Trump’s Trade War 2.0: Who Blinks First?
Debt, Deficits, and Defiance: Trump will dig his heels in and leave China and the EU with a major decision this week.
I’ll save the clever intro and just get right into it …
By now, you’ve seen, heard and felt the news.
President Trump isn’t fucking around.
What he did last week was extraordinary.
Today I’m going to outline where things stand,
And where things are headed.
Before I begin,
I want to make one thing clear right up front …
Economics is never good or bad.
It’s always both.
The people trashing Trump are political hacks.
The one’s humping his leg are too.
Proper economics uses a wide lens …
With that context let’s dive in.
When Donald Trump imposed tariffs during his 1st term, he bypassed the usual legislative process.
One key mechanism he used was Section 232 of the Trade Expansion Act of 1962, which gives the president the ability to impose tariffs if the Department of Commerce determines that imports threaten national security.
For example, in 2018, Trump used this authority to place tariffs on steel (25%) and aluminum (10%) imports, arguing that reliance on foreign metals weakened U.S. security by undermining domestic production.
The Good: Trump is right, relying on foreign metals does weaken our security as a nation.
The Bad: This would lead to higher input costs.
Last week was different.
President Trump implemented tariffs using the International Emergency Economic Powers Act (IEEPA), a law from 1977 that gives the president broad authority to regulate international commerce during a declared national emergency.
Critics argued Trump stretched "national emergency" pretty thin, but the laws (likely) give him leeway.
The new round of tariffs work like this:
Trump imposed a 10% baseline tariff on all imports starting April 5, 2025, affecting nearly every country unless exempted (for example certain USMCA-compliant goods from Canada and Mexico).
Then, on April 9, 2025, he rolled out, what he calls reciprocal tariffs - ranging from 11% to 50%—targeting 57 specific countries with the largest trade deficits with the U.S., like China (54%), Vietnam (46%), and the EU (20%).
The de minimis exemption for low-value Chinese goods (under $800) also ends on May 2, 2025, so those will face full duties too.
The good news?
For a country with $36T in debt and an annual budget deficit of $2T … this is one way to deal with it (without congress doing shit).
The bad news?
Well … obviously this will tank stock valuations, likely raise prices, and could cause an economic recession.
That’s why when Trump rolled this out to trumpets and celebrations at the White House, I criticized him.
If we are truly facing a national emergency - as the act says - we should not be celebrating.
But whatever.
We’ll let the political brains stew over the way the President delivered the message.
Now it’s time to focus on what’s coming next.
I laid out that Trump rolled out the tariffs using the International Emergency Economic Powers Act (IEEPA).
I didn’t do that to sound smart or to fill space.
The fact that he used this method, rather than the Section 232 method makes negotiations more difficult.
When Trump rolled out tariffs using Section 232, it was targeted.
Often directed at specific countries and specific goods, like steel or aluminum.
This time it applies to nearly all countries, goods and imports.
This will create binary outcomes in negotiations.
We’re already seeing this.
Almost immediately nations started to respond.
China and the EU basically flipped the bird to President Trump.
China retaliated with 34% tariff on all U.S. goods starting April 10, 2025. They also tightened export restrictions on rare earth materials and added 27 U.S. companies to trade sanctions.
The EU, facing a 20% reciprocal tariff, announced late Sunday a range of U.S. products facing new tariffs including bourbon, semiconductors, toilet paper, meat, cereals, wine, wood, clothing, chewing gum, dental floss, and vacuum cleaners.
Other nations like Vietnam, Taiwan, Argentina, Israel and others appear ready to strike a deal with the President.
President Trump is trying to project he has the stamina to wait this one out.
Over the weekend he fired off several Truth Social posts including one of him playing golf.
The optics are brutal, but I don’t think he gives a fuck.
Another post was more telling about what he wants to accomplish.
President Trump posted a link to a short TikTok video outlining why Trump wants to crash the stock market.
Here’s the gist:
The US needs to refinance trillions of debt in 2025.
The government would obviously like to do that at lower rates.
Jerome Powell will be late to cut rates, just like he was late to raise them.
The easiest way to get people to buy treasuries (and drive down rates) is to tank the stock market.
Tariffs will cause US food producers to dump product into the market (lowering grocery prices).
Energy prices are already collapsing, sub $2 gas is likely coming.
The real kicker … most wealth in the stock market is held by the 1%.
I realize you care about the stock market, but the truth is - most of the country doesn’t.
Treasury Secretary Scott Bessent has enforced this belief by saying the US economy needs a detox period.
$36T in government debt has inflated the “value” of assets, which most of the country doesn’t own.
In other words … the wealth you had on paper wasn’t real.
Here’s the bottom line.
I think Trump rides this out.
“Smaller” countries that would suffer a depression if America doesn’t buy their shit will cut deals over the next few weeks.
China and the EU will engage in a dangerous game of chicken.
Roughly 15% of China’s exports go to the US.
For the EU it’s 20%.
All this talk about Trump driving the United States into isolation could drive the EU and China onto an island.
Do they really want that?
At the end of the day America has the F-18s, aircraft carriers, nuclear bombs, and a consumer who’s trained to overspend.
If you’re going to live on an island … that’s the one you want to be on.
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Vietnam said they would lower their tariff rate to 0% and Peter Navarro said that isn't enough. Trump wants to eliminate the trade deficit with other countries. So if we have a trade imbalance of $123 billion with Vietnam then Trump wants that to be 0. No way that will ever happen.
You keep mentioning that he is doing this so other countries will remove their tariffs. There is just no evidence of that. The emperor has no clothes Colin
Colin, huge fan and supporter of Mr. Trump. But his current tariff strategy is mis-guided, not just on economic front but on moral and cultural grounds. It is apparent that what Mr. Navarro wants is American values and rules applied to other countries with scant regard for their culture and their own schemes. If a country responds with a zero tariff like Vietnam is not enough. Mr. Navarro cites things like child labor, environmental effects, VAT etc that he wants countries to remove. Let me dissect one. In India, where I come from, children who are as young as seven are employed in the trade craft of items like carpets, sculpture etc, this is like an apprentice. This is not forced, and has been a tradition for several centuries Say USA views this as child labor and considers this unfair as the family is not paying their child, and therefore US cannot compete with Indian sculpture or carpet making and impose a "moral" tax - not only will the family in India suffer, the art eventually die, but there is no way that art is coming to the US, because even if the carpet weaver or the sculptor wanted to set up shop in the US, he wont get the visa. This smells like US wanting to enforce democracy in nations not quite ready for it, and we can see the results. I know Mr. Trump is a reasonable man, and hope he understands the 2nd and 3rd degree negative effects, even if he does not care about the stock market. I am personally affected by the stock market, having recently retired, but the Almighty and the USA blessed me with sufficient capital to ride this out. It is painful to see that same great country wrestle the will out of poor people from the country I come from and others like Vietnam. The high "ideals" and indiscriminate application of American values to nations without resources is wrong. In my heart, I know Mr. Trump will correct this.