Isaac Saul (19:52)
All right, that is it for what the left and the right are saying, which brings us to my take. So let me start here with just a bit of radical honesty. I have no idea what's going to happen now. I am not an economic journalist, an economist, a trade expert, nor a tariff expert, and our modern globalized world has never experienced any major power trying anything like this. So I just don't know what's going to happen. Despite the confident predictions you may hear from some corners, I honestly don't think anyone does. Most of the economists that I trust and follow, regardless of their political orientation, are absolutely 100% sure that President Trump is in the process of making a massive term defining mistake. They are predicting inflation, a recession and an era of economic disruption that is entirely his making. They similarly predict that this tariff strategy will isolate us from our most important trading partners and push them into China's sphere of influence, an outcome that would be antithetical to one of Trump's core goals. But I've also heard some pretty compelling arguments in the opposite direction. Serious economists like Oren Cass or Stephen Waran have made a case for these tariffs. I recently listened to Bob Lighthizer, the former US Trade representative during Trump's first term, get interviewed on Tucker Carlson's podcast. Lighthizer made a number of strong points about the success of tariffs in the first Trump term, despite mainstream skepticism and the fact that Biden maintained many of those tariffs when he came into office. Perhaps most compellingly, Lighthizer starts by focusing on where decades of the trade practices Trump is targeting have gotten us. He asks listeners to look at our hollowed out working class towns, at our shrinking middle class, at living conditions for the two thirds of our workers without college degrees, and then ask themselves if our modern system of global trade is really working. I think starting from a position of challenging the status quo is essential and smart. And I'm open to the idea that our trade policies, founded on an obsession with growth and cheap goods, are hurting us in the long run. If Trump's goal is to reduce the barriers on American exports other countries have erected, he may well get a few wins. Israel, for instance, already agreed to lift all duties on U.S. imports in an effort to be exempted from new tariffs. Trump can already point to Apple, Johnson and Johnson, Eli Lilly and Hyundai as major companies who have been talking about expanding their manufacturing operations in the United States. Yes, while Trump's belief that trade deficits represent us being taken advantage of is totally wrong, in my view, it does not make those potential gains any less real. Another benchmark the administration could be hoping to achieve is to lower the Yield on the 10 year treasury note or the T note. That yield is the annualized return investors earn by holding a US T note with a 10 year maturity. If it is coming down, it is a sign investors are seeking safety from uncertain economic conditions. Treasury Secretary Scott Bent believes that a lower yield will force the Fed to cut rates, which the administration wants. After the tariff announcements, the 10 year t note yield fell, potentially the exact indicator Besant was looking for. These potential objectives represent a strategic through line the administration is articulating, but shifting and incompatible explanations for what it hopes to achieve have left its supporters haphazardly offering conflicting explanations. As the Atlantic's Derek Thompson noted, some people in Trump's orbit say the goal is to raise trillions of dollars of revenue, then ultimately get rid of income taxes. But other supporters have said the goal is to force other countries to remove their tariffs, creating an era of genuinely free trade. Some point to the administration's initial justification of national security, or increasing American manufacturing, or creating leverage over Mexico or Canada or Europe or China, or all of them all at once. For some people, it's about fentanyl and the imports of Chinese goods. Again, with so many explanations, it's impossible to nail down the intended goal or what success might look like. I'm not trying to be critical here for the sake of being critical. The entire situation genuinely raises a laundry list of questions about the administration's plan. If the point is to force other countries into reciprocity and fair trade, then why did Trump move forward with a large tariff increase on Israel after it removed all of its tariffs on US if it's to impose reciprocal tariffs, why is the Trump administration using a formula to levy these tariffs based on trade balances rather than tariff rates? Trump has argued that if tariffs make nations poor, then every country would be racing to eliminate tariffs. But every country has been doing that, and the poorest nations tend to have the highest tariffs. So what's the end game here? Many of these countries will have to rewrite their industrial policies before reworking their tariffs or trying to give the US what it wants, which we think is a balanced trade deficit with individual countries, but might just be equal tariff rates. How should small developing countries react? Some of the territories on the tariff list don't even have inhabitants. It could take a country like Cambodia years to prepare before reducing its tariffs on the US without cratering its own economy. Lesotho, an African country with a GDP smaller than most US territories, just got hit with a 50% tariff rate because it's a part of the South African Customs Union, the sacu. How does Lesotho work its way out of these tariffs without South Africa? And why did South Africa get a lower tariff rate than Lesotho when both tax us equally? Our treatment of Indonesia is another head scratcher. Indonesia has high tax on coffee imports because it is a major exporter of coffee. Trump has slapped a 32% tax on coffee imports from Indonesia even though the United States exports zero coffee to Indonesia. Where is the reciprocity there We've levied massive tariffs on Cambodia and Vietnam now, too, potentially, because a lot of countries have moved their operations out of China and into Cambodia or Vietnam to avoid the China US Trade war that's been ongoing for several years now. So now what happens to those companies? We import 98% of clothing in the United States, primarily from Southeast Asia. Are we supposed to divert hundreds of thousands of Americans from higher paying jobs to manufacture clothing, stand up those manufacturing plants and start producing our own clothes? How does that help us? How does this help us confront China? If they are a more open trading partner than we are, won't we lose trading partners and therefore political power to them? What is the explanation for the exemptions? Oil imports have been exempted from Trump's tariffs, as have semiconductors. What are the administration's explanations for making these exemptions if the impacts of the tariffs are supposed to be so uniformly strong? We don't know and they don't say. There are plenty of political questions, too. First, why didn't Trump's first term dealmaking work out? Let's not forget that we are mostly living in Trump's trade world, the one he created in his first term by abandoning the Trans Pacific Partnership, signing new trade deals and levying new tariffs, most of which Biden did not change in any meaningful way. He called those deals the greatest in history. Now he's trumpeting broad tariffs by arguing they're all terrible deals. Then there's the question of how he'll sell this to the country. The initial economic analysis on these tariffs is, well, not great. The Budget Lab predicts an average loss of $3,800 in purchasing power per household in 2025. JP Morgan's chief economist said the impact of the tariffs could bring the economy perilously close to slipping into a recession. This year, S and P futures tanked, losing $1.3 trillion of market cap in four minutes. Trump is following through on his campaign promises with these tariffs, which provide some political coverage. But he's also been beating the drum of the short term pain for long term gain. How short? Six months? A year? His entire term? We don't know and he doesn't say. But his administration will be kneecapped in 2026 if the plan is to let America's stock portfolios and retirement plans crater, while he promises a golden age of manufacturing sometime in the undefined future. Some people on the left, like Senator Chris Murphy, the Democrat from Connecticut, have insisted that the tariffs are not an economic policy but a tool to collapse our democracy. Murphy claims. What Trump really wants is a means to compel loyalty from every business leader and industry to solicit donations, public support, and fealty in exchange for sanctions relief. I don't doubt that Trump relishes the power or influence these tariffs may afford him, but I think Murphy is wrong. For starters, I don't think this plan is going to draw industry leaders to the president for favor. I think it is going to draw their ire and probably cost Trump some support. More to the point, I think Trump's fundamental belief that the United States is getting ripped off by globalism is much like his view on immigration. It is one of the few genuine ideological perspectives that he is rigid and consistent on. He has had it since long before he was in office, and tariffs have always been a key part of the resolution in his mind. With only one term left, he seems to earnestly believe he can pursue them without facing real political consequences and without inflicting too much economic damage on the American people. I suppose now we are about to find out how true all of that really is. We'll be right back after this quick break.
