Mar.07

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Trumponomics, Part I: Meltdown

Another day, another tariff policy. The first round of tariffs on Canada and Mexico lasted 1 day before Donald Trump reversed course. The second round of tariffs on Canada and Mexico lasted 2 days before Donald Trump reversed course. Anyone want to make a prediction for how long the third round of tariffs on Canada and Mexico will last before Donald Trump reverses course?

Yesterday's reversal was not a complete one, as with the original reversal. Instead, Trump issued 1-month exemptions on United States-Mexico-Canada Agreement (USMCA)-compliant goods, which means that about half the goods coming into the U.S. from Mexico, and about 40% of the goods coming into the U.S. from Canada, get a temporary (?) reprieve. It is not entirely clear why Trump changed his mind, yet again—some sources say it was an (additional) outgrowth of the squawking from U.S. automakers, which also led to the first round of exemptions (the ones on cars, which took just 24 hours for Trump to announce, instead of 48).

Other sources say the change in plans came because Mexican president Claudia Sheinbaum and Canadian PM Justin Trudeau both got The Donald on the phone (not at the same time!), and told him whatever it is he wanted to hear. For example, Trudeau told Trump that there has been a 97% drop in the amount of fentanyl seized at the Canadian border. That sounds impressive, but for three things. The first is that the only possible source of this friendly-to-the-Canadian-government news is... the Canadian government. We are not sure if readers are aware of this or not, but politicians have been known to lie when they think it's necessary (and some of them even lie when it's not necessary). The second is that, even if the numbers are legit, a decrease in seizures certainly could mean a decrease in smuggling activity, but it could also mean less effective enforcement. The third is that, even if the numbers are legitimate, and even if enforcement is exactly as effective as it's always been, the "progress" made by the Canadians means that the amount of fentanyl crossing that border has gone from about 25 ounces to about 1 ounce. Given that something like 50 tons of fentanyl comes into the U.S. each year, it's not like a 24-ounce reduction at the northern border is going to solve America's fentanyl problem. Or even put a dent in it. Or even a little scratch.

In any event, it remains the case that nobody really understands what Trump is trying to accomplish here. Sure, he says this is about fentanyl, but if that problem is going to be addressed, it's going to be very, very difficult (remember, it's not like Trump made any progress during his first term), and it's not going to be achieved through the willy-nilly levying of tariffs. So, we cannot take the official explanation seriously. That leaves us with our current list of vague theories:

• Political Theater: The likeliest explanation is that all of this is just for show, so that Trump can say he's doing things, and that he's being strong, and blah, blah, blah. Then, he announces some minor change in the USMCA, declares a major victory, and moves on.
  
  
• Magical Thinking: The other reasonably likely explanation, which certainly could co-exist with the first, is that Trump does not really know what he wants, but he does "know," in his gut, that tariffs are "good" and will result in magical, wonderful outcomes.
  
  
• Dementia: We would not be doing our job if we did not point out that, after 5 rather erratic weeks, it is at least possible that Trump really is far-gone, mentally, and that what we are seeing is someone whose control is slipping, but who occupies a job where there are relatively few constraints, and what constraints there are (e.g., the Cabinet, the Congress) are currently not functioning. The fellow who delivered the Joint Address to Congress did not seem to be seriously impaired but, then, neither did Joe Biden when he delivered his final SOTU. Also, particularly in the early stages of cognitive decline, people do have their good days and their bad days.
  
  
• Unspeakable Goals: Finally, it's at least possible that Trump cannot explain his goals because those goals are extremely impolitic or illegal. For example, he could be taking bribes of one type or another, in exchange for tariff exemptions. If so, he can't exactly come out and tell everyone that is what is going on.

Again, these are just theories. We have no evidence, for example, that he's taking bribes. It's merely one hypothesis that fits the available facts. What would William of Occam say?

Whatever Trump is trying to accomplish, he seems to have created a situation where he's getting none of the benefits of tariffs, and yet a bunch of the downsides. A partial rundown:

• Weakness: If the point here is to look strong and presidential, well, that is not the image that is being put forward, to say the least.
  
  
• Pushback: As we have noted several times, the Canadians are insulted, and are angry, as well they should be. And even once this gets "resolved," assuming it does, there's no particular reason to think that things will return to status quo ante tributum. Canadian stores are yanking American products from their shelves, and are not going to put them all back. British Columbia might well levy a permanent toll on trucks traveling to Alaska. Canadian tourists are canceling planned U.S. vacations en masse, and they are not likely to be un-canceled. Ontario premier Doug Ford, who thinks—probably with good reason, since he recently won reelection—that he's got a mandate, has announced that he's going to stick with tariffs on electricity sent to the U.S., no matter what the White House does, or does not, do.
  
  
• The Stock Market: We have written it a million times: The business community, and the stock market, hate uncertainty. And Trump is creating a type of uncertainty that has virtually no president-precedent, since nobody has any idea what he will do until he actually does it. And once he actually does it, whatever "it" is, nobody has any idea how long it will be until he changes his mind. And so, the markets are not doing well, and are down nearly 3% in the last week, and nearly 6% from when he took office.
  
  Incidentally, Trump has an explanation for what's going on in the markets. He says that it's the work of "the globalists." That, of course, is code for "the Jews." Now, he does have an argument there; the problem is that it's an insane and antisemitic argument. And it's been an insane and antisemitic argument for well over a century, a timeframe that includes Trump's formative years. So, he can hardly claim he does not understand the encoded language he's using. And we will say that this kind of declaration from him... well, it certainly doesn't make us less inclined toward the "dementia" hypothesis, let's say. For what is is worth, one of the few people Trump truly trusts is Stephen Miller, and he is Jewish.

At the moment, and very possibly for the foreseeable future, the Republicans who run Congress are not going to use their actual powers to push back against Trump, no matter how crazy his economic "policies" might get. However, some of them ARE using the tried and somewhat true trick of giving him gentle hints through the media. Sen. John Kennedy (R-LA) went on Fox Business and said "I'm worried about the tariffs." He also claimed that the tariffs from Trump v1.0 did not cause inflation, which is a lie, but we guess you have to tread very lightly when you weakly challenge the throne. Meanwhile, Sen. Rand Paul (R-KY), whose home state is suddenly about to sell a lot less bourbon, talked to CNN and said: "Almost every industry in Kentucky has come to me and said, 'It will hurt our industry and push up prices of homes, cars, and so, I'm gonna continue to argue against tariffs." And Sen. Thom Tillis (R-NC), who has to tread more lightly than most, said: "When we start losing, you back off. There's such a thing as strategic retreat."

Whatever the next salvo is going to look like, it's going to come on April 2. That is the day that Trump said he'd start hitting other countries with tariffs, and although the current suspension of the Canada-Mexico tariffs is supposed to be for a month, he implied that April 2 is the real expiration date of his current "amnesty." And then, once he makes his (latest) move in the first week of April, we all get to wait again and see if he gets spooked, or manipulated by someone who knows how to butter him up, or bribed, or whatever else it is that causes him to change positions on a dime. (Z)