Views on Trump's Tarrifs

 

Ian Welsh says the whole thing has been done as stupidly as possible and will only wreck the USA's economy and accelerate its overall decline:

So, Trump’s tariffs are out. He claims they’re half of what each country tariffs the US, but in fact they appear to have been determined by dividing how much the US sells to a country by how much that country sells to the US.

In other words, the more your trade surplus is, proportionally, the higher the tariffs.

This isn’t, on the face of it, necessarily stupid. But… it’s being done very stupidly.

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So this means that there’s going to be a massive economic shock: prices will go up and/or profits will go down and the US government will need to provide massive subsidies to some industries at the same time as Trump’s budget plan massively cuts revenue due to tax cuts for the rich.

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Additional add-ons to all of this include the probability of a lot of free capital flows going away. Countries that want to re-industrialize with domestically controlled supply chains, and many now will, need to keep capital at home and the retaliation against the US is going to be against a capital flow/investment system which has, with a few exceptions like Japan, mostly favored the US.

I can’t even imagine how much US property in other countries is likely to wind up forced to sell to locals, or even nationalized outright.

All of this leads to the fact that this will speed up the loss of dollar privilege, and with the loss of dollar privilege and everyone reluctant to sell to America, well, there’s no way that the US standard of living doesn’t get hit hard.

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Long story short: the US is going to be hit by a huge inflationary shock, a decline in standard of living and, unless other countries are stupid, lose most of its overseas rentier monopoly income. The EU is in for a world of hurt, but has options. China will feel it, but they’ll be fine, they don’t need the US as a market any more.

Dominik A. Leusder at Jacobin says that Trump's tariffs will cause stagflation; they are based on flawed historical political-economic analysis, but that nonetheless, they represent a coherent theory that has been around right-wing economic thinkers for a long time and which therefore needs to be taken seriously:

He began his speech with what amounted to a fever dream of American victimhood. Lamenting the “unilateral economic surrender” of his predecessors in the Oval Office, he decried being “looted, pillaged, and raped by friend and foe alike,” who “got rich at [America’s] expense” by way of “undervalued currencies,” “stealing our intellectual property,” and instituting “unfair rules and technical rules.” These trade barriers, whether tariff-based or not, were to be broken down. This effort would “supercharge the domestic industrial base,” while allowing the United States to pay down its national debt and reduce taxes.

The historical record, of course, begs to differ, though economic history does not seem to be Trump’s forte. At one point during his address, the president opined that the United States was “proportionally the richest” between 1789 and 1913, when trade barriers were in place, and that the Great Depression of the 1930s would have not occurred as it had if the ultraprotectionist 1930 Smoot Hawley Tariff Act had stayed in place longer.

Economic historians generally agree that the disastrous set of tariffs on over 20,000 imported goods worsened the Depression. And according to ad hoc estimates done by Evercore ISI, a prominent advisory firm for investment banks, the weighted average tariff rate of the “Liberation Day” measures were just under 30 percent, compared to the 20 percent of Smoot Hawley. All this in an economy in which imports are 14 percent of GPD, compared to 4.5 percent in 1930.

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If anything, Trump has been consistent in his stance on trade since the 1980s, when Japanese (and to a lesser extent German) surpluses with the United States were the focus of his ire. He has been consistent in his (false) belief that bilateral trade is what determines the US trade balance, and that (as is equally false) bilateral deficits are “subsidies” to surplus countries. His belief that tariffs are a remedy for “unfair” trade is misguided.

But these moves are not the ravings of a power-crazed madman. They have emerged out of an internally coherent and consistent strain of thinking within American policy circles stretching back at least into the 1990s. This should give pause to anyone looking to dismiss Trump’s actions as thoughtless.

A right-wing (or whatever) writer "Simplicius" --- who I read for a more reality-based survey of the NATO-Ukraine/Russia War (since mainstream and many leftwards sources have turned their brains to shit on that topic) --- provides some useful information stating that Trump's tariffs aren't just some stupid shit that he pulled out of his stinking asshole.  They are, rather, based on the theories of some other dude:

It turns out Trump’s entire game plan may have been taken from economic advisor Stephen Miran’s playbook. In November, Miran wrote A User’s Guide to Restructuring the Global Trading System, which according to experts precisely parallels what Trump is now attempting to carry out. One of the core tenets of the document is the deliberate devaluation of the US dollar in order to make US exports favorable again to reignite American manufacturing.

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To summarize the above for the laymen, a country which holds the world’s reserve currency faces a significant dilemma wherein its national trade policy and monetary policy are effectively at odds against each other. In order to keep its currency as reserve status—and reap all the geopolitical benefits this creates—the country must hamstring its own economic output by running a huge trade deficit, which means the country imports far more than it exports, which hurts—or in the case of the US, kills—domestic manufacturing.

Why must a country run a trade deficit to retain its global reserve currency status? Because when your currency is the global reserve currency, the entire world constantly hungers for it in order to use it in all the various countries’ international trade between each other. The only way to keep those countries constantly supplied with dollars is for Americans to buy tons of foreign imports, which effectively sends dollars to those countries, since these purchases are made with dollars. If the countries instead bought a ton of US exports, they would be paying for those exports with dollars, which means all the dollars would be sent back to the US, and global nations would have a severe lack of US dollars. What would happen then? They would have no choice but to trade with their own currencies, which would mean the collapse of the dollar reserve system.

A simpler example: if a French person buys a $50,000 Ford truck and imports it to France, that’s $50,000 USD that leaves France and goes back to the US, lowering France’s dollar holdings. If an American buys a $50,000 French Peugeot to import it to the US, he sends his $50,000 USD to France, which increases its dollar holdings.

As seen, the only way to maintain the dollar’s reserve status is to make sure US dollars are constantly flooding the world, which can only be done by running a massive trade deficit where imports of foreign goods (outflow of USD) far outweigh exports of domestic goods (inflow of USD).

This contextualizes the Miran paper’s focus on the ‘overvaluation of the dollar’, particularly from the aspect of national security. Miran rightly notes that US national security is degraded in the current circumstances, by the erosion of manufacturing potential which leaves the US incapable of producing its defense imperatives. Miran’s thesis further provides for the tariffs being a tool not merely as some quick-and-cheap form of ‘revenue’, as some assume, but for the purpose of favorably rebalancing global currency valuations.

Personally, I think that regardless of whatever logic is behind this, it's all quite reckless and almost guaranteed to cause short-term disaster and pain from which it might be impossible for the USA to extricate itself from.  (Also, I don't know that the USA has needed to run a trade deficit in goods to keep the world satiated with US dollars.  There's been decades for which the USA has had trade deficits, weapons sales, and etc., from which other countries could build up dollar reserves.)

Finally, another right-wing site, "SONAR" hosted by former CIA analyst Larry Johnson, has this post saying that Trump is actually trying to lower the cost of servicing the USA's national debt:

Today, April 4, 2025, yields on U.S. long-term Treasuries experienced a significant decline as a result of the tariffs:

• 10-Year Treasury Yield: Fell below 4%, closing at 3.97%, marking its lowest level since October 2024
• This drop was driven by heightened recession fears following President Donald Trump’s announcement of aggressive tariffs on imports, which led investors to seek safety in government bonds
• .The decline reflects concerns about potential global economic downturns and increased demand for safe-haven assets like U.S. Treasuries.

In other words, the US Government received more money for a bond today than it did yesterday, and the US Government obligation to pay interest has shrunk. I had lunch with a good friend today, who has access to Trump financial officials, and he said this is the real purpose of the tariffs — i.e., restructure the US balance sheet, shrink the deficit and reduce the amount of short-term debt owed by the US Government.

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While the tariff scheme is being attacked — correctly in my view — as a misguided trade policy, I have come to believe that is not Trump’s true objective.

Let me use a crude, oversimplified example, to explain what I thinkTrump is trying to do. Imagine that you are buying a home, and you have a 10-year $500,000 dollar interest only loan at 4.5%. At this rate, your monthly payment is $1,875. Now, what happens if that rate falls to 2.5%? Your new payment would be $1,041.67. You would have gained almost $10,000 dollars in your pocket by the end of the year (assuming you did not spend the savings). In other words, Trump is using tariffs in a bid to refinance the US debt at a lower rate. Remains to be seen if this works.

What happens if you are paying 4.5% interest on 8 trillion dollars in one year? You will pay $360 billion in interest. Let’s drop the rate to 2.5% for one year. You are now paying $200 billion in interest. Hell, with savings like that, Trump can buy a fleet of new aircraft carriers (kidding). That is what Trump is trying to accomplish

Of course, another option to lightening the debt burden would be to tax the wealthy.  But Trump is a wealthy man himself and he would find that sort of thing distasteful.

I reads another piece somewhere saying that a Russian politician compares the immediate future for the USA to the period of painful readjustment as a sanctioned Russia was forced to develop its own industry again which turned out to be a successful project.