Economic Musings

There is now a universal tariff of 10% on every country wishing to export to the US.  More than 90 countries have rates of between 25-50%, including China, Brazil, India, and Switzerland. All of it adds up to a revenue stream which could reach as much as $600 billion per year according to Scott Bessent, the US Treasury Secretary.

It’s very difficult to articulate an argument, whereby this isn’t a net negative for consumers and corporations who will have to bear the cost of this massive shift in pricing dynamics. Never mind the time and efforts associated with shifting global supply chains, that have otherwise been in place for decades.

For many developing nations, higher tariffs will choke off access to the lucrative U.S. market, curbing growth and investment opportunities. For wealthier countries, retaliatory measures are almost inevitable, sparking a new wave of trade disputes or hastily drawn up trade agreements that will be difficult to implement in practice.

While some industries may initially benefit from reduced foreign competition, higher input costs for raw materials and components could erode any gains, particularly with a weakening currency. In the longer term, a less competitive global trading environment discourages innovation and sets the stage for a prolonged slowdown in output.

Meantime, the S&P500 index broke 6400 last week, which is another record high. If you are still not convinced that all we learned about economics in college has little relevance in a world that seems to suggest that we can just print money forever, the markets are pricing in five rate cuts by the end of next year. What could possibly go wrong?