A Recession Caused by Some of the Dumbest People Currently Alive
A quick summary of our current situation.
I have a video for you all.
I also have a picture for you too:
OK, with that out of the way, close your Charles Schwab tab and close the STOCKS app on your phone. I am going to make your day infinitely worse.
What the hell is happening?
Welcome to Donald Trump’s new America, where we love tariffs and a tanking stock market. I’m going to give you a fair warning: A chunk of this post is going to be me dunking. I am going to dunk on moderate, anti-anti-Trump conservatives who said he wouldn’t be as bad as Joe Biden or Kamala Harris. I am going to dunk on MAGA Republicans, who - if they could read - would get triggered. And I’m going to dunk on the tech billionaires who predicted that Trump would not do any of the things he campaigned on and would listen to them when it came to the economy.
This is me right now:
Here are two pieces I wrote before the November Election:
Yeah dude. He is tanking the economy. Who could have predicted this? ME. I DID.
I tried to write about this prior to the election, but no one really listened to Trump when he spoke about his economic plans. Whenever he said he’d do tariffs, the average person (even in media) would say/think, “Well, he did tariffs in his first term and those weren’t that bad.”
But Trump didn’t campaign on doing the same round of tariffs he did in his first term. He campaigned on what he’s doing now, and he’s been making this point since the 1980s. He thinks us having a trade deficit with any country means we are getting ripped off, so he is trying to correct it.
Lots of people have posited that Trump wants to bring “manufacturing” back to the U.S. Others have said Trump is secretly a free trader and that he wants to get tariff rates down to zero. Neither is true. He really thinks a trade deficit is bad because the way his brain works is: If I pay more for your stuff than I want then I am losing.
I’ll give you a great example. Madagascar has a trade surplus with the U.S., because they export something like 80% of the world’s vanilla. They have a trade surplus with us because they are a poor country and cannot buy a lot of our products. So, of course we have a trade deficit with them; we need their vanilla and they do not need our designer shoes.1 For obvious reasons, we are not going to start vanilla bean farms across the U.S. if we cannot get access to Madagascar’s vanilla. For one, it takes up to 7 years for plants to reach maturity. For another, it is not profitable for us because our economy is 10x the size of Madagascar’s.
So, what’s going to happen is that we are simply going to pay more for vanilla. Importers are going to pay 47% more for vanilla that comes into the country and pass that cost on to the consumer. And it’s not so we can start a vanilla bean manufacturing plant (?), it’s simply because Trump thinks us buying more vanilla from Madagascar means we are “losing” to them when it comes to trade. That’s it.
OK, wait, I thought the manufacturing stuff was real.
Even if you believe that Trump’s goal is to bring manufacturing back to the U.S. (I don’t think he even knows how that will happen), the economy has changed so much since the 1870s that it is impossible.
For one, we do not have the large-scale unionization efforts that we had in the 1960s, 70s, and 80s. For another, we are not going to hire people who sort nuts for a living, because we have machines to do that for us now. No company is going to pay someone $20 an hour to sort nuts when they can pay a machine $0 to do it.
If you want to grow manufacturing jobs in the U.S., there is a way to do it. But before I show it to you, I really have to take a breath. This chart drives me up a wall.
OK, I’m back. Anyway, if Donald Trump wanted to “bring back manufacturing” to the U.S., he didn’t need to do tariffs. He could have just PICKED UP THE PHONE AND CALLED JOE BIDEN WHO WAS THE BEST PRESIDENT FOR MANUFACTURING JOBS IN MODERN AMERICAN HISTORY OMG LOOK AT THIS CHART.
Manufacturing in the U.S. shot up after Biden passed the CHIPS Act and the Inflation Reduction Act, because they both created new opportunities for green jobs in manufacturing. And Trump is trying to undo both of them. 🙃
The absolute dumbest people are running the country right now. It makes me want to blow a gasket. And one final note about “bringing back manufacturing” by ending free trade agreements:
I know tariffs are bad and Trump is dumb. Just tell me how bad it’s going to be.
I really don’t think I can overstate this: A lot of the damage has already been done and it is irreversible. A big problem with Trump is that other countries are fully aware (maybe more aware than some Americans) that Trump is no longer an anomaly. The first term you could write off as a fluke. Any number of things can be chalked up to Trump’s win, from Hillary being a poor candidate, to James Comey, to “BUT HER EMAILS,” to Trump being someone who will “shake up” the system.
That isn’t the case anymore. Foreign leaders have now fully baked in Trump’s policy views as those of the Republican Party. They could, potentially, try to re-engage with the U.S. in four years when a Democrat comes into office, but then they could be dealing with the same ideology on tariffs once a Trumpy candidate comes back. The old order is over. On both trade and foreign policy, America is never going to be trusted in the same way again. And if you are skeptical of this, I can tell you that I have personally seen Trump voters say, “We need a recession to correct everything that is wrong with our economy.” If they are so sycophantic that they are openly saying they want a recession, you can believe they will fall in line with whatever the next “Trump” supports (even if it is Trump himself running for a third term).
Here is Edward Luce in the Financial Times:
The idea that Trump’s impact will be limited to the goods-traded economy is also wishful thinking. Foreigners own a critical share of US Treasury debt. Continued high demand for an asset in whose issuer the world is losing trust is the difference between a Trump recession and a Trump depression. On this, Europe’s governments seem to have better instincts than the equity and fixed-income markets. Rather than escalate the trade war, the EU is mulling only a modest toolkit of retaliations. This is not because Brussels thinks Trump is likely to embrace comity. It is because it fears a tit-for-tat trade spiral will break the global financial system.
Either way, this teachable moment is needlessly belated. Trump’s sane-washers have forfeited their credibility. There is no school of foreign policy realism, or trade mercantilism, that could explain Trump’s actions. If you want to forecast the world, study his psychology. While Trump is in charge, stay short on America.
This is why the market sell-off has continued into its fifth day. Traders, banks, and all the smart financial people are betting on a worldwide economic slowdown, with Trump as the culprit. Here is a wild visual:
Remember: There was no crisis before Trump did this. Trump’s failed economy in his first term could largely be chalked up to a global pandemic (which he mishandled, but whatever). This downturn is fully self-inflicted.
And every possible jump you see in the markets is entirely predicated on whether or not Trump backs down. Stocks were up slightly today because there was some news about Trump possibly “cutting a deal” with countries over the tariffs. But the White House has repeatedly said that there will be no deals and that this is a new normal. When it sinks in that Trump isn’t backing down, stocks plunge lower again.2
Please give me some hope. My 401K needs it.
Here is a positive thing I am seeing. Elon Musk, of all people, has been very critical of the Administration’s pro-tariff stance. He has publicly fought with Trump’s main tariff czar, Peter Navarro, and repeatedly called him the “r-word.”
Side note: This is an insult to people who are intellectually disabled, because I don’t think any of them self-jailed themselves the way Navarro did. But I digress.
If you are a praying person like me, you should actively be praying that Musk can change Trump’s mind. I personally think Elon’s days in the Administration are numbered, but hope springs eternal.
See you Friday.
I have three pairs of Allen Edmonds shoes. They are incredible and last forever. And slightly out-of-style, so they fit in perfectly with my wardrobe. They cost $500 a pair. It costs infinitely more to make stuff here.