the majority of them to soon be uprooted and the land fallowed forever perhaps, a 34% tariff will be the death blow to an industry teetering already.
https://www.kqed.org/news/11993284/many-california-almond-growers-struggling-to-stay-afloat
Some of the stories behind these tariffs are kinda weird. Take Aussie beef. Trump has a beef with Oz because we won’t take US beef. We need beef imports like South Africa needs gold imports but a major reason we won’t accept US beef is because it could be actually Mexican beef or Canadian beef so poses a biosecurity risk. But if we are shipping beef to the US because US herds have been allowed to shrink and Trump wants US/Canadian/Mexican beef to be shipped to Oz, wouldn’t it be better if both countries kept their own beef and you wouldn’t have all that ship bunker fuel be burned for trips back and forth across the Pacific?
https://www.theguardian.com/australia-news/2025/apr/04/bse-tariffs-and-wonderful-people-what-you-need-to-know-about-us-australia-beef-relations
Chicken is another one in the news. Europeans don’t want the bleach-dipped chicken, laden with hormones and processed in sketchy factories. Americans wouldn’t either if they found out more details.
One takeaway: Buy hyper-local if you can.
Interesting perspective from Mark Blyth of Brown University, writing at project-syndicate.org. In short, as disruptive as Trump’s approach will be, both political parties have shared the view, at least since 2016, that free trade needs to end and a trade rebalancing is needed. He also refers to Klein and Pettis who have pointed out the long term cost to unbalanced trade, regardless of the near term benefit of lower prices. Blyth believes the impetus to rebalance trade precedes Trump and will live on past him.
You’re right. It is an interesting perspective. Link for that Mark Blyth article at-
https://www.project-syndicate.org/commentary/trump-tariffs-global-economic-reordering-by-mark-blyth-2025-04
Thanks for the link. Interesting read for sure, but I wish it went further in depth. I’d be interested to hear people like Michael Hudson and Richard Wolff’s thoughts on that.
@ alrhundi
Ask and ye shall receive-
https://www.youtube.com/watch?v=594yN8rxIJo (1:16:41 mins)
Thanks, Yves, for this piece, and for the description of the second-order effects like making trading partners mad (South Korea running to China, for example.)
I have little doubt this is all part of the “move fast/break things” mentality from Musk and others that influenced Trump.
Another second-order effect will be reduced capital gains taxes next year, hitting places like California hard. Big market losses mean unrealized gains got vaporized and turned into tax write-offs.
Then there is the simple math that reduced profit margins for Apple, Nvidia, Google, and other large multinationals invariably lead to layoffs. These companies will likely freeze hiring soon and then the fall will be mass layoff time. Kiss the job market goodbye if you are in tech or tech-adjacent.
I foresee soup lines and five-pound blocks of government cheese in our future. And that’s if the French don’t stop selling us cheese.
All of Latin America was hit with 10% tariffs – with the exception of Nicaragua, whose tariff is 17%.
Interesting to see that mean-spirited hatred of the Nicaraguan revolution still oozes out of the White House, no matter who the occupants are.
Has anyone here looked at Stephen Miran’s memo, A User’s Guide to Restructuring the Global Trading System? This is apparently the Trump economic playbook. https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf
Is this just voodoo economics?
Tariffs and retalitory measures are being felt in ag markets, live cattle limit down, wheat making new lows, soybeans and meal collapsing, corn holding. Cash fertilizer up 20- 25ton today. Corn and soybean crop not even planted yet.
“First of all, remember that throughout history wheat has always been the driver of grain market inflationary price periods.
Corn and soybeans are largely fed to animals so they are not directly involved with feeding humans. They are second derivative human consumption markets whereas wheat and rice are directly related to human consumption globally as a key nutritional intake for families to stay nourished.
Yes pork, beef, chicken and fish are hugely important protein consumption items that many in the world rely upon but in reality the 50% of the population of the world that lives with minimum subsistence income, meat proteins are not affordable.
It is wheat, rice and vegetables the feed half the world and in that context makes wheat one of the most critical and important ag commodities in the world.
That is why throughout history geopolitics and extreme weather volatility have been the tag team players in every single major wheat price inflationary cycle bar none.
So when the wheat price becomes too cheap and uneconomical as it has become recently to produce, the danger signals go off that sets up the next food crisis to come over the horizon.” from Shawn Hackett, commodity and weather analyst.
40 years ago almond growers had got so big that they had run out of customers for the largess and paid good money to cajole us into eating a can a week via TV commercials.
They expanded greatly and now there are more almond trees in Cali than there are citizens in the USA, with most every nut destined for export.
It was an industry teetering on the edge of failure, now the wreck is complete with a 34% tariff levied by China
Blue Diamond Almonds 80s Commercial (1986)
https://www.youtube.com/watch?v=aN76LTtDO04
As Lambert would say, that’s a damn shame. Maybe they can chop down all those almond trees and use the wood to make miniature violins with. Thing to watch out for is what happens to the water that was allocated to all those almond trees. Who gets it now?
During the drought and much lessened chances at state water, it became a race to the bottom with wells being drilled ever deeper-1-time fossil water that can’t be replaced, nourished all those almond trees.
There are so many awful angles to this story, a legacy of waste when you consider the water used-the bee colonies wrecked, and ultimately the almond biz, broken by diktat.
Yes, but for a beautiful moment in time they created a lot of value for shareholders-
https://x.com/Benioff/status/549339156854214656
It’s enough to drive you nuts.
The water goes into cooling AI datacenters tasked with finding ways to bring back the almonds.