I am in the minority here. These tariffs are fairly reasonable. Here's why:
(1) The state has a compelling interest in regulating market risk tolerance. When the FED sets the risk-free interest rate, it controls the price of risk, and thereby the risk of the entire market. It is often advisable to temper the risk-eager market for long-term stability.
(2) Likewise, when the POTUS enacts tariffs, it is similarly setting the market's risk tolerance--namely against the risks concomitant of economic dependency on foreign nations.
(3) This will inoculate the economy against external supply chain shocks (at the extreme: war) by reducing our liability. It's not just consumers who are price-sensitive; given goods within a class will not be affected equally, natural price advantages will emerge, shifting demand and consumption as all levels of economy begin to price-in these tariffs.
The "economic consensus" against these tariffs just isn't real? It's exceedingly likely that the US likely will be better off because of them :)
> This will inoculate the economy against external supply chain shocks
How so? There's hardly enough unemployment and there's also no incentive towards increasing the number of immigrant workers.
Either suppliers eat the cost of the tariffs as the US administration says, or they don't and then everything becomes more expensive, but either way you have the exact same supply chain.
Thanks for the question. Three reasons:
(1) Much like a carbon tax, when the economy becomes accountable for an externality (risk in this case, rather than carbon) it is priced in at every level, ending with consumers, whose demand is price-sensitive. Not all consumer goods of the same class will be impacted equally, creating a natural price advantage.
(2) Once the economy adjusts to these new risk-adjusted prices, POTUS can always offer clemency for specific goods and industries to respond to global supply shocks, providing a large buffer for the now-adjusted American consumer.
(3) Narrowly: it is exceedingly unlikely we won't see production onshoring in any capacity like you suggest. Economic analysis of the first-term Trump tariffs, for example, did indeed find production onshoring.
Sure there will be some onshoring, but does it make more sense to onshore or pay given: 1) the instability of Trump's decisions, see Ukraine or Canada 2) you would have less economy of scale because you wouldn't sell any of your super expensive goods outside the USA 3) if the machines you need aren't produced in America they'd have tariffs too 4) the next president could make the tariffs more favorable. You also haven't touched unemployment (or lack thereof) yet.
(And by the way, if tariffs stay, brace for deflation due to waiting until after the election in 2028).
I mean, they generated the tariff schedule using ChatGPT. What could go wrong?
https://www.newsweek.com/donald-trump-tariffs-chatgpt-205520...
Original clip is here [1]. This likely isn't real, though if ChatGPT were used, I suppose it worked out this time :>
[1]: https://www.tiktok.com/@destinygnome/video/74891340165247337...
To (1):
- Tariffs are not a lever, they distort risk tolerance.
- Tariffs are crude, they are like a huge hammer hitting everyone, including allies
- Tariffs cause loss of confidence and loss of credit
To (2):
- Blanket tariffs target allies; they're isolating us and we're creating blocks polarized to us and weaning themselves off our economic output.
- Tariffs only reduce dependency if there is internal capacity, of which there is none. We'll best case shift our dependency via third-party countries
- We're concentrating our risk on fewer countries where tariffs are lower
To (3):
- We're reducing our efficiency and increasing prices, job losses are coming, productivity will stagnate. We're reducing our agility and our headroom
- Historically, autarky has lead to stagnation.
The economic consensus against these tariffs is real. It's exceedingly likely the US will destroy its economy, alienate itself and isolate itself because of them :)
About (3): This will inoculate the economy against external supply chain shocks, e.g. war.
The lead time required to set up realistic domestic production will mostly exceed this government's term. Setting up brand new supply chains doesn't happen overnight, does it?
Correct; it doesn't. However,
(1) Tariffs will not affect all commodities in the same class equally, creating a natural price advantage, even at the level of consumers. While not absolute autarky, demand will continue to shift to less externally-dependent goods, which has and will continue to reduce our liability.
(2) Ideally congress would codify the tariffs to prevent that. That said, it seems the first Trump term tariffs did induce production onshoring, despite that uncertainty.
What would it take to change your mind on these tariffs?
> What would it take to change your mind on these tariffs?
If there was a positive outcome? US citizens financially better off in 4 years than they are today?
I don't think most MAGA voters would see it as a win if US was slightly less dependent on imports, but they personally are considerably worse off financially, which seems the likely outcome.
> demand will continue to shift to less externally-dependent goods, which has and will continue to reduce our liability.
The cure for this type of wishful thinking is nothing else but reality itself. Still, it’s not the premise that’s wrong here, but the argument that the US society is capable to make this type of shift. It just isn’t gonna happen.
I don't believe you or share your optimism, but I also don't want to get into an argument about it. I think it's too late to ponder if this is overall good or bad... We'll all find out either way soon enough.
If tariffs will strengthen the economy while everyone else predicts disaster, you've discovered market insight worth billions. The Dow didn't just drop 2,200 points because investors are confused, it dropped because people with serious money and expertise believe these tariffs will damage the economy. If you're right and they're wrong, there's an obvious move: bet against them and get rich.
p.s. Trump did this before in 2018-2019, giving us some hard data about the economic effects of tariffs on modern america that are guiding the economic consensus.
In the long-term. Hence "innoculation"--a prick today to prevent a serious illness tomorrow.
In the grand scheme of things, the market movement we saw in response to these tariffs is dwarfed by the sustained market downturn throughout much of 2022. Fueled by persistent inflation concerns and the FED's aggressive interest rate hikes, the S&P 500 index shed approximately 25% from its peak in January 2022 to its low in October 2022, a far more significant and prolonged decline than a single day's reaction to tariff news.
We recovered from those. We will recover from the short-term effects of these tariffs as our economy begins to price in the risk of external dependency.
This must be one of those multi stage inoculations where the prick keeps coming back.