The damage is vast and continuing
I’ve been at a workshop in Boston for these last few chaotic days. On the perhaps mistaken theory that President Trump will stick with the current tariffs, where do things stand?
The ugly
The losses on the stock market still amount to more than 10% of its value and trillions of dollars. If your timing was bad, you sold just before Trump suspended tariffs on most countries yesterday, causing a bump upwards. Odds are Trump, his family, and advisers did not make that mistake. Even if they didn’t use insider information to trade, they no doubt used it to desist from trading.
Trump’s on again, off again tariff decisions have done serious damage not only to the stock market. The bond market fall was a decisive factor in his “off” switch. That suggested strong inflation and rising interest rates, which would kill the Biden expansion Trump inherited. Stagflation is still a serious possibility.
With stocks and bonds collapsing, it would be surprising if Americans were to stay confident in the markets. The same is true for foreigners. The cash flow into the US that enables the trade deficit Trump wants to get rid of is in danger. Among the big buyers of US government bonds are the Chinese. Are they going to continue to buy, or even hold, those?
Markets rely on confidence. Trump has done everything possible since his inauguration to undermine it. Consumer confidence is declining sharply towards the relatively low level it hit during the COVID19 epidemic:
The bad
Trump’s tariffs are still there. The Economist estimates we’ve gone from an average effective tariff level of 3% to 25%. That is a giant increase that will hurt the American economy in many different ways. Because of our dependence on Chinese products, America is going to lose the trade war with China. Tariffs are still raising American costs, and Chinese retaliation is hurting US exports.
The automobile sector will be hard hit. American manufacturers, and foreign producers who manufacture in the US, are going to face sharply high costs. The capacity to ramp up domestic production of parts is limited. While the United Auto Workers union is applauding, few new jobs will result in the near term. Many more will be lost to the impending slowdown in the economy.
The good
If there is a silver lining, it is in national consciousness. Americans are becoming aware of their connections to the rest of the world. No one can ignore the damage that an incompetent and capricious president can do. Trade and alliances count. A Federal government that can think clearly and act sensibly is indispensable.
Some of this consciousness will help people understand the damage that cutting the Federal work force and budget will do. The so-called Department of Government Effectiveness has already demonstrated its vast incompetence. It is also hurting states and cities all over the country. The $2 trillion cut the House is asking for will cut deep into Medicaid and likely Medicare as well. Social Security is also at risk.
The simple fact is we were better off on January 19 than we are today. If Trump keeps this up, he will rank as a disastrous president.
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The end ought to be a successful impeachment for a laundry list of crimes. Start with insider trading and breach of national security, extortion of institutions and individuals and on and on.