Trump Tariffs Gone Wild

The U.S. stock market’s recent zigs and zags have triggered considerable excitement. Wall Street pros, private money managers, and Millennial index fund enthusiasts have all been whipsawed by the market’s swift up and down movements. No one can seem to stay ahead of President Trump’s ‘make it up as you go’ tariff games.

Trump clarified the rules of the game to reporters in the Oval Office on March 21. Specifically, he intends to be flexible on tariffs when it is to the advantage of American companies. Trump stated:

“I gave the American car companies a break, because it would have been unfair if I didn’t, and everybody said, ‘Oh, he changed his mind on tariffs.’ I didn’t change my mind. I helped our sort of Big Three, Big Four [automakers].”

“Instead of taking it properly, they said, ‘Oh, he changed.’ I don’t change. But the word flexibility is an important word. Sometimes it’s flexibility, so there’ll be flexibility, but basically it’s reciprocal.”

What does this mean?

Perhaps Trump’s great unveiling of import tariffs on April 2 – what he calls “Liberation Day” – will add some clarity. But we have some reservations. The tariff schedules to be released on Liberation Day will likely be a starting point for discussion and negotiation.

For Trump, as you know, everything is negotiable. Concessions and exceptions, when reciprocal, can be expected. In short, tariffs will change to suit Trump’s perceived need at any given moment.

By this, Trump’s tariff policies will remain uncertain. Moreover, as prices for imports, and consequently exports, are arbitrarily adjusted via political means, it will be impossible for businesses to properly plan, budget, and invest for the quarter and year ahead.

Rigorous Flexibility

In 2009, Dawn Jackson Blatner, a registered dietician, came up with a novel thought. She found this thought to be very stimulating. So, she wrote a book about it.

The title of the book was The Flexitarian Diet. And the big idea Blatner revealed was that you can be a vegetarian and still eat meat. Hence, the “flex.”

In the Book of Romans, Chapter 14, Verse 2 and 3, the Apostle Paul tells us that:

“One person’s faith allows them to eat anything, but another, whose faith is weak, eats only vegetables. The one who eats everything must not treat with contempt the one who does not, and the one who does not eat everything must not judge the one who does, for God has accepted them.”

Here at the Economic Prism, like God, we accept vegetarians. So, too, we accept meat eaters.

We also accept flexitarians. But we question the point of the classification.

Most people, as far as we can tell, eat both vegetables and meat. They’re merely omnivores. In this respect, what’s the point of having a redundant category? Does going meatless Mondays make you something else?

According to healthline, “The Flexitarian Diet has no clear-cut rules or recommended numbers of calories and macronutrients. In fact, it’s more of a lifestyle than a diet.”

A lifestyle without rules or recommendations, where one can have their cake and both eat it too, aligns with the times. Indeed, in the year 2025, California sober – i.e., marijuana maintenance – is a virtuous living standard people strive for.

Like flexitarians, what Trump is after is rigorous flexibility. He wants to optimize optionality. He wants the gain without the pain, and the reward without the risk.

Are you eager to discover how this all works out?

Bold Claims

On March 13, the S&P 500 closed at an interim bottom of 5,521. On that day, it was down over 10 percent from its all-time closing high of 6,144 on February 19.

Since March 13, the S&P 500 has rebounded 3 percent. The short-term significance of the S&P 500’s 10 percent decline and 3 percent rebound is uncertain. Maybe with the rigorous flexibility of Trump’s trade tariffs, stocks could boom from here. Stranger things have happened.

There’s also the potential for a purge. And, if so, what will be the nature of this purge?

Will it be short and sweet, like that of early-2020 where the S&P 500 fell 30 percent before quickly resuming its uptrend? Or is this the start of a brutal bear market – the kind that wipes out portfolios and blows up investment funds?

Given the S&P 500’s extreme valuation, and the damaging chaos of Trump’s tariff policies, we believe a brutal bear market is in the works. Investor patience is waning.

On Monday, Wall Street appeared to be keen on the rigorous flexibility Trump outlined in the Oval Office on March 21. The S&P 500 jumped 100 points. But this boost quickly stalled out and faded through Thursday.

In the mix, was Trump’s mid-week announcement of 25 percent tariffs on foreign made cars and light-duty trucks, and certain auto parts. These new tariffs will take effect on Liberation Day, April 2, and are in addition to existing tariffs. When signing the executive order, Trump made the bold claim: “This will continue to spur growth that you’ve never seen before.”

Do you believe this?

Trump Tariffs Gone Wild

The White House estimates that $100 billion in annual duties will be collected because of these automobile tariffs. Not included in the estimates, however, is the money that will be extracted from the pockets of American consumers who will now have to pay to subsidize the American auto industry.

In addition, these tariff policies only consider one side of the trade equation. In 2024, the U.S. exported $3.19 trillion in goods and services. By exacting tariffs on imports, America’s trading partners will have fewer dollars of which they can use to buy American exports.

Thus, any benefit in new jobs created through protectionist policies for the American auto industry will be subtracted from other American industries that make and export goods. These tariff policies, in effect, boost up American businesses that are inefficient, those that cannot compete with international competitors, while hurting American businesses that are efficient.

In Chapter 11 of his book Economics In One Lesson, economist and author Henry Hazlitt includes the following insight:

“The effect of a tariff, therefore, is to change the structure of American production. It changes the number of occupations, the kind of occupations, and the relative size of one industry as compared with another. It makes the industries in which we are comparatively inefficient larger, and the industries in which we are comparatively efficient smaller. Its net effect, therefore, is to reduce American efficiency, as well as to reduce efficiency in countries with which we would otherwise have traded more largely.”

Ultimately, Trump tariffs gone wild will have the opposite of his desired effect. While certain industries will benefit, the economy, as a whole, will be harmed. Over the long run, the reduction in efficiency resulting from these tariffs will reduce real wages and wealth.

What’s more, they’re a significant distraction from addressing the U.S. government’s spending and debt problem.

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Sincerely,

MN Gordon
for Economic Prism

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