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Some of my favorite authors, over the last few days.

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The latest episode of Mad King Trump
How long before businesses get fed up?
by Noah Smith

Art by Hieronymus Bosch

I do not believe that Donald Trump is secretly a Russian plant , hired by the Kremlin to destroy America’s economy and global influence. But frustratingly, Trump’s actions are often indistinguishable from what he might do if he were a foreign agent bent on destruction. Let’s take stock of some of his latest moves.

First, there’s yet another round of tariffs, this time on the auto industry. This time Trump is putting 25% tariffs on imported cars and car parts . Since many U.S. cars use foreign parts, and U.S.-made parts are often assembled into full cars across the border, these tariffs will disrupt the entire U.S. auto supply chain (the Cato Institute has a great explainer on how this works , if you’re interested.) Prices will go up for American consumers, and costs will go up for U.S. manufacturers. Predictably, American automakers saw big declines in their stock prices:

Many of Trump’s followers, of course, believe that the pain is only temporary — that after a period of adjustment, U.S. auto manufacturers will invest more in America and ultimately benefit from the lack of foreign competition. But stock prices are forward-looking — when GM and Ford see their stocks decline, it means that investors expect them to suffer not just in the short term, but over the long term as well. In other words, investors are not buying the “short-term pain for long-term gain” thesis.

The auto tariffs will have ramifications all throughout the supply chain. Auto insurance rates will probably go up too . And upstream industries that supply the auto industry, such as American steelmakers, will be hurt as well :

More than 600 Iron Range steelworkers will be out of a job as mines that supply the struggling auto industry go offline…Cleveland-Cliffs will temporarily idle two Minnesota operations…The Ohio-based company, North America’s largest producer of flat-rolled steel, has notified the state of the upcoming layoffs…[N]ew tariffs on imported goods from Canada, Mexico and China are throwing a wrench in the American auto industry[.]

Trump’s tariffs are hurting all the industries that they’re theoretically intended to protect.

The oil industry — a long-time bastion of Republican support — will be hurt as well, because of the increased cost of drilling equipment. Here’s Tracy Alloway in Bloomberg :

[W]e’ve got to talk about the latest energy survey from the Dallas Fed , whose turf covers a lot of the US oil patch…To sum it up, the survey is bad . It’s really worth reading the whole thing but to sum it up, it’s full of anonymous energy executives complaining about how the new Trump administration is creating massive uncertainty for their business viz the back-and-forth on tariffs.

Oil rig counts are flat ; “drill, baby, drill” is a distant memory.

Trump and his people simply have no idea how manufacturing, mining, drilling, and other industries actually work . It’s all theory , no actual knowledge. And when reality doesn’t cooperate, Trump himself doesn’t even notice or care ; instead, he simply lets the American people suffer for his theory’s failures.

Even Trump’s inner circle (except for his his economic guru Peter Navarro) is starting to feel mystified. Here’s some reporting by Politico :

Just days out from Trump’s April 2 announcement of global tariffs, which he has hailed as “Liberation Day,” even those closest to the president…have privately indicated that they’re unsure exactly what the boss will do…“No one knows what the fuck is going on,” said one White House ally close to Trump’s inner circle, granted anonymity to speak freely…[T]he president continues to throw curveballs at businesses — and even his own team…

The problem Trump’s own advisers and Hill Republicans face is that the president doesn’t share their alarm…Trump really believes in the protectionist policies pushed by aides like Navarro, the longtime trade adviser whom Republicans almost universally distrust. The president also believes that his tariffs are popular with voters…

“The president isn’t looking at it like they are,” said one of the people close to Trump’s inner circle of the president’s advisers. “For [him], if the economy tanks, then fine, the economy tanks — because the president truly believes that it will rebound and the countries will give in because they can’t withstand the pressure from the U.S.”

As for political blowback, this person continued: “No. 1, the president is not running for reelection — so where this may have been a political concern in his first term, it’s not a political concern now. ... And No. 2, we’re probably gonna lose the House in the midterms.”

The auto tariff move — which comes in advance of another huge wave of tariffs that’s expected to be announced on April 2 — will only add to a growing attitude of economic pessimism. The broader stock market declined after the announcement . Sentiment is falling among rich and poor alike:

Crucially, this isn’t just “vibes” — Americans’ expectations for their own financial situation is approaching the lows of 2022 , when the post-pandemic inflation was causing real incomes to plummet:

It’s not just that people expect tariffs to put them out of a job or put pressure on their wages. They also think the tariffs are going to result in higher inflation, despite the destruction of aggregate demand. Market-based 5-year inflation expectations are creeping back up , and survey-based expectations are spiking:

And expectations might just be following reality here. The latest inflation numbers look pretty worrying :

And here’s a table with a bunch of different inflation measures, which have all risen to over 3% when measured only over the months since Trump’s election:

What does Trump plan to do about this? The Politico article suggests that he basically plans to do nothing , because he’s not running for reelection and his wacky theory and his one trusted economic advisor (Peter Navarro) tell him that the long-term consequences will be good.

That’s one possibility. Another is that he’ll turn to the playbook that quasi-authoritarian leaders typically use when inflation threatens: price controls. During the Biden administration, it looked as if Biden might try to use price controls to suppress inflation, on the advice of the Warrrenite progressives . But to his credit, he never did. Now Trump is making similar noises :

When President Trump convened CEOs of some of the country’s top automakers for a call earlier this month, he issued a warning: They better not raise car prices because of tariffs …Trump told the executives that the White House would look unfavorably on such a move, leaving some of them rattled and worried they would face punishment if they increased prices, people with knowledge of the call said.

Trump’s “warnings” and commands carry a lot more weight than Biden’s, because Trump is a lot more willing to use executive power to punish individual companies he doesn’t like. Real price controls would put the country in danger of a catastrophic spiral of shortages, hoarding, “anti-hoarding” measures, and inflation.

And of course, all this comes against a backdrop of insane moves in the international arena. Trump continues to threaten to invade and conquer Greenland , with JD Vance especially pressing for this move . To those who are still desperately looking for alternatives to the Mad King theory, this additional piece of evidence should come as a disappointment.

Anyway, although Trump’s apparatchiks are still bellowing that his tariffs will reindustrialize America, the country’s business community is beginning to realize that the country has elected a Mad King:

They expected a replay of the laissez-faire policies of Trump’s first term — a lot of bombastic rhetoric but few real policy changes and a lot of small, quiet deregulatory moves. Instead, they got a very different Trump this time — one who’s intent on breaking the American economy in the service of ideology.

People on the Tech Right are quietly starting to come to a similar conclusion. Here’s my friend Brian Chau , who is more frank and honest than most:

So far, there has not been a preference cascade within the American business community. Trump’s willingness to target and punish individual businesses or rich people who speak out against him is probably preventing anyone from sticking their neck out. And the memory of the Biden administration’s anti-business rhetoric, and the continued anti-business rhetoric emanating from both the Warrenite and Bernie wings of the Democrats, are probably still a deterrent as well.

It will still be a while before things get bad enough for the business community to flip to the Democrats. But if the Mad King’s madness continues to intensify, and things continue to get worse, what other choice will businesses have? In any case, center-left Democrats who care about winning elections should be working feverishly to welcome businesses (and rich people) into their big tent. I hope that the new embrace of Abundance liberalism represents the beginning of the end of the class-warfare rhetoric of the past decade.

The sooner that switch happens, the sooner conditions in America will stabilize. Hopefully the damage to our prosperity can still be limited. Business is not the only important group that needs to abandon Trump, and welcoming business is not the only coalition-broadening move the Democrats need to make. But it’s an important piece of the puzzle.

MAGA is Bad for Business
And business owners were deluded to believe otherwise
by Paul Krugman

One odd feature of U.S. politics is that businesspeople, especially small business owners, always seems to believe that they will do better under Republicans, even though history shows that business does better under Democrats. Small business owners supported Trump in the last election, despite ample evidence that he would be very bad for business.

And now they’re getting a rude awakening.

Let’s talk for a second about price controls.

A few weeks ago Viktor Orban, Hungary’s de facto dictator and a darling of the MAGA set, announced that he was imposing profit-margin caps — basically price controls — on groceries. I intended to write something about that as a warning that something similar might happen in the United States, that businesspeople were fools if they assumed that Donald Trump was on their side.

Unfortunately, I never got around to writing that post. So I missed my chance to be prophetic, because it has already happened: Trump reportedly told auto executives sometime in March not to raise prices in response to tariffs. He denies that he said it, but the reporting looks solid. His headline-making assertion that he “couldn’t care less” about rising car prices seems to have been about imported autos, not domestic production.

The reason I expected Trump to follow in Orban’s footsteps is that Trump, like Orban, clearly doesn’t have any fixed principles other than power and self-aggrandizement. Under Trump, policy won’t reflect any consistent ideology. It will, instead, change with his perception of personal advantage, his temper tantrums, his whims and his malignant narcisissim. If he doesn’t like rising prices, he’ll try to stop inflation through bullying.

In short, MAGA will be very bad for business.

Most immediately, it seems as if Trump doesn’t care that his tariffs will raise business costs in addition to raising prices for consumers. We’ll get a better sense of how much costs will rise after “ Liberation Day ,” the big announcement of new tariffs planned for Wednesday. (War is peace, freedom is slavery, tariffs are tax cuts .) But it’s the increase has already begun.

Indeed, thanks to tariffs already in effect the U.S. economy is already getting unscrewed, with manufacturers having a hard time keeping their stuff together.

You see, steep tariffs on steel and aluminum were the opening salvo in Trump’s trade war, and they are being applied not just to the metals themselves but to anything made from the metals, including screws, nuts and bolts . And foreign producers are not absorbing the tariffs; they are sharply raising prices.

This was, of course, predictable and predicted. Tariffs don’t just make foreign goods more expensive to consumers. In a world where many of the goods we import are productive inputs like screws — or auto parts — tariffs directly raise the cost of manufacturing in the United States. Yet Trump’s threats against automakers suggests that he thinks he can control inflation through intimidation.

The direct effect of tariff-driven rising costs is, however, just the beginning of the ways Trumpism will be bad for business.

In the past I’ve been skeptical about claims that uncertainty is a big factor in the economy. During the Obama years vague appeals to “uncertainty” often seemed, in practice, to be invoked as a fancy way of saying “policies I don’t like,” and was used as an excuse for ignoring that fiscal austerity forced by congressional Republicans held the economy back. But in the 10 weeks since Trump was inaugurated, perceived uncertainty has soared. Here’s one widely cited index :

It’s not hard to see why. Trump’s apparent turn to price controls is just one more indication that there are no longer any rules, that economic policy changes from day to day with Trump’s moods. I’m finishing this post up just two days before the big tariff announcement, and all indications are that the administration still hasn’t decided on the general structure of the tariffs, let alone their size. Nor will we be able to take the issue as settled after the big announcement: Trump may impose further tariffs, or slash them as suddenly as he raised them, depending on who spoke to him last. L’Etat, c’est Trump.

This kind of uncertainty is paralyzing for businesses, who are realizing that any kind of long-term commitment can turn out to have been a disastrous mistake. Build a plant that depends on imported parts, and Trump may cut you off at the knees with new tariffs. Build a plant that’s only profitable if tariffs stay in place, and Trump may cut you off at the knees by backing down.

Again, the point is that there really isn’t a MAGA economic philosophy, just whatever suits Trump’s fragile ego.

All of this was predictable and predicted. Before the election many economists warned that Trump’s policies would be destructive, although the models didn’t really take the sheer craziness into account.

The remarkable thing is how many supposedly hard-headed businesspeople didn’t see the obvious. Small business owners, in particular, clearly favored Trump , and as the chart at the top shows, their optimism soared when he won. Now it’s crashing.

So business owners allowed themselves to be deluded, as usual, but with even less excuse than normal. What they should have realized is that Trump’s lack of concern for ordinary Americans’ lives doesn’t mean that he’s pro-business, and that the election wasn’t about left versus right — it was about rule of law versus autocracy. Now we’re getting a first taste of what life under autocracy is like, and it’s bad for everyone, including businesspeople.

Tariffs and Schrodinger's Cat
There may be some internal pushback in the White House, though I fear it won't matter. If I'm right, stagflation is looking increasingly likely.
by Jared Bernstein

In a WaPo article on the forthcoming tariff storm , I saw a line that struck me as significant in a way you might have missed if you haven’t been part of a White House team. Let me set it up for you.

The piece features Trump’s id-adviser Peter Navarro claiming that, like Schrödinger's cat, tariffs will both raise an unprecedented, even scary (explained in a moment) amount of revenues for the U.S. Treasury, yet “…tariffs are tax cuts.”

In fact, tariffs are tax increases, which is interesting in a way that came up in Fox News interview I recently did . Liz Claman and I were having a back-and-forth (imho, a good, substantive one) re the fiscal outlook and I pointed out that any plan to get to sustainability will surely have to include both tax increases and spending cuts. She countered that I must know that Republicans would never raise taxes.

But, I responded, they are doing just that! Moreover, they’re doing so aggressively and without a peep of resistance from Republicans . Not a murmur! To the contrary. And if you read Navarro in the WaPo, the tariff-tax increase raises $600 billion per year ($6 trillion over 10 years), which is ~1.5 times the revenues lost from the Trump tax cut extension! [In the original post, I mistakenly said $600bn/10.]

It’s a nonsense number that no-one should take seriously. Everyone knows that tariffs are a tax (on imports). I’ve seen scores between $1-2 trillion over ten, so they can potentially raise real revs, but, as I point out to Ms. Claman, they’re taxes on the wrong people. Low-cost imports are a larger part of the market basket of middle- and low-income households. Tariffs are a regressive tax.

Readers here know that I’ve long craved more revenues. While current revs/GDP are around their historical average of around 17%, given that the economy has been around full employment with strong GDP growth and high profitability for years, we should be looking at rev shares closer to that 20% peak in 2000. Decades of tax cuts, mostly at the high-end of the income scale, have severely damaged the link between strong economic growth and revenues flows.

So why did I call Navarro’s $600 billion/yr “scary.” Not solely because tariffs are regressive but because of what Jessica Riedl says in the article:

We’ve never seen a president propose such a drastic tax increase at a time where there is no national emergency requiring it” and the economy is already slowing, Riedl said. “You just do not hear numbers like $6 trillion over 10 years in legislation or executive orders.”

The point is that a tax increase of that magnitude would be way too contractionary and tank the economy.

But enough about fantasy numbers. The serious research that caught my attention this weekend was a new forecast from the Goldman Sachs (GS) macro team, which I follow closely as they’ve been ahead of the crowd in accurately forecasting stronger growth and downplaying recession worries in ‘22-‘23. In advance of “Liberation Day,”—this Wednesday when the next tranche of tariffs will be announced—they’ve taken the real GDP growth forecast for Q1 down to 0.2%. They raised their forecast for core PCE inflation for this year by 0.5% to 3.5% and their unemployment rate forecast by 0.3% to 4.5% “at end-2025 to reflect weaker GDP growth and the effects of federal spending cuts and layoffs . We raised our 12-month recession probability from 20% to 35%, reflecting our lower growth forecast, falling confidence, and statements from White House officials indicating willingness to tolerate economic pain.”

In other words, stagflation: slower growth, higher prices.

Okay, that’s all the setup for the inside baseball I referenced above. When asked what consumers, businesses, investors should expect on Wednesday, Kevin Hassett, the White House’s NEC director, said:

“I can’t give you any forward-looking guidance on what’s going to happen this week,” said Hassett, who is widely regarded as more skeptical of tariffs than Navarro. “The president has got a heck of a lot of analysis before him, and he’s going to make the right choice, I’m sure.”

This signals an internal disagreement, which, if I’m right , is exactly what you’d want to hear right now, and good for Kevin for having the courage to push back, if that’s what he’s doing. My guess would be he’s not saying don’t go there but arguing for more gradual implementation.

Along with the rest of us, I’m a lot less sure the president is going to make the right choice. I fully expect him to make the wrong one and, like I said, those GS folks have a good track record. If they’re right, the only liberation we’ll get from Liberation Day will be the U.S. economy’s liberation from the ongoing economic expansion the Trump administration inherited, along with consumers’ liberation from paying lower prices on imports.

The Exorbitant Price of Trump's Tariffs
On the one hand, there will be economic pain. On the other hand, there will also be geopolitical pain. 
by Daniel W Drezner

Photo by Teng Yuhong on Unsplash

This week the Trump administration is scheduled to announce yet more tariffs. The president has characterized this as “ Liberation Day ” for the United States. 1 But the economic price of these tariffs has become visible. The stock market just experienced its worst quarter in three years “as the Trump administration’s evolving trade policies rattle Wall Street,” according to the Washington Post .