Comment by pjc50
7 days ago
Tariffs increase prices. This tends to cause a wage-price spiral, and indeed that's one of the stated objectives (increase US wages by onshoring manufacturing). The increase in prices and wages is inflation. This will cause the Treasury to raise rates to force contraction.
Now, so far rates have indeed spiked downwards, but not a huge amount: https://tradingeconomics.com/united-states/government-bond-y...
The next consideration is: what is the budget actually going to look like? Is it going to cut spending and leave taxes where they are, resulting in debt paid down, or is it going to be a huge tax giveaway to the top few % while increasing the deficit? (personally I'd bet on the latter)
Then the consideration: other players also get a move. What do the retaliatory tariffs look like? Does cutting off the ability of other countries to earn dollars negatively impact US exports?
Devaluing the dollar against other currencies will also force up rates by the arbitrage principle.
S&P down 4% so far today. Do we think that indicates the measures are good or bad for US industries?
Tariffs don’t increase jobs. Pretty much all Econ lit shows it lowering jobs, the same way it did during Trump I term and same as Smoot Hawley. It also moves manufacturing offshore for the same reasons Harley Davidson moved them to Europe last time - expensive materials here means expensive goods.
Next, since more expensive goods means less sales (see Ford last time), less is sold, so less workers are needed. Last Trump tariffs led to record farmer bankruptcies for a good economy, it led to ~300k manufacturing jobs loss compared to not having the tariffs, and MI had entered a manufacturing recession right before COVID hit.
If tariffs did even a fraction of the good Trump claims, they be used extensively by every country, by every state, by every manufacturer, etc.
Playing in a 21st century economy with long discredited 15th century tools will end as expected.