Trump's Second Term: The Economy

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Trade War, Redux

Under the 1897 US tariff laws – those are the McKinley era ones the Orange Anti-Christ loves so dearly –
  • $1 per pound import duty on opium;
  • $6 per ounce for opium prepared for smoking;
  • 25% for Cocaine and its derivatives (but, coca leaves: free of charge)
(Schedule A, section 43)

And, under that law, “all persons are prohibited from importing into the United States from any foreign country … any article whaever [sic] for the prevention of conception…” (Sec. 16)
 
I realize none of this is taking place in Trump’s second term

US 2024 Trade

In 2024, US merchandise trade totaled $5.33 trillion, up 4.6% over 2023 and the largest amount in history. Exports totaled $2.07 trillion, up 2.3% and just $1.27 billion below the all-time record set in 2022. Imports rose 6.1% to a new high of $3.27 trillion. That left a $1.20 trillion deficit with the world, the largest ever.

Where did it come from, and where did it go? Trade with Asia comprised 36.7% of the two-way total, up from 35.9% in 2023 but still below the 1985-2019 average of 37%. The European Union held an 18.3% share, two points higher than the pre-COVID average. Canada’s 14.3% was down from the earlier 17.6% share, but Mexico’s 15.8% portion was up from a 12% average.

Sales abroad
In 2024, 29.1% of overseas shipments went to Asia, as compared to 30.3% in the 2010-19 decade. The table below shows destination values and trends. Note that share data below Asia are percent of shipments to Asia.

Destination _ _ _ $ value 2024 _ _ % YoY _ _ 2024 Share _ _ 2010-19 Share
E.U. __ _ _ _ _ _ _ $370.2 bn_ _ _ _ +0.7%_ _ _ _17.9% _ _ _ _ 18.2%
Canada _ _ _ _ _ _ $349.4 bn_ _ _ _ -1.4%_ _ _ _ 16.9% _ _ _ _ 18.7%
Mexico _ _ _ _ _ _ $334.0 bn_ _ _ _+3.5%_ _ _ _16.2% _ _ _ _ 14.9%

Asia _ _ _ _ _ _ _ $600.3 bn_ _ _ _ +4.0%_ _ _ _ _29.1% _ _ _ _ 30.3%
Of Asia –
China _ _ _ _ _ _ $143.5 bn_ _ _ _ -2.9%_ _ _ _ 23.9%_ _ _ _ _24.6%
Japan _ _ _ _ _ _ _$79.7 bn _ _ _ _+5.4% _ _ _ _ 13.3% _ _ _ _ 14.5%
NICs _ _ _ _ _ _ $182.1 bn_ _ _ _ +3.6%_ _ _ _ _29.1% _ _ _ _30.3%
ASEAN _ _ _ _ _$124.6 bn _ _ _ +16.5%_ _ _ _ _20.8%_ _ _ _ 16.8%

The first thing that becomes clear is that sales to Asia are nearly twice as important as those to either Europe or our American neighbors. The second point is that shipments to ASEAN are roaring ahead faster than to other destinations in our analysis, and that exports to China are lagging.

From whence it came
On the import side, things are shifting around a bit more. To put it in perspective, Asia’s share is nearly double that of the EU, and close to three times Canada’s slice of the pie. But, with Asia, the shift away from traditional bogeymen in Japan and China are redefining America’s trade with the region.

ASEAN – the near-free trade zone in Southeast Asia – is taking huge chunks (10 percentage points) away from the rest of the region, with Vietnam leading the charge.

Source _ _ _ _ _ $ value 2024 _ _ % YoY _ _ 2024 Share _ _ 2010-19 Share
E.U. __ _ _ _ _ _ _ $605.8 bn_ _ _ _ +5.1%_ _ _ _18.5% _ _ _ _ 18.2%
Canada _ _ _ _ _ _ $412.7 bn_ _ _ _ -1.4%_ _ _ _ 12.6% _ _ _ _ 13.6%
Mexico _ _ _ _ _ _ $505.9 bn_ _ _ _+6.4%_ _ _ _15.5% _ _ _ _ 12.9%

Asia _ _ _ _ _ _ $1,356.9 bn_ _ _ _ +8.2%_ _ _ _ _41.5% _ _ _ _ 43.3%
Of Asia –
China _ _ _ _ _ _ $438.9 bn_ _ _ _ +2.8%_ _ _ _ _32.3%_ _ _ _45.9%
Japan _ _ _ _ _ _ $148.2 bn _ _ _ _+0.7% _ _ _ _ 10.9% _ _ _ _ 13.7%
NICs _ _ _ _ _ _ $297.1 bn_ _ _ _+19.3%_ _ _ _ _21.9% _ _ _ _13.5%
ASEAN _ _ _ _ _$352.3 bn _ _ _ +13.3%_ _ _ _ _26.0% _ _ _ _15.0%

What does it all mean? First, moving purchases from Japan or China to Vietnam does not cost a single American job. Second, it is almost certainly leading to lower costs to American consumers and businesses, because otherwise, why move away from an established export base? (Bear in mind that many of the companies manufacturing in Asia for export to the USA are in fact American companies.) Third, those lower price points directly benefit the profits of businesses and standards of living of those in the United States.

Final thought. A 10% import tariff on everything purchased from China would be the same as imposing a new $43.9 billion tax. Not smart.
 
A Letter on Tariffs From Economists to Trump
Like our predecessors in 1930, we oppose the use of tariffs as a general tool for economic policy.
Phil Gramm & Larry Summers

In an extraordinary act of unity, 1,028 American professional economists in the spring of 1930 signed a letter urging Congress to reject and President Herbert Hoover to veto the Smoot-Hawley Tariff Act. Yet that June, Congress passed it and the president signed it into law. The Smoot-Hawley Tariff helped turn a stock market rout and a building financial crisis into a worldwide depression and triggered a global trade war that halved American exports and imports.

Today, we write this letter in a similar spirit of unity. While the professional economists who have signed today’s letter differ on many issues, we are united in our opposition to tariffs as a general tool of economic policy. Even in efforts to promote national security, tariffs are prone to abuse. Many of the worst restrictions on trade, such as the Jones Act, have been implemented in the name of promoting national security.

Our united opposition to non-defense-related tariffs is based not on our faith in free trade but on evidence that tariffs are harmful to the economy. Protective tariffs distort domestic production by inducing domestic producers to commit labor and capital to produce goods and services that could have been acquired more cheaply on the international market. That labor and capital are in turn diverted from producing goods and services that couldn’t be acquired more cheaply internationally. In the process, productivity, wages and economic growth fall while prices rise. Tariffs and the retaliation they bring also poison our economic and security alliances.

The primary argument for the implementation of broad-based tariffs is that they will reverse the hollowing out of American manufacturing and reduce the trade deficit, which is causing a “hemorrhaging of America’s lifeblood.” Contrary to the repeated claim, there has been no hollowing out of American manufacturing. Industrial production in the U.S. is at an all-time high. The U.S. is producing 2.5 times as much real industrial output as it did when we last ran a trade surplus in 1975. We are producing that record output with the smallest percentage of the labor force involved in manufacturing since America became fully industrialized. The percentage of the civilian nonfarm labor force employed in manufacturing peaked during World War II and has been in secular decline ever since. This has been a great success for productivity and not a failure of trade, as today’s full employment attests.

It is telling that the Trump tariffs implemented in mid-2018 and the Biden expansion of those tariffs didn’t stop the secular decline in manufacturing employment as a percentage of the total labor force. The decline in manufacturing employment as a percentage of total employment is being driven by the same secular forces that caused employment in agriculture during the 20th century to fall from 40% to 2% of the labor force: a vast increase in labor productivity and a decline in the demand for manufactured products relative to services. This is a worldwide phenomenon occurring in both developed and developing countries.

In the long history of the country, there is little evidence to substantiate the claim that America prospers more when trade deficits fall than it does when they rise. During the Reagan recovery, as the level of economic growth surged, foreign investment rushed into the U.S. and the trade deficit soared. The same phenomenon occurred during the Clinton boom: So strong was the attractiveness of investing in America that the trade deficit continued to grow even as the federal government ran budget surpluses. The annual real trade deficit nearly doubled during the four years in which the U.S. government was running a budget surplus. When the economy started to grow faster in 2017 and 2018 during the first Trump term, the trade deficit rose despite the tariffs that were imposed in mid-2018.

The tariffs on steel and aluminum created only a small number of jobs, but since for every worker in the steel and aluminum industries there are 36 workers employed in American industries that use steel and aluminum in production processes, those modest gains were offset by the jobs losses in industries that use steel and aluminum as inputs. With foreign retaliation, the estimated cost to the economy of jobs created by the 2018 tariffs on washing machines, steel and aluminum clearly amounted to many times what the jobs paid in wages.
In sum, tariffs don’t have a predictable effect of reducing trade deficits, and trade deficits aren’t necessarily an adverse economic development. Indeed, trade deficits often arise as foreign investors choose the U.S. as a preferred destination for their capital.

Foreign capital has always played an important role in American economic development. The history of America is the history of foreign capital—initially from Britain and Holland—and labor from all over the world coming together to create the American economic colossus. Foreign capital today performs the same role. The countries whose citizens today make the largest investments in America—Japan, Canada, Germany and the Netherlands—invest in the U.S. because they see the investments as being more productive than the alternatives in their home countries or elsewhere. At least in the modern era, it seems that when the American economy is working well, it becomes an irresistible magnet for foreign workers and foreign investors.

The argument that foreign investment is making America poorer flies in the face of recorded history. From the settlement of Jamestown, foreign investment has enriched America and those who have invested in it. A review of the economic history of our nation yields no credible evidence that broad-based tariffs have benefited the nation as a whole. Protectionists often point to the 19th century as a period of high tariffs and strong economic growth. But a close look at the data for the 19th century shows conclusively that the country industrialized fastest when tariffs were falling, not when they were rising.

Sound fiscal policy and effective incentives to work, save and invest can increase economic growth, but the implementation of broad-based tariffs impedes that growth and in a full-blown trade war would overwhelm it. While we have fundamental differences in our views of how to produce a sound fiscal policy and implement effective incentives for productive efforts, we are united in our belief that broad-based tariffs will impede economic growth, risk triggering a trade war, and inflict long-term harm on the economy.

We therefore urge Congress not to adopt the administration’s proposed tariffs and urge the president not to implement those tariffs by executive order.

Or, as UC Berkeley Economics Professor Brad De Long puts it,

“Economists Who Are Neither Bought Nor Crazy Oppose Broad-Based Tariffs”
 
US is so done and I mean done...
https://www.youtube.com/watch?v=TCyysMU66VA
but the best part is the Kelly from the valley is chewing gum and texting with the Chad behind him while he describes catastrophe.Zero fucks given, priceless. US is copying Serbia on so many levels that is mind boggling..
 
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Read yesterday the market now has 9 months' supply of housing comparing houses on the market to how much are being sold, which is a level when housing price recessions have normally occurred in the past. This is all due to interest rates being high but the reason interest rates are high is inflationary pressures wrought by the response to Covid from both Presidents Trump and Biden, as well as Yellen as Secretary of Treasury did these historically massive bond sales to fund the federal government which is providing pressure moving interest rates upward and can't simply snap your fingers and get rid of all those, you just have to wait until maturity under current setup. If you want to have real criticism of Biden's running of the economy, bonds are a good place to start.

Bond investor Andy Constan yesterday:

Terming out the debt was always going to take a long time.

What do we know. The Treasury has the largest proportion of bills outstanding in a non-recession non-wartime setting.

The Fed has $4.19 trillion in U.S. Treasures with a WAM (Weighted Average Maturity) of 8.6 [years] and is desired heading of a WAM of 5.9 which is $1.13 trillion 10-year WAM to adjust.

They will end QT [Quantitative Tightening] on schedule and all future action will be reserved neutral. They also have $2.2 trillion in mortgages.

The Treasury is irresponsibly dependent on bills and the Fed is irresponsibly long duration. Oh the banks who are NOT constrained by SLR (Statutory Liquidity Ratio - minimum amount of cash, gold, securities a bank must keep on hand) aren't buying and have been lugging around $1.3 trillion in bonds they bought that are low coupon and underwater.

This is a large headwind for assets and the government's deficit which so far shows no likelihood of falling.
Click to expand...

I know Democrats don't really like to hear it, and Republicans don't like to hear it when they're the ones in charge, but our country's debt of spending compared to income is reaching the point it's affecting normal people. High interest rates and mortgages for example.

Jim Bianco yesterday related a scheme he shared on CNBC and got some play by Bloomberg he calls the "Mar-a-Lago Accord" that the Trump administration are considering "forcing" U.S. allies to exchange their existing Treasury bonds with new "zero coupon perpetual Treasury bonds". Here's a summary:

Trump’s team has a bold economic strategy to address the $36T U.S. debt—a three-pronged approach that could redefine global finance & security:

1. Tariffs as Leverage & Revenue

•Trump aims to use tariffs as both a negotiation tool and a funding mechanism.
•Plan to create an External Revenue Service (ERS)—shifting from income tax reliance to tariff-driven revenue.

2. U.S. Sovereign Wealth Fund

•Executive order signed to monetize U.S. assets (gold, land, potentially Bitcoin).
•Revaluing gold from its official $42 price to market rates (~$2,900) could unlock $800-900 billion. [@tomyoungjr point of view is that revaluation to a much higher number should be considered -- say $10K or higher]
•DOJ holds 207K Bitcoin (~$12 billion) from criminal seizures—likely moving to this fund.
•Unlike traditional sovereign funds (Norway, UAE), this is more of a leveraged hedge fund than a cash surplus investment vehicle.

3. Restructuring Global Security

•End of free U.S. military protection for allies (NATO, EU, etc.). NATO must pay 5% of GDP AND pay USA for "security back taxes".
•Debt swap plan: Countries holding U.S. treasuries must exchange them for 100-year, zero-coupon bonds. The zero-coupons cannot be sold, BUT bonds can be used in repo arrangements with the Fed at Par - providing liquidity and yielding interest payments to Fed.
•If allies refuse? Expect tariffs & potential U.S. military pullback.

Potential Outcomes & Risks

If successful:
•U.S. reduces debt burden, boosts domestic industry, and forces allies to pay for security.
•Gold & Bitcoin rise as stores of value.
•The dollar weakens, making U.S. exports more competitive.

If rejected:
•Trade wars, fractured alliances, & rising inflation.
•NATO & EU may seek alternatives, shifting alliances (China, Russia?).
•U.S. bond markets face volatility, leading to higher interest rates.

Big Picture:

•This could be as significant as Bretton Woods (1944) or the Plaza Accord (1985).
•The status quo is ending—whether through debt restructuring or crisis.
•Trump’s “America First” economic strategy is shifting global power dynamics in a way not seen in decades.
Click to expand...

Bianco says "if Trump is willing to blow up NATO, he's willing to blow up the global financial order". Which has precedent, Nixon blew up the global financial order in the 1970s taking us off the gold standard, something everyone in this country except libertarians say was a good idea.
 
I find no correlation between federal deficits and 30-year fixed mortgage rates over the past decade. Nor do existing home sales correlate with the deficit. Nor inflation.

What does correlate is COVID-19.

cf Occam's Razor.
 
MSNBC said:
Thursday, 06 March 2025
Maddow warns of likelihood of Trump admin cooking economic stats to hide poor performance
(08 min, 41 sec)
Rachel Maddow points out a suggestion made by Commerce Secretary Howard Lutnick on Fox News that he could change the way economic data is calculated in order to make the shortcomings of the economy under Donald Trump look better.

Jared Bernstein former chair of the White House Council of Economic Advisers, joins to discuss the vital necessity of accurate economic data, and his concerns about Trump disbanding the Federal Economic Statistics Advisory Committee and the Bureau of Economic Analysis Advisory Committee, two agencies devoted to assuring the accuracy of economic data.
Click to expand...
...
 
The Long-Term US Budget Outlook:
2025 to 2055
Congressional Budget Office, March 27, 2025
https://www.cbo.gov/publication/61187
​
Summery:
This report presents the Congressional Budget Office's projections of what the federal budget and the economy would look like over the next 30 years if current laws generally remained unchanged. Those long-term projections are based on the agency's January 2025 demographic projections (which reflect information, laws, and policies as of November 15, 2024), economic projections (which reflect laws, policies, and economic developments as of December 4, 2024), and 10-year budget projections (which include the effects of legislation enacted as of January 6, 2025). The projections do not reflect the effects of administrative actions taken or judicial decisions made after those respective dates, including actions and decisions affecting immigration, tariffs, and other policy areas.

The Federal Budget
Debt held by the public, boosted by large deficits, reaches its highest level ever in 2029 (measured as a percentage of gross domestic product, or GDP) and then continues to grow, reaching 156 percent of GDP in 2055. It remains on track to increase thereafter. Mounting debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel constrained in their policy choices.

The deficit remains large by historical standards over the next 30 years, reaching 7.3 percent of GDP in 2055. That amount results from rising interest costs and sustained primary deficits, which exclude net outlays for interest and average 0.3 percent of GDP more over the next 30 years than they did over the past 50 years.

Outlays, which are already high by historical standards, rise over the 2025–2055 period, reaching 26.6 percent of GDP in 2055. Rising interest costs; spending for the major health care programs, particularly Medicare; and spending for Social Security, especially over the next decade, drive that growth.

Revenues increase over the next few years, largely because certain provisions of the 2017 tax act are scheduled to expire. Thereafter, they generally rise, reaching 19.3 percent of GDP in 2055, as growth in real income—that is, income adjusted to remove the effects of changes in prices—boosts receipts from the individual income tax.

Changes in CBO's Budget Projections Since March 2024
Federal debt held by the public in 2054 is now projected to be 12 percent of GDP less than it was projected to be in last year's report, and the deficit is now projected to be 1.3 percent of GDP less. Lower spending, particularly for net interest costs and Medicare, and higher revenues in the current projections contribute to the lower projected debt and smaller projected deficits.

The U.S. Economy
Population growth, which has a significant effect on the economy, is slower over the next 30 years than it was over the past 30 years. Without immigration, the U.S. population would begin to shrink in 2033.
Economic growth is slower over the next three decades than it was over the past three decades. The slowdown in the growth of output results from slower growth in the size and productivity of the labor force; the latter stems partly from increased federal borrowing.
Inflation slows through 2027 to a rate that is consistent with the Federal Reserve's long-term goal of 2 percent and then remains at rates that are consistent with that goal from 2027 to 2055.
The interest rate on 10-year Treasury notes stays close over the next three decades to what it was, on average, over the past 30 years, reflecting upward pressure from increases in federal borrowing and downward pressure from slowdowns in the growth of the labor force.

Changes in CBO's Economic Projections Since March 2024
The economy is now expected to grow more slowly, on average, over the next 30 years than CBO projected last year. That decrease stems mainly from slower growth of private investment and consumer spending over the next decade and slower growth of the labor force over the last decade of the projection period. The interest rate on 10-year Treasury notes is also lower, on average, in the current projections.


Comment:
Over the next three decades, this report envisages increasing individual taxes by 3.2 percentage points of GDP, while holding steady revenues from both payroll and corporate taxes. Given what we think we know about the current administration’s interest in the common man versus large corporations, this increase in the tax burden on families is almost certainly understated.

Real economic growth is expected to be 0.12 percentage points lower from 2026 to 2054; consumer inflation (CPI-U) will be negligibly (+0.02 pts) higher and for unexplained reasons, 10-year Treasury yields will be 0.4 points lower. Again, there is no consideration in this report for the economic impact of the trade war, nor of the inflationary impact of import tariffs, or unemployment.
 
UC Berkeley Economics Professor Brad DeLong:
“The Self-Inflicted Slump: How Tariffs Are Pushing the U.S. Toward a VTRR—A Voluntary Trade Reset Recession

A sudden spike in tariffs has small businesses on the ropes, and the broader economy may be next. Yes, individually big businesses can lobby and bribe Trump and Trumpists for loopholes. But small...

Torsten Slok: 'Probability of VTRR 90% <https://www.apolloacademy.com/probability-of-vtrr-90/>: ‘Tariffs have been implemented in a way that has not been effective, and there is now a 90% chance of what can be called a Voluntary Trade Reset Recession (“VTRR”), see the first chart below. The administration inherited an economy with strong growth, 4% unemployment, positive hiring, and a substantial tailwind from investments. US and international investors are building infrastructure, next-generation factories, and data centers. The Inflation Reduction Act increased capex, and the US was poised for a substantial increase due to energy supply additions, increased defense production, and deregulation. But implementing extremely high tariffs overnight hurts many businesses; particularly small businesses because the tariff must be paid by the business when the imported goods arrive in the US. Small businesses that have for decades relied on a stable US system will have to adjust immediately and do not have the working capital to pay tariffs. Expect ships to sit offshore, orders to be canceled, and well-run generational retailers to file for bankruptcy.

To make exceptions for large businesses that have the flexibility and resources to handle unforeseen expenses but not small businesses does not make sense. The challenges for small- and medium-sized enterprises are now a macro problem for the US economy, where small businesses account for more than 80% of US employment and capex, see the second and third chart below. One way to quantify the coming negative impact on GDP is to compare the current tariff increase with the tariff increase observed during the trade war in 2018…. The US average tariff rate increased from 2% to 3%, and studies… The negative impact on GDP in 2025 could be almost 4 percentage points, not including additional non-linear effects because of the current increase in uncertainty for consumer spending decisions and business planning…'

[DeLong:]
… And I cannot see any way out, short of Trump resigning, or appointing a competent regent.”
 
As I've noted before the mid terms are going to be 'interesting' for the Republicans because by the time they roll around the impact of Trumps tariffs on the economy will have and a more than year to work they're way through supply chains & into the wallets (and job prospects) of consumers. And even though most, if not all firms will be trying to adjust and buy local where they can? In a lot of instances it's going to take much longer than 2 years for American manufactures to pick up the slack. (Assuming they can at all.)
 
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Key Take-Aways from the IMF’s April 2025 World Economic Outlook​


“Global growth is projected to decline…”

“Risks to the outlook are tilted to the downside.”

“Escalating trade tensions and elevated policy-induced uncertainty may further hinder growth.”

“More limited international development assistance … [jeopardize] living standards.”


“The US economy was operating above its potential in 2024, relying heavily on strong domestic demand. Private consumption [two-thirds of the economy] grew at an annual rate of 2.8 percent in 2024, in excess of its 2.4 percent historical (2000-19) average. However, in 2025, signs of a potential reversal [i.e., recession] have emerged. Consumer spending declined by 0.6 percent in January and remained subdued in February after expanding 0.6 percent in December 2024, with the decrease likely reflecting a normalization of private consumption toward more sustainable levels and the negative impact [i.e., stupidity] of recurring policy shifts on economic sentiment.”



Bottom line:

  • Due to trade policy uncertainty, global growth is expected to be 0.5 percentage points lower this year (+2.8%) than projected in January, and 0.3 points lower in 2026.

  • US growth will be 0.9 points lower (+1.8%) this year, and 0.3 points lower in 2026.

  • Aside from a 1.7 point drop in Mexico’s expected growth (-0.3% in 2025), the US forecast was reduced by a larger amount than any other major economy.
 
What is coming to the US we have experienced during 1993. Horrifying times in so many ways and levels.
 

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