The Trump administration is making some major waves. We saw the markets sell off due to Trump out there promoting how tariffs were going into place for Mexico, Canada, and China. It was like a tidal wave for the media, with opinions flying from every perspective.
As the day progressed, it seemed things waned.
A 30 days grace period was given to Mexico after Trump spoke with the president of that country, with her agreesing to 10,000 troops being deployed to the border.
Later in the day, Trudeau of Canada talked to Trump and the same agreement took place although Trudeau's commitment might be different.
The third player, China, is basically on holiday so we will see how those markets react when reopening.
With the initial thrust out of the way, what is really the deal with tariffs?
This is what we will dive into.
What Is Really Going On With Trump Tariffs?
Trump admires President William McKinley, the original tariff president. Unfortunately, his love affair is misplaced.
While McKinley was able to leverage great success via tariffs, Trump's foray will not end well if they are followed through. To start, we are dealing with a much different economy, something that Trump has repeatedly overlooked since he burst onto the political scene in 2016.
I get his promise to protect American labor. It is a fool's errand through. During McKinley's time, the United States was the China for Europe. It was the exporter. Hence, protecthing jobs was crucial. Today, it is the opposite.
Also, the economy was less interconnected. This was pre-globalization. While many consider this due to corporations simply outsourcing, it actually was major tecnological advancements that fed into this.
Consider what took place over the last 120 years in communications, transportation, markets, automation, and finance. Each of these industries are global with players from all over the world engaging.
Trump Tariffs
The read on these are, from what I can see, backwards.
To start, let me state that the effective use of these are as a negotiating ploy. As we saw with Mexico and Canada, Trump was able to extract what he needed along with opening the door to further negotiations.
Secondly, there could be areas where targeted tariffs are effective. This is more on an industry as opposed to country basis. If, for example, the battle with the Chinese comes down to automotive, that might be something to keep the levies.
We will have to see how Trump approaches it.
Now for the read: the Turmp tariffs will not end up being inflationary. Instead, they will be massively deflaitonary.
Trump is threatening economies that are already suffering. His next target the EU. I have covered how that is already likely in recession. The same is true for China. If Trump is adding to the burden with the tariffs, it will further suppress thouse countries.
Again, this could end up being a ploy to leverage negotiations. However, if they are placed, it will zap an alreeady weak economy.
This is deflationary. It will also backfire as those economies will buy less goods from the United States, not more. The likely tariff retaliation of a suffering economy will provide protection for the domestic companies, further reducing the push for American products abroad.
Sadly, Trump is listening to the people who were schooled by the old, broken economic playbook that is taught at most universities.
The Golden Age
Trump supporters talk about "the golden age" that is coming. After the disasterous Biden Administration, we can see how there is optimism.
However, they need to cool their jets. There will be a lot of headwinds, especially in the second half of his term. Economic uncertainty is growing globally, regardless of the politics. The EU is only going to get weaker. China is in need of remaking its economy, something that will take at least 5 years to equate to impact.
At the same time, technology is going to disrupt a lot of industries, causing economy mayhem along the way. Ultimately, I think this will be a major net positive for humanity but it is not without a great deal of pain.
Some insight is garnered by looking at Big Tech. These companies are on fire and yet they are laying off workers by the thousands. Why? They will not come out and admit it but my guess is automation is starting to have an impact.
What happens when this spreads?
The conversation always comes back to economic productivity. In an interconnected world, crushing economis does not boost one's domestic production. This has an impact on things such as the currency, debt, and ability to borrow.
Trump's major problem is the people he is trying to most protect, labor, is screwed regardless of what he does. Technology is causing a transition, something that McKinley didn't have to deal with.
Posted Using INLEO
