Back in the USSA

Trump isn't taking us to the promised land

I hope everyone had a happy Liberation Day. Nothing beats a plunging stock market, surging prices, slower growth and making us hated by the whole world. Trump said he was going to take us back to the 1800s and he wasn’t joking. It’s nice to know that if my current job doesn’t work out I can go work in a textile mill.

When the tariffs were announced, I felt a disturbance in the force, as if millions of Trump’s business supporters suddenly cried out in terror and were suddenly silenced. Don’t worry, they said, he’s not really going to impose tariffs. He’s just using it to negotiate like the brilliant deal maker he is. If only there had been any evidence pointing to the contrary.¹ No way Trump was going to do something so crazy, destructive and irrational. That’s totally out of character.

Being a reader of national newspapers and spending plenty of time online, I have noticed a big split in how two parts of the business world have reacted to the tariffs. As far as I can tell, most everyone on Wall Street is apoplectic. The MAGA venture capitalists, on the other hand, are gung-ho in favor of it.

Reading some galaxy brain takes from the latter group has done wonders for my self-esteem. I have never seen so many people who are so far out of their league, but honest to god believe they have it all figured out. No matter how clueless I am on any subject, I will never come close to beating them. In light of that, I’m going to have to issue an apology.

To all the hedge fund managers out there, I’m sorry. For years, I thought no group had a bigger ego relative to their intelligence than you guys did (yes, they are all guys). I thought nobody was more clueless about economics, policy and politics than you all. I didn’t think anyone could possibly be more thin-skinned and self-absorbed than you all, but I was wrong. The MAGA venture capitalists have you guys beat and it’s not remotely close.

For those curious about what Olympic-level stupid takes from that crowd look like, see here, here, and here. You should feel much better about yourself after reading those. On your worst day, when you think you’re a big idiot, just remember you will never be as dumb as that.

Really, nobody should be surprised by what happened on Wednesday. The signs were right in front of those who chose to see them. Trump has very few beliefs that don’t revolve around himself and trade is one of those rare exceptions. He truly believes trade is bad based on his black-and-white, zero sum, gangster worldview. He thinks exports are inherently good and imports are inherently bad. The only way the US could have a trade deficit with another country is because it’s getting ripped off. He’s been clear about that for decades.

The president has very broad authority to enact tariffs. Congress has opted to give the president more power on that front over and over again. Traditionally, it wasn’t a big deal for several reasons. One is that every president from FDR to Obama believed free trade was good and tariffs should be very limited. Another is a president in their first term doing what Trump is doing now would not be reelected. A third is even in their second term, presidents still care about their party and don’t want it to get smoked at the polls. Presidents want their successor to be from their party and tanking the economy is a great way to ensure that doesn’t happen.

The problem is none of those conditions apply now. Trump won’t be on a ballot again and doesn’t care about the Republican Party in the slightest. The advisers he had in his first term who would have talked him out of doing what he just did are long gone. As he made clear before and during the campaign, he was going to surround himself with sycophants this time around. He didn’t mislead anyone, but some chose to mislead themselves.

It’s staggering just how high the tariffs Trump has imposed are. Every country, excluding Russia and North Korea, but including two islands inhabited by penguins, is subject to a minimum of 10% tariffs on all items exported to the US. The way the tariff rate was calculated for each country had nothing to do with tariffs. It was calculated by dividing the US trade deficit with a given country by how much the US imports from it using US dollars as the metric.

It gets worse. It was calculated only by looking at the amount of goods that are imported here and measures the US’ trade deficit with other countries solely by looking at goods. It doesn’t look at services at all. That is something the US exports plenty of, but it gets completely ignored, which makes the tariff rates much higher for many countries. It’s the economics equivalent of astrology.

Contrary to what you might have heard, these are not reciprocal tariffs. The tariff rate applies to every single item the US imports from a given country regardless of whether that country imposes tariffs on US exports of that item. It applies to items the US doesn’t even export or make. For example, the tariff rate for Indonesia is 32%, meaning coffee imported from there will be taxed at that amount. How much coffee does Indonesia import from the US? None.

FYI, a trade deficit is not inherently good or bad. There are many countries that are poor and sell agricultural products to the US. The US is going to have a trade deficit with them because they can’t afford to buy things like jumbo jets and other expensive items that are manufactured here. That could change someday, but first those countries need to develop more. Crippling their economies with tariffs is going to guarantee that doesn’t happen.

It’s not an exaggeration to say what Trump has done is the worst economic policy in history. The tariffs he has imposed are higher than what was in effect after Smoot-Hawley was enacted. That law played a not insignificant role in worsening the Great Depression and Trump is making it look tame. I’m hard pressed to think of any time in history when an economic policy was enacted despite unanimous opposition from everyone with any drop of economic literacy and whose consequences were so obvious and predictable.

Trump inherited an economy that was doing quite well. In less than three months, he’s managed to shred it. In doing so, he has made the US a pariah and has torn up decades old alliances. Not bad for the first 100 days.

There is no good case for the tariffs

Trump and his defenders have given so many rationales (often in conflict with each other) for what he’s doing it’s hard to keep up with them. I will go over a few of them here. Spoiler alert, they are all garbage even when you look at them in the most favorable light.

One argument for the tariffs is that they will bring back manufacturing jobs. As I wrote about recently, that is not going to happen because it can’t. The manufacturing jobs from the 1970s and before don’t exist anywhere. They have all been automated. We manufacture plenty of things in the US, but it’s not the dominant employer and that’s not going to change.

Advanced economies are service-based. Look at any developed country and you will find the same pattern. Even countries that emphasize supporting their manufacturing sectors still have a huge majority of people employed in services. The only way the US will have manufacturing as the dominant employer again is by becoming a third world country.

In advanced economies, manufacturing is centered around technologically sophisticated items like semiconductors, jets, turbines and clean energy products. The factories where those items are made tend to be heavily automated. People like to picture thousands of workers working in a factory on an assembly line, but that hasn’t been a thing for decades.

The fetish some people have for manufacturing really irritates me. It’s based entirely on nostalgia and a romanticized idea of what things were really like 50+ years ago. Of all the people I see online and on TV advocating for a return to a manufacturing-centered economy, I bet none of them have ever worked in that sector. I have a hard time seeing Tucker Carlson, Sean Hannity and Laura Ingraham working in a shoe factory. It’s just a part of our nature to lionize the past and lament how awful things are now no matter how disconnected from reality it is. Just because we all have a tendency to do it doesn’t make it any less false.

A common defense of the tariffs is that they’re being imposed as a negotiation tactic. Before Wednesday, that argument was cope at best, but anyone making it now is suffering from an inoperable case of head-in-ass disease. Logically, publicly saying it was a negotiating tactic never made sense. The only way that would work is if other countries really believed Trump could pull the trigger. By publicly saying he was just negotiating and not really going to impose tariffs, his people and supporters were giving it away.

Given that Trump has imposed tariffs on almost every single country there is, how are negotiations even supposed to work? Are we going to simultaneously and separately negotiate with every single country? Logistically, it sounds insanely cumbersome. Are we really going to negotiate whole new trade deals with 193 countries?

Then there is the issue of other countries’ domestic politics. I’m no authority on any other country’s politics, but my guess is the incentives in many of them are going to be to give Trump the finger. Trump is not a popular figure as it is and I’m sure the tariffs he just imposed are toxic. Some countries may be too dependent on the US to fight back, but in those that can I suspect politicians will want to be seen as not bending the knee.

I wouldn’t blame them for that and I think they should push back. Trump is a bully and what do bullies do when you give them what they want? They come back for more. Trump is never going to stop making threats unless and until he’s pushed back on and folds. I don’t know that he ever will fold, but if nobody pushes back he’s going to keep demanding more and more.

Even if the tariffs were a negotiating tactic, what’s the point? Why would we antagonize Canada? What problem is solved by threatening to cripple the economies of Vietnam, Thailand and Cambodia? What good does threatening Madagascar do? Can someone please explain how imposing tariffs on Australia, which the US has a trade surplus with, makes any sense? Switzerland eliminated tariffs on all imported industrial goods, but it’s been hit with one of the highest tariff rates. What does the US gain by doing that?

Getting some of our supply chains out of China is absolutely a valid goal and Vietnam is crucial to that. How does imposing a 49% tariff on its exports help with countering China? Vietnam’s economy is heavily dependent on exporting items to the US, but it imports very little US-made items. What do they make there that we need to make so badly as to threaten to send its economy into a depression?

Another problem with the negotiation tactic argument is Trump’s unreliability. His word is worse than worthless. He can agree to anything and back away from it five seconds later. A country could hash out a new trade agreement with him, but would have no guarantee that he would follow through with any of it. It’s one thing for people to think you’re crazy, but you’re not supposed to actually be crazy.

Trump himself and many of his supporters have said the tariffs will cause some short-term pain, but the long-term gains will be worth it. Conceptually, that’s not bad at all. I think it would be better if more people were willing to endure some short-term inconveniences for longer term benefits. That would make solving problems like the federal deficit and NIMBYism much easier. The problem with the tariffs is that there won’t be any long-term gains. There is a light at the end of the tunnel, but it’s a train heading right for us.

One way you can tell the promise of long-term gains is not credible is the reaction of the stock market. It can be weird on any given day, but it’s forward looking and is a reflection of what people believe the future will look like. If people really did believe we were headed for a new golden age despite some short-term pain, the stock market would have gone up after Trump announced the tariffs, but that’s not what happened. The S&P had the fourth worst performing two days in 80 years.

The idea that people are going to tolerate higher prices, higher unemployment and slower growth in pursuit of anything short of survival is pure fantasy. The whole world just experienced a relatively modest bout of inflation that made governments almost everywhere extremely unpopular. Voters are not going to sacrifice their living standards in pursuit of any grand ideological project. That’s something the left is just now beginning to understand and apparently the right needs to learn it, too.

A grand ideological project is exactly what Trump is trying to do. He wants the US to not trade with anyone and be fully self-sufficient. People might say they like that in the abstract, but they’re going to turn on it real fast when trying to pursue it tanks their living standards.

For those wondering if any country has successfully made its economy self-sufficient, the answer is no. Examples of countries in the past that had self-sufficient economies include the USSR, Maoist China and Peronist Argentina. A contemporary example is North Korea. Your mileage may vary, but I don’t think those are places to emulate.

Then there is the argument that tariffs will raise revenue. That would be true if they had no economic effect. If imports continued at their current pace and no prices were raised, the government would raise billions and maybe trillions of dollars. That’s not going to happen.

When imported items become more expensive, people buy less of them, which reduces revenue. Because tariffs make imported items more expensive, domestic producers who use them raise their prices. That, in turn, reduces economic activity, which reduces revenue. Whatever revenue is raised by the tariffs Trump has imposed is likely to be more than offset by the decline in economic activity they cause. For example, by raising unemployment, the tariffs will cost the government money via higher unemployment insurance payouts and by reducing incomes it will mean lower tax collections.

What has been amusing over the last few days is seeing degrowthers pop up on the right. Traditionally, those arguing that living standards needed to go down for the greater good were on the left, but it looks like the right is playing catchup. Some on the right have been arguing that people should be willing to sacrifice their 401(k)s and other stock holdings because the US is fighting a war. Apparently, the tariffs are like invading Normandy. Who knew?

Scott Bessent has insisted that people don’t really care about cheap goods. The American Dream, he says, is not about buying TVs. I have to admit it’s been a pretty good plot twist seeing those who were screaming about inflation a short while ago suddenly arguing people won’t mind going back to the living standards of the 1950s. Dear Leader demands we make sacrifices and who am I to say no?

Liars, goons and toadies

Trump’s war on the economy is not confined to tariffs. A very underappreciated driving force behind the US economy’s dominance over the last 80 years has been the federal government’s commitment to funding basic science. The National Institutes of Health has been the leader in both funding and employing scientists working on medical and scientific research of all sorts. It’s the kind of research the private sector usually won’t do because it’s too new and uncertain, but takes advantage of it at later stages and creates all kinds of innovations.

Since taking office, Trump has declared war on the NIH. He has cancelled and frozen billions of dollars into research on things like Alzheimer’s. Because of that, universities, who are major recipients of NIH money, have paused hiring in areas that do scientific research.

Making things worse are the mass firings of people at the Department of Health and Human Services, CDC and the FDA. Last week, the lead vaccine official at the FDA resigned and accused RFK of spreading lies and misinformation. Around the same time, RFK hired an anti-vaxxer to conduct a “study” looking at the link between vaccines and autism. Our main public health agency is now going to be a source of false information about vaccines and is purging anyone who isn’t a crank.

It’s a pattern happening throughout the federal government. Anyone with any expertise or with any ounce of integrity or a conscience is leaving. Some of it is because of the DOGE and deliberate firings by Trump and some of it is because anyone who remains will be asked to do things that are unethical if not illegal. It’s understandable that people who care about their reputations wouldn’t want to do that. The downside is those who remain and those who get hired will be bottom feeders.

It got very little attention because of the tariffs, but on Thursday Trump fired the head of the National Security Agency. Why? Because Laura Loomer, a bat shit crazy grifter and conspiracy theorist, told him to do it. Trump also fired several others on the National Security Council for that same reason.

I wrote recently about some of the F-level people working in Trump’s cabinet and in his administration so feel free to check it out if you haven’t already. As we learned two weeks ago, our Secretary of Defense, Biff Tannen, likes to discuss war plans on Signal and Trump’s national security adviser randomly invites people to join group chats. It’s hard to keep track of all the scandals, but we learned last week that his national security adviser likes to use Gmail to conduct government business.

We have the most manifestly unfit people in charge of our government and that’s by design. Trump wants a government that serves only him. He admires Putin for that reason. Putin has a government that revolves entirely around him. Those in the Russian government don’t serve Russia, they serve him. Their loyalty is to him and him alone. Democracies don’t work that way and Trump hates that.

In a government where loyalty to the dictator is the only concern, it’s going to attract bad people and repel good people. Part of that is because nobody is ever right about everything. The smartest person on earth will still make mistakes. A dictator doesn’t care about actually being right, what they want is to be told they’re right all the time no matter what. It takes non-existent ethics, being conscience-free and having no integrity to serve someone like that.

Loyalists will tell a dictator what they want to hear under all circumstances. In return, the dictator will reward them. I think it’s safe to say any previous Secretary of Defense would have resigned or been fired after the Signal episode, but that’s not going to happen and no Republicans in Congress are going to call for it. In any previous administration, there would be a Justice Department investigation into it, but that won’t happen with Cruella de Vil running the show.

It’s no coincidence that governments run by dictators often wind up going off a cliff. Sooner or later, the dictator will make a fatally bad decision, but nobody will be there to talk them out of it. We’re seeing that now with the tariffs. One silver lining to it is it will probably wreck Trump’s presidency and make him toxic. He won’t care about it, but the rest of his party will, especially when their own constituents start getting hosed and a blue tsunami is headed their way. The best hope for our form of government to make it out of the next few years still intact is Trump screwing up so badly and discrediting himself and everyone around him. It will come at a big price, but we’re well on our way to getting that outcome.

1. To think how many millions of dollars were paid to high-priced consultants by businesses of all sorts to be told tariffs weren’t actually going to happen when all they had to do was read Jeff Stein from The Washington Post.