Tariffs sure weren’t fully “priced in”. Markets were down about -5% yesterday, while gold dropped slightly and bonds rose slightly (0.5%).
I don’t have much smart to say on this, but will be looking for opportunities.
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That chart feels a bit like how scientists and medical professionals felt when Trump talked about injecting disinfectant as answer to COVID… aka markets finding out he has as much clue about the economy.
And thus bloodbath continuing as planned today …
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Comments on tariffs by various smart people
https://x.com/stocksavvyshay/status/1908506134270665110?s=46&t=DXMRk6oYJ5q4vZ_Rgv84jA
https://x.com/billackman/status/1908992002366292286?s=46&t=faQp1Jb1_cIT_NIqxDokzA
https://x.com/markminervini/status/1908855557080875423
Treasury Secretary Scott Bassett with Tucker explains the tariff plan. Makes sense to me maybe also to the stock market, which turned positive at 11 AM EDT.
https://tuckercarlson.com/tucker-show-scott-bessent
Treasury Secretary Scott Bessent Breaks Down Trump’s Tariff Plan and Its Impact on the Middle Class
Still ended up mostly negative for the day so probably not convinced too many investors. Especially when Bessent dismisses the market reaction as not being a thing.
I can agree something had to be done to improve strategic supply chains and critical production capabilities in some key industries. But I doubt that the markets saw the Trump tariffs plan as targeted enough to be considered strategic.
Personally, I don’t see a huge buy opportunity since I don’t think the inflation shock and GDP loss have been fully priced in yet.
I think we are seeing Trump derangement syndrome in the markets. But as the sainted Benjamin Graham observed
https://quoteinvestigator.com/2020/01/09/market/
In the Short-Run, the Market Is a Voting Machine, But in the Long-Run, the Market Is a Weighing Machine
And what it weighs is profits.
True. Markets don’t care anywhere as much about politics as they care about profits.
Which explains the Trump crash of the last 4 days in that the market is pricing in lower future profit expectations. To keep revenues afloat amid rising goods pricing, companies may have to shrink their profit margins as a result of tariffs and/or of higher production costs for production that is relocated to within the US. Hence lower profits, at least in the near to intermediate term.
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I think it is too soon for the profit weighing machine to work itself out. We are in the voting machine phase.
Regardless of the stock market gyrations, as discussed by Treasury Secretary Bessent in the video I linked, the current situation is unsustainable. The total United States trade deficit is $1.2 trillion. This along with the annual government spending deficit of about the same amount is going to bankrupt the United States soon.
I’m not going to link to the government annual deficit amount since that’s well known but here’s a link about the trade imbalance
A trade imbalance is caused when you export or import more or less than your trading partner. For example, in 2024 the United States total goods trade with China were an estimated $582.4 billion, broken down, the exports from the U.S. to China were $143.5 billion compared to $438.9 billion that was exported from China to US. The difference results in a trade imbalance with a trade deficit for the US and a trade surplus for China.
On an a larger scale of comparison, the U.S. holds the largest trade deficit in the world, hitting a record $1.2 trillion dollars in 2024 because of four large deficits in particular — with China, Mexico, Vietnam and Ireland.
A lot of the trade imbalance with countries other than China reflects Chinese moves to hide their imbalance.
Their apprehension for the unsustainable budget and debt situation would be more believable if at the same time the GOP/Trump weren’t bending over backwards to continue the soon-to-expire tax breaks.
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I think you are mistaken. There are two sides to that balance. The current administration has a whole department tasked with reducing unnecessary government expenditures. The DOGE has advised the President how to make large reductions in government personnel while still implementing necessary government functions. They have identified to the Congress wasteful government spending, and the Republican majority has instituted committees tasked with implementing the suggestions.
I’m not mistaken, sadly. The budget decisions the GOP has made recently aren’t just about the DOGE cuts, many of which are ill-advised.
I stand corrected on this: Let me remind you that the trade deficit only includes export and import of goods, it does not account for any export or import of services. Trump’s formula for the tariffs only included goods, not services.
And the USA sells lots of services to the world, which are paid for with US dollars.
Now please explain why “trade deficit” is a problem and what about it is unsustainable.
I agree that the government annual deficit and total debt can bankrupt us (long-term run away inflation causing increased federal debt interest payments), but I don’t see any problem with the trade deficit.
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To me it seems like they want to raise tax revenues but not appear to do so. And extorting favors/advantages from some countries in the process, is just cherry on top.
The Trump tax cut are budget deficit inducing by collecting too little income tax revenues at current marginal rates (as evidenced by the huge fight about “current policy” vs “current law” on CBO pricing, talks about ignoring the Parliamentarian if she decides in favor of “current law” baseline). The 2024 budget deficit was $1.8T, projected to be $1.9T in 2025 by the CBO. Cutting spending by this much would not even make a dent in the debt. And they know the budget does not have $2T of fat to trim without touching entitlements.
So raising tax revenues has to make up for it somehow. But of course raising taxes is not getting you re-elected too often. Hence a stealth consumption tax like tariffs. The justification of trade deficit on goods that conveniently ignores the trade surplus in services the US has is just packaging of this new tax.
They could add a federal VAT - which would not hurt global trade as much - but that’s in your face tax shift from progressive income tax to regressive consumption tax. You’d notice when that added VAT tax hits your receipt. But not so if the consumer pays for the tariffs via increase prices of goods. Plus these higher prices are easier to blame on greedy corporations, foreigner profiteers taking advantage of us, or similar propaganda.
The need for raising tax revenues then makes sense of why we’re still imposing large tariffs on countries we have a trade surplus with like the Netherlands, Indonesia, or Australia.
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Just yesterday Trump announced a new tariff, this time on medications because the “pharmaceutical companies are taking advantage of us.”
I can’t imagine how the Trump cultists are going to spin charging a tariff on medications that sick people absolutely need.
To be fair, it’d make more sense than the blanket tariffs implemented today to put in place tariffs targeting specific industries that are considered strategic. To me, a case can certainly be made for incentivizing/protecting US production capability for critically-needed drugs.
But yeah it will be a hard sell for drugs that are already more expensive here than they are in other parts of the world where governments have actually negotiated prices down bettter.
I’d tax those pharmaceutical companies taking advantage of us directly. A tariff, contrary to what Trump wants to make people believe, is a sales tax paid by the consumer, not by the company or by some other government. I can’t imagine Americans with serious medical issues having to fork even more money to buy their medicines.
As usual you make statements without any corroboration or support. And you are wrong about the trade deficit not including services. Here’s a reference that shows we have well over $1.2 trillion per year deficit in goods and services.
U.S. International Trade in Goods and Services, February 2025
| February 2025 | -$122.7 B |
|---|---|
| January 2025 | -$130.7 B |
Obviously, we disagree. Of course not all the decisions were about DOGE but include the effects of taxes on economic performance. US government revenues hit all time highs after the first round of Trump tax cuts. See this 2019 article. The deficits of the 2020s were driven by increased spending by the Biden regime.
https://www.investors.com/politics/editorials/trump-tax-cuts-federal-revenues-deficits/
Go Figure: Federal Revenues Hit All-Time Highs Under Trump Tax Cuts
And which of the DOGE Cuts do you disagree with?
This speaks volumes…
The heat got too hot for the economist-in-chief. Time to blame a few moronic sycophants underlings.