Most commentators have been whipsawed by the Trump tariff climbdown along with the wild stock and Treasury market moves, and so have been focusing on why Trump relented and immediate signs of disruption, such as order cancellations, container pile-ups, shipment diversions. We thought it might prove useful to highlight some issues that don\u2019t appear to have gotten the attention they warrant.<\/p>\n
How is this a better deal? <\/strong> Much noise was made in the press about how the Trump \u201cpause\u201d at 125% tariffs against China (functionally equivalent to his previous China raise to a total of 104%) and keeping everyone else at 10% for 90 days was a great relief.<\/p>\n It isn\u2019t for American consumers:<\/p>\n Hello am I going insane?<\/p>\n A 125% tariff on EVERYTHING FROM CHINA and a 10% blanket tariff on ALL OF EARTH is not a \u201cpause on tariffs\u201d<\/p>\n \u2014 Conor Rogers (@conorjrogers) April 9, 2025<\/a><\/p>\n<\/blockquote>\n We calculated that post Trump \u201cput\u201d today, the tariff mix is actually worse \u2014China exports more consumer goods to US than other countries, so boosting that (to 125%) relative to others will boost the hit to consumption goods. pic.twitter.com\/Yw9QIgcXqG<\/a><\/p>\n \u2014 Anna Wong (@AnnaEconomist) April 9, 2025<\/a><\/p>\n<\/blockquote>\n This is before getting to the fact that pretty much everyone in corporate and consumer America buys a lots of things from China, either finished goods or items with considerable Chinese content. Some businesses will have enough China exposure that they won\u2019t be able to find new sources fast enough and will fail or cut operations severely. Similarly, everyone will be both directly and indirectly wind up paying more for most goods, with limited exceptions like gas (cheaper thanks to recessionary conditions). Some of these will be consumables like food and drugs, so public awareness of inflationary effects will be high.<\/p>\n In other words, Mr. Market\u2019s happiness is one of short-term relief (and decades of conditioning to buy dips) and not real fundamental improvement. We still have a President deeply attached to insanely bad beliefs. As the New York Times put it<\/a>:<\/p>\n But Mr. Trump has a theory on tariffs that has been hardened over 40 years, one that\u2019s frozen in place and is resistant to data that conflicts with his gut. Over many years, when he has been presented with statistics that don\u2019t comport with his instincts, he demands that people find him alternative information that backs up his beliefs.<\/p>\n So he plowed ahead, even while his advisers found themselves struggling to communicate to the public about a policy that they didn\u2019t fully understand. Aides held multiple meetings with Mr. Trump and his senior advisers to try to find a way to convince the public that the economic penalties were a good idea.<\/p>\n<\/blockquote>\n Trump narcissism in charge.<\/strong> As John Helmer said in on interview with Nima on Dialogue Works, the Russians, when the Ukraine talks looked like they were happening, had ascertained that they were negotiating with a personality cult. One of the keys for Trump aides in persuading him to retreat was the idea that he\u2019d won because over 75 countries wanted to negotiate pronto. From Axios, with particular attention to #1:<\/a><\/p>\n As for isolating China, the notion that 10% tariffs with a gun to the head of worse if concessions are not made is a way to build alliances is barmy. Trump seems to treat everyone like a contractor who is to be beaten down on price. See for instance:<\/p>\n The \u201cisolating China\u201d claim suggests that US negotiators will try to wrest concessions from ASEAN members and other countries not just on bilateral relations with the US, but also on Chinese companies producing products in those countries that are sold to the US. Like India, these nations make a point of not choosing sides between the West and China; so the US acting like a prototypical colonialist who can tell its possessions what to do is not going to go over well.<\/p>\n Mind you, it is not as if the impact of tariffs on China won\u2019t strain relations with other countries. The 3% of GDP that US exports represent is not chicken feed. While it may be able to stimulate domestic demand to take up some of the slack, it will almost certainly try to increase exports too. ASEAN already runs a trade deficit with China. It\u2019s not as if they are in a position to bail out China by acting as buyer of the last resort.<\/p>\n Emerging market crises are a wild card<\/strong>. As we have pointed out, former UN economist Jomo Kwame Sundaram has been writing for at least the last 18 months about how Western policies are pushing developing countries towards a crisis. When they hit, investors are not discriminating. They yank hot money out and ask questions later. So one decent-sized country, unless there really are unique, will create runs in many others, pushing them towards or into crisis. <\/p>\n The tariff shock is going to hit smaller and less developed countries. Central America looks vulnerable. A meltdown there may have repercussions for the US due to proximity and possible exposure of US financial institutions.<\/p>\n However, there is also risk in Asia. The Indonesian rupiah was in trouble before the tariff row started<\/a>. For an article to appear in the Bangkok Post on crisis risk<\/a> says it is an open secret. <\/p>\n Countries in an actual or near crisis are not good export markets, so they would be buying even less from China under that scenario.<\/p>\n On top of that, in the 1997 Asian Crisis, the IMF rode in and administered its usual painful rescues. The BRICS Kazan declaration reaffirmed the role of the IMF as bailouter in chief. So at most, BRICS countries see themselves as participating in an IMF-led drill. But the IMF is also dominated by Europe and the US. With Trump out to pick fights with Europe to show he\u2019s the boss, might the US try to sandbag IMF programs?<\/p>\n\n
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