Any doubt that the Donald Trump tantrum tariffs are the cause of the bloodbath in the stock market, wiping out the wealth and retirement savings of tens of millions of Americans, was settled yesterday morning.
Somewhere, somehow there was a report that the White House National Economic Council Director Kevin Hassett said that Trump was considering a 90-day pause on all tariffs, save China. That led to a quick market rebound, that the nightmare was ending and there would be a ceasefire in Trump’s self-declared World War III. But then the White House denied the rumor and the panic selling resumed. By day’s end, the Dow lost another 1% of its value, on top of the severe losses on the two trading days last week that followed “Liberation Day.”
In yesterday’s editions in this space we quoted Ronald Reagan from 1987. His warning is worth repeating: “High tariffs inevitably lead to retaliation by foreign countries and the triggering of fierce trade wars. The result is more and more tariffs, higher and higher trade barriers, and less and less competition. So, soon, because of the prices made artificially high by tariffs that subsidize inefficiency and poor management, people stop buying. Then the worst happens: Markets shrink and collapse; businesses and industries shut down; and millions of people lose their jobs.”
The futility of this escalating trade war is working exactly as predicted by Reagan. When Trump slapped 34% tariffs on goods from China, Beijing responded with its own 34% levy on U.S. products. That got Trump miffed and he is now promising an additional 50% trade barrier on China. Guess what comes next?
A major part of the problem is that Trump has his economics all mixed up. He is confusing the balance of trade with the U.S. national debt and also seeing a country like China’s balance of trade surplus as a “making”: “I call it making, it’s almost like a profit and loss statement,” he said puzzlingly yesterday.
No matter how wrong he is, he is sure of his wrongness, taking pride his chaos yesterday: “We’re going to have one shot at this and no other president is going to do this, what I’m doing and I’ll tell you what, it’s an honor to do it because we have been just destroyed. What they’ve done to our system, you know we have $36 trillion of debt for a reason and the reason is that people allow it to get that way. We’re not going to stand for it.”
The trade deficit is not the same as the national debt, but Trump doesn’t care, as he again sees the virtue in the tariffs: “We have $36 trillion in debt. I want to get rid of it and we can do it quickly with proper deals.”
It is only when he says that “our country was the strongest from 1870 to 1913,” before the federal income tax, when the government revenues all came from duties on imports, can a glimmer of his reasoning be discerned. He thinks that he’s going to collect $36 trillion in tariffs to pay off the national debt and we will be rich. In truth, there will be very little to pocket because international trade will shrink and economies will collapse.
We will see what today brings.
