If you thought reciprocal tariffs meant the imposition of import duties on others that match those they currently impose on us, you’re probably not alone.
Interesting to read. I think their calculation is indeed too simplistic to be a serious choice. Everybody seems stunned and laughs about it.
My hunch is that the administration is playing dumb on purpose in order to make their tariff threats credible (still assuming they do not intend to maintain general country-specific tariffs on all goods for long). After all, they were extremely ingenious in gaining voters during the election campaign (just talking about appearances at McDonalds and Joe Rogan). If the administration plays stupid as a madman would be, given prior knowledge of McKinley's failures, the world is forced to take the administration seriously in the same way they are forced to take Putin seriously with his nuclear threats. And using a simple calculation like this one to calculate a tariff rate is making it credible for people they fit the definition of a madman.
One thing is clear. Trump wants to pay off the national debt. To pay off the debt, they do not focus on growth (as of now), but instead focus on cutting costs. Additionally, they seem bothered by the high rates of interest paid on government debt. By getting more people to buy bonds (through the uncertainty the administration is causing), yields decrease, thus allowing the government to refinance more expensive debt at a lower rate, probably in a couple of weeks or months from now. Without such shakeup and playing the role of a madman, this would not be possible.
In addition, I think the administration might expect to pay off some of the national debt through higher tax revenues. They expect that importers will bear the cost of the higher tariffs and contribute to the government budget by importing (fewer products) anyway and thus paying the tariff rate on foreign goods and contributing to the government budget.
The fact that other countries retaliate is expected.
All these thoughts I lay out here are assuming that there are no rational actors (/investors) in the economy that understand the bigger strategy that is at play (and thus bond prices move into the expected direction). If information spreads across investors, a likely outcome could be what markets are starting to expect - persistent tariffs and a recession.
My prediction is that some tariffs are here to stay. Steel, aluminium, basic manufacturing, car parts (from outside USMCA). However, other tariffs will be dropped after they negotiate a "better deal", and the debt is refinanced at lower rates.
Note that the administration did not yet introduce the tax cuts it promised. Most likely, these will happen later in the year, when the first part of paying off the debt is solved. If they did it before then, the yields would probably increase as lower revenues increase the risk of government default. Long-term, however, all this this undoubtedly puts the US in a worse position by eroding trust with friend and foe. Short-term, this greater strategy (if my hunch is correct) might work in paying off the debt more quickly.
Edit: The bond market seems to be recovering, so my hunch about engineered volatility might be wrong here.
Interesting to read. I think their calculation is indeed too simplistic to be a serious choice. Everybody seems stunned and laughs about it.
My hunch is that the administration is playing dumb on purpose in order to make their tariff threats credible (still assuming they do not intend to maintain general country-specific tariffs on all goods for long). After all, they were extremely ingenious in gaining voters during the election campaign (just talking about appearances at McDonalds and Joe Rogan). If the administration plays stupid as a madman would be, given prior knowledge of McKinley's failures, the world is forced to take the administration seriously in the same way they are forced to take Putin seriously with his nuclear threats. And using a simple calculation like this one to calculate a tariff rate is making it credible for people they fit the definition of a madman.
One thing is clear. Trump wants to pay off the national debt. To pay off the debt, they do not focus on growth (as of now), but instead focus on cutting costs. Additionally, they seem bothered by the high rates of interest paid on government debt. By getting more people to buy bonds (through the uncertainty the administration is causing), yields decrease, thus allowing the government to refinance more expensive debt at a lower rate, probably in a couple of weeks or months from now. Without such shakeup and playing the role of a madman, this would not be possible.
In addition, I think the administration might expect to pay off some of the national debt through higher tax revenues. They expect that importers will bear the cost of the higher tariffs and contribute to the government budget by importing (fewer products) anyway and thus paying the tariff rate on foreign goods and contributing to the government budget.
The fact that other countries retaliate is expected.
All these thoughts I lay out here are assuming that there are no rational actors (/investors) in the economy that understand the bigger strategy that is at play (and thus bond prices move into the expected direction). If information spreads across investors, a likely outcome could be what markets are starting to expect - persistent tariffs and a recession.
My prediction is that some tariffs are here to stay. Steel, aluminium, basic manufacturing, car parts (from outside USMCA). However, other tariffs will be dropped after they negotiate a "better deal", and the debt is refinanced at lower rates.
Note that the administration did not yet introduce the tax cuts it promised. Most likely, these will happen later in the year, when the first part of paying off the debt is solved. If they did it before then, the yields would probably increase as lower revenues increase the risk of government default. Long-term, however, all this this undoubtedly puts the US in a worse position by eroding trust with friend and foe. Short-term, this greater strategy (if my hunch is correct) might work in paying off the debt more quickly.
Edit: The bond market seems to be recovering, so my hunch about engineered volatility might be wrong here.