A Simple Explainer on How Trump's Tariffs Could Jumpstart Inflation Again

An easy-to-digest post before you start digesting tomorrow.

Hello my babies. So, I have some bad news. I wrote a Jackal for last week and it was so good. It focused mostly on Matt Gaetz, but also touched on Pete Hegseth, two of Donald Trump’s picks for his cabinet. The headline was amazing:

…and then Matt Gaetz ruined everything and withdrew his nomination. I tried to rewrite it to have it make sense, and it just didn’t work. Welcome to the Trump Administration 2.0, where things are so chaotic your hard work gets thrown right into the dumpster.

But I did want to write a quick thing on how Trump’s tariffs will make things more expensive for all of us. So, let’s dive in.

This is a picture of the Terminal Bar in Denver’s Union Station. It is gorgeous. It is great. And its margaritas currently cost $12 and get even cheaper during Happy Hour. Welcome to the glory of Joe Biden’s America.

A few days ago, Trump announced that on his first day in office he would slap a 25% tariff on imports from Canada and Mexico. As judged by the election results, I think a lot of people struggle to understand how a tariff works, so I wanted to break it down in terms that are easy for me to understand (i.e., using margaritas).

Judging from Trump’s actual statement announcing his policy, he still does not understand how tariffs work because he is stupid, lazy, and fat:

Trump still thinks a tariff is a punishment on the country sending the products, but in reality it is an increased cost incurred by the American companies that import products from Canada and Mexico into the United States. They pay the tariffs and then pass the costs on to American consumers. I can give you a good example:

This is a bottle of mezcal I have in my bar, and you can see right there on the label that it was produced in Mexico and imported by a company in Texas. That means every bottle of “Tequila” or “Mezcal” that you buy from the store originates in Mexico and is imported here. The Unites States cannot make “Tequila” or “Mezcal,” because they are unique products of Mexico, much in the same way that bourbon is a unique product of the United States and scotch is a unique product of Scotland. You can make your own versions of these spirits, but what you call them is strictly limited.

Trump’s tariffs likely mean that we are going to be paying 25% more for our bottles of mezcal and tequila. That means this $40 bottle of mezcal that I have in my bar just became $50 when I have to re-up next year. But it gets worse from there: When prices go up at the liquor store, they go up at your local restaurant too. When the bar manager goes to buy their bottles of mezcal and tequila and end up paying more for each bottle, they - like the importing company of the booze - will also pass those costs on to consumers. So, your $12 margarita at the Terminal Bar just became $15.

Trump’s defense of his tariffs is always this: If we stop importing all these foreign products, then we will produce more of our own. But it’s like I said above: We literally can’t produce more tequila or mezcal because they have to be made in Mexico. We can make our own “agave spirits,” but the other issue is that distilling things like liquor takes time. Some mezcals are aged for decades. So, good luck getting us cheaper, American-made agave spirits in the year 2054.

It is an absolutely bananas policy and it is economically illiterate. What’s worse is that Canada and Mexico will definitely retaliate, and things that are. traded in between our countries will only get more expensive. After the election, I did a post on Facebook outlining why I thought Trump won:

1. In the West, you are seeing a full rebellion against incumbents on a scale that is unprecedented. This year, not a single incumbent in developed countries won reelection. That is the first time that's happened since WW2 and that is a story mostly about global inflation. Harris ultimately couldn't overcome it.

Voters - across the globe - got their first taste of inflation in ~40 years and hated it. And before you say, "The U.S. had lower inflation than most European countries," it is hard to convince the average American of that, let alone a Trump supporter who is ensconced in a misinformation bubble. Also, before you say inflation is currently at around 2.5%, look at point 2.

2. This is kind of neat: We are living through a Party re-alignment. Working class voters are shifting to the Republican Party. Harris won voters making over 100K, something no Democrat has done in...I don't know how long. That realignment began in 2016 and is now complete. The Parties have flipped on a lot of issues (Democrats are now the Party of free trade, for instance), but that is a big one. Higher incomes were insulated from inflation and broke for Harris, but people making below 100K are a much, much bigger portion of the electorate.

3. Voters didn't know Harris. While turnout in swing states was up, in places like NY and CA she didn't run up her totals the way Biden did because voters had ~3 months to find out who she was. A really popular Google search a few days before the election was "did Joe Biden drop out." Not kidding.

We are still counting votes, and I bet there are around 10-12 million to be added to the total. Both candidates will get somewhere between 70 and 75 million, with Trump probably winning the popular vote by 1%.

4. How bad is he gonna be? A lot of this hinges on the House, which looks like it may come down to one seat. If the GOP wins, Trump will have 2 years to enact his agenda because Democrats will win the House back in 2026. The Parties have fully flipped on low propensity voters (they used to be Democrats and now they're Republicans), so Dems have an advantage.

It also hinges on how much of Trump's agenda is actually put in place. He is easily manipulated and distracted, so hopefully we see normal, sane Republicans suck up to him and convince him not to enact tariffs or deport 11m people. All it takes is telling him his hair looks nice and that could do the trick.

But if that doesn't happen, then I would expect a severe recession and hyperinflation. I think everyone is assuming that Trump won't enact the most extreme parts of his agenda, but he has learned his lesson from the last time. He will be appointing sycophantic loyalists who will not challenge him. This also assumes he makes it four years and we don't get a President Vance.

5. Trump will (again) inherit a very strong economy that his supporters will magically say is good on January 20, 2025. Inflation is back to normal levels, job growth is strong, GDP is off-the-charts, and labor force participation is at an all-time high.

The U.S. emerged from the pandemic with the strongest economy in the world and while I think that is a testament to the fundamentals within it, it is also because Biden did an excellent, excellent job as President.

His main failure is (back to 3), that he did not drop out sooner and give Democrats time to hold a real primary. I think that would have helped Harris (or someone else) a lot. To start and run a campaign in 3 months is crazy.

But with the global reaction against inflation, I'm not sure if there was anyone who could have won. And if it was a normal Republican like Nikki Haley or DeSantis, it really could have been a blowout a la 2008, just on the other side.

6. Trump's first term was a disaster. He left office with a net loss in job creation, a spiraling economy, and a spike in crime. Biden cleaned it up in four years, and Trump will fail again because he is stupid, incompetent, and fat.

There is no such thing as a permanent coalition. When voters realize that Trump cannot magically reduce prices (this is DEFLATION, which doesn't happen unless there's a recession), the ones he flipped will flip back on him.

Finally, blow out the last candle for conservatism. The GOP is now wedded to Trumpism forever.

Point 4 is really crucial here. Will Trump actually slap a 25% tariffs on products from Canada and Mexico? Can he? I don’t know the answer to either question. I do know that the first Trump Administration - despite all the attention it got - was historically incompetent. He made a load of promises when he got into office and somehow managed to only pass a single tax cut (despite having a GOP trifecta) and moving the U.S. Embassy to Jerusalem. Then COVID happened and he was exposed as a clown.

I would expect roughly the same scenario to play out again: He will talk a big game, not know how to actually implement things, and then blame it on the “Deep State” when, in reality, it’s because he put the last door-to-door colonoscopy salesman he saw on T.V. in charge of some giant agency.

But I will say this: In his last Administration he did enact widespread tariffs and when they did begin to hurt U.S. companies (which was always going to happen), the Administration provided targeted relief for those affected. So, it was just incompetence on top of incompetence: We charged ourselves more money, to make less money, and then spent more money to help those who were making less money.

If you want a visualization of how Trump’s tariffs ended up working out:

That’s all from me. I will have a long write-up on what I think is in store for us over the next few years, but the Jackal also retreats into Holiday mode for Christmas.

Enjoy your Thanksgiving. I’ll be back soon.