The uncertainty is the biggest drag. Tariffs are a tool that can be used as part of a broader strategy. Take the push to onshore chips manufacturing during the previous administration — tariffs were used (with greater precision) along with subsidies and other incentives.
Broadly applying tariffs has created plenty of uncertainty over the past year that we’re seeing show up in capital investment and overall employment data. Businesses don’t like uncertainty and have shown that they’re not keen on a single person wielding tariff authority that gets announced on social media in overnight posting sprees.
Great work Jonathan. Ironic that the policy worsened stuff he promised to improve. Kevin also failed to mention the many business that had to close operations because of being priced out of the market. You did a great job putting this together. The topic is very complicated and we have not sen the end of it. See you in 6 to 12 months for rounds 2 I bet.
If the EU follows through on pausing ratification of trade treaties, we'll see this end sooner. With the previous "whimsical" nature of personal relationships creating tariff policy, requiring studies and comment periods will make it much harder to justify how rates were set.
The question becomes can this Administration stack the tariffs consecutively after their expiration and how the threat to national security is defined?
There is a question around Trump's use of Section 122 of the 1974 Trade Act. The Libertarian-oriented Cato Institute has a useful article on this, which states in part: "The administration now claims that invoking Section 122 is necessary to address the United States’ large trade deficit. But the trade deficit is not the balance of payments, and conflating the two represents a serious distortion of the statute’s plain terms. In fact, another provision in Section 122 authorizes the president to enact temporary trade-liberalizing measures to address “fundamental international payments” problems by dealing with “large and persistent United States balance-of-trade surpluses.” (Emphasis added.) It is therefore hard to imagine that Congress intended for the distinct concepts of the balance of payments, on one hand, and the balance of trade, on the other, to be used interchangeably. A Senate Finance Committee report on the Trade Act of 1974 provides further evidence that Congress understood the balance of payments to be distinct from the balance of trade." https://www.cato.org/blog/new-trump-tariffs-are-also-unlawful#:~:text=Section%20122%20was%20enacted%20in,.%E2%80%9D%20(Emphasis%20added.) See you in 149 days.
The current Adminstration's public push for lower rates is a desire to depreciate the value of the US Dollar relative to other currencies getting you to lower export prices. But lower rates nets you higher inflation as people go chasing the goods/services. (AI build-out currently has skilled labor shortages due to demand and immigration reductions.) Still a Fed issue that has yet to be determined as to future path.
Borrowing also contributes to the debt whether through Treasury purchases by foreign nations or Direct Foreign Investment. Without changes to the US Federal Deficit trajectory, lower Fed Fund Rates require Treasury to offer higher rates of return. The result, higher interest payments (currently $1T per annum and growing) and less money for other programs without potential tax increases. (Let's leave SS out of this, completely different mess.)
And lastly, exchange rates being pegged to inflation via conventional, stabilization means or free-floating. The value of US currency relative to other fiat creates trade imbalances. (Without getting too far into the weeds, Bessant knows this area well having profitted during his Soros days by leveraging UK Pounds into a devalue cycle in 1992.)
*Hassett was once a credible source but his current employment situation calls for stated policy goals rather than objective commentary.
**Jonathan some career advice - I took the LSAT in 1993, still ended up an Economist and couldn't be happier. Good work you presented today!
The uncertainty is the biggest drag. Tariffs are a tool that can be used as part of a broader strategy. Take the push to onshore chips manufacturing during the previous administration — tariffs were used (with greater precision) along with subsidies and other incentives.
Broadly applying tariffs has created plenty of uncertainty over the past year that we’re seeing show up in capital investment and overall employment data. Businesses don’t like uncertainty and have shown that they’re not keen on a single person wielding tariff authority that gets announced on social media in overnight posting sprees.
Great work Jonathan. Ironic that the policy worsened stuff he promised to improve. Kevin also failed to mention the many business that had to close operations because of being priced out of the market. You did a great job putting this together. The topic is very complicated and we have not sen the end of it. See you in 6 to 12 months for rounds 2 I bet.
If the EU follows through on pausing ratification of trade treaties, we'll see this end sooner. With the previous "whimsical" nature of personal relationships creating tariff policy, requiring studies and comment periods will make it much harder to justify how rates were set.
The question becomes can this Administration stack the tariffs consecutively after their expiration and how the threat to national security is defined?
There is a question around Trump's use of Section 122 of the 1974 Trade Act. The Libertarian-oriented Cato Institute has a useful article on this, which states in part: "The administration now claims that invoking Section 122 is necessary to address the United States’ large trade deficit. But the trade deficit is not the balance of payments, and conflating the two represents a serious distortion of the statute’s plain terms. In fact, another provision in Section 122 authorizes the president to enact temporary trade-liberalizing measures to address “fundamental international payments” problems by dealing with “large and persistent United States balance-of-trade surpluses.” (Emphasis added.) It is therefore hard to imagine that Congress intended for the distinct concepts of the balance of payments, on one hand, and the balance of trade, on the other, to be used interchangeably. A Senate Finance Committee report on the Trade Act of 1974 provides further evidence that Congress understood the balance of payments to be distinct from the balance of trade." https://www.cato.org/blog/new-trump-tariffs-are-also-unlawful#:~:text=Section%20122%20was%20enacted%20in,.%E2%80%9D%20(Emphasis%20added.) See you in 149 days.
The current Adminstration's public push for lower rates is a desire to depreciate the value of the US Dollar relative to other currencies getting you to lower export prices. But lower rates nets you higher inflation as people go chasing the goods/services. (AI build-out currently has skilled labor shortages due to demand and immigration reductions.) Still a Fed issue that has yet to be determined as to future path.
Borrowing also contributes to the debt whether through Treasury purchases by foreign nations or Direct Foreign Investment. Without changes to the US Federal Deficit trajectory, lower Fed Fund Rates require Treasury to offer higher rates of return. The result, higher interest payments (currently $1T per annum and growing) and less money for other programs without potential tax increases. (Let's leave SS out of this, completely different mess.)
And lastly, exchange rates being pegged to inflation via conventional, stabilization means or free-floating. The value of US currency relative to other fiat creates trade imbalances. (Without getting too far into the weeds, Bessant knows this area well having profitted during his Soros days by leveraging UK Pounds into a devalue cycle in 1992.)
*Hassett was once a credible source but his current employment situation calls for stated policy goals rather than objective commentary.
**Jonathan some career advice - I took the LSAT in 1993, still ended up an Economist and couldn't be happier. Good work you presented today!
100 % agree with you the Supreme Court ruling allows for an exit strategy. I’m just not sure that it would be taken.