Donald Trump surrendered yesterday in his own World War III that he launched against all of America’s trading partners. And being Trump, he’s also seeking credit for the biggest gain ever for Wall Street, with the Dow 30 Industrials soaring 2,963 points. Of course, it was Trump’s reckless tariffs that caused the markets to dive, losing trillions of dollars, that he pulled back from.
Investors aren’t the only ones relieved that yesterday afternoon at 1:18 Trump pronounced on his Truth Social that the damaging tariffs on friends and foes that he announced last week in the Rose Garden on his ludicrous “Liberation Day” were being suspended for three months, except for big, bad China, which had its U.S. import duties increased from 104% to 125%.
So now it’s a more traditional trade war with one country, which Trump claims was the plan all along. Why didn’t we understand that?
In truth, there was no plan of any kind, as Trump just decided to smash things and see what happened. And it was all bad, very bad. After his morning urging to the bond market to “BE COOL” didn’t stop a flight from U.S. bonds, Trump pulled the brakes on his tariffs. Thank you, Mr. Bond Market for making Trump move.
Having caused so much chaos all by himself, against the advice of all reputable economists, Trump was full of his usual braggadocio as the world caught its breath: “We have a big job to do. No other president would have done what I did, no other president. I know the presidents, they wouldn’t have done it and it had to be done.” On that he is 100% correct, no one else would so dangerously put at risk the U.S. and global economies.
He continued: “What was happening to us on trade, not only with China, somebody had to do it because it was not sustainable. Last year, China made $1 trillion off trade with the United States, that’s not right. And now I’ve reversed it. We’re making $2 billion a day. Somebody had to do it. I’m honored to have done it.”
Like so much with Trump, his numbers are poppycock. China has a total, worldwide trade surplus of $1 trillion, less than a third that is with the U.S. Unless Trump means the total American trade deficit, for all partners, which is close to $1 trillion. But he’s not concerned by the real statistics, as a $1 trillion deficit with China is easy for him to remember, even if it is wildly wrong.
He’s also way off on how much Treasury revenue there is from his now-paused universal tariffs. The daily Treasury statement from Tuesday says that Customs and Certain Excise Taxes received that day equaled $192 million, a tenth of $2 billion.
Furthermore, and this the biggest problem with the president’s thinking, China’s annual trade surplus is not a $1 trillion profit, as Trump seems to believe it is. Under that mindset, any trade deficit with any country must be avoided, which is completely wrong. He also mixes up the national debt, which is government borrowing, with trade balance, when they are very different.
There are moves afoot in the Congress to restrict a president’s unlimited power to set tariffs. The last week of gyrations make the perfect argument to put some guardrails on.
