America is not an economic zone. It’s not a strip mall with an airport attached. It’s a nation. It’s a people. It’s our home.
Senator Eric Schmitt (R-MO)
President Trump just bet his legacy on re-creating the Arsenal of Democracy. He’s 100% right on the WHY, because a nation that makes nothing cannot make war against China. Plus, the US government must refinance $9.2 trillion in maturing debt this year ($6.5 trillion coming due by June). Above all, working-class Americans – whose wages have stagnated and life expectancies have declined – are 55% of all voters, and voted overwhelmingly for Trump. Only time will tell if he got the HOW right.
Investors want predictability – and the tariffs announced Wednesday exceeded “reciprocal and proportional” expectations, tanking stocks to May 2024 levels. Pershing Square’s Bill Ackman believes “the market is simply responding to Trump’s shock and awe negotiating strategy and factoring in some probability that it will fail.”
The EU, Canada and Mexico want support – and the tariffs threaten their massive trade surpluses with the US; $161.6B for the EU, and $235.1B for Canada and Mexico (combined).
The US created Free Trade Globalism to help WWII combatants rebuild their economies (the Marshall Plan pacified Germany and Japan), resulting in global GDP growing from $11.7 trillion in 1950 to $166.6 trillion in 2023, US companies becoming global brands, and US imports lifting third-world countries out of poverty (source: World Bank). Meanwhile, the Dow Jones Industrial Average rose from $216.30 to $37,689.54. What’s not to like, right?
60,000 factories closed since China entered the WTO in 2001, and complex international supply chains that failed during COVID. I ran an “import model” business and saw once-transparent supply chains exposed as opaque (like securitized subprime mortgages). Even after Vietnam re-opened, furniture did not flow because its factories bought hardware from China, marble from India, and wood from Cambodia – where factories remained closed. Multiply that problem across every industry in every country. Yikes!
Suffice it to note the problem of entering a kinetic war with a supply chain that adversaries could quickly sever. Awful, and such a war is further complicated by a $36.6 trillion national debt, and yearly budget deficits of $2 trillion. Treasury secretary Bessent is 100% right; Biden turned the US economy into “a bodybuilder on steroids” (the organs are dying inside) by “borrowing a lot of money and creating a lot of government jobs.”
On Tucker Carlson’s podcast, Bessent outlined a high-stakes endeavor to increase leverage and resources to manage the government’s debt, reset America’s industrial base, and raise the nation’s standing in the global order. He noted that each basis-point drop in interest rates results in $1 billion saved by the government annually (10-year Treasury yields have fallen 30 basis points since the tariff announcement).
Here’s the macro-theory: (1) sweeping tariffs create economic uncertainty that drives investors into long-term US Treasuries, pushing yields lower and reducing the government’s borrowing costs, (2) DOGE finds $1 trillion in “waste fraud and abuse” that results in dollar-for-dollar savings, and (3) Gold Cards and tariffs increase government revenues. Sounds clever, but will it work?
Secretary Bessent said he believes this “is going to work just like Reagan believed supply side economics was going to work,” but would not “guarantee there won’t be a recession, (adding) nothing tells me there should be one.” He declared the “old system wasn’t working…going to end up in a calamity,” and reminded viewers of the “financial crisis in 07-08, end of the dot-com bubble, and the fraud at WorldCom (and) Enron…economy looked great until it didn’t.”
And so we wait…until institutional investors start betting on the re-shoring of manufacturing and against the return of inflation…until Democrats and their media allies accept the economic problem as apolitical (no way presidents Roosevelt and Clinton would have missed today’s populist wave) and realize this is not improvisation.
If the Trump administration erases government indebtedness, creates a lower-cost manufacturing environment, increases gainful jobs for working-class citizens, attracts a million rich foreigners (Gold Card), and returns essential industries (e.g. steel) to the homeland, then there will be a stock market boom for the ages. For a little perspective, the Dow fell 23% in a single day (10-19-87) to 1,738.74. Ten years later, it closed at 7,908.24.
Director Hassett of the National Economic Council told ABC News on Sunday that the US Trade Representative reports “more than 50 countries have reached out to the President to begin negotiating…because they understand they bear a lot of the tariff.” This confirms the breaking news on Bill Ackman’s Twitter-X feed:
- Israel’s PM will announce the elimination of all taxes on American products in his meeting with Trump
- Taiwan’s president is proposing a zero-tariff alliance with the US
- Vietnam has offered to remove all tariffs on US products
- India seeks a bilateral trade deal with the US
If you’re looking for a ray of sunshine, it’s that Trump’s tariff gambit is a momentum campaign; starting with a few victories – perhaps Israel and Taiwan (to placate a key ally) – and ending with a mad scramble to not become (bad breath) China. So, keep one eye on the markets, one eye on the White House’s Twitter-X feed, and keep your seatbelt fastened.