Trump may have executed one of the greatest policy reversals in history, but it won't be enough to end the uncertainty hanging over the global economy or restore the wrecked trust in Uncle Sam
An end goal of tariffs is a renaissance in US factory manufacturing. However …
Restoring manufacturing to America assumes a large cohort of unemployed workers with fitness, skills and desire to work in factories. Is there? 18% of Americans are 65+. Meanwhile median age in Vietnam is 33. Would be interesting to compare China and America’s demographic cliffs in regard to aging and non-replacement of workers.
Skills and education? China STEM graduates exceed 3.57 million annually (40% of graduates).
U.S. graduates 584K STEM annually (20% of graduates). And the current seems to be diligently destroying an already dysfunctional educational system.
Fitness? 40% of Americans are obese. Opioid addiction is rampant. And many cannot access or afford the basic health care needed to remain healthy. US life expectancy is 77.5 years. Canada’s 81.3, Japan 84.5.
Highly paid unionized auto manufacturing jobs are the exception, not the rule. Are Americans willing to work making shoes and garments for minimum wage?
Finally, the disruption of supply chains of parts and materials from China will devastate many US manufacturers, especially mid-sized entrepreneurs making niche products.
Hi Simon, excellent piece - again. Just two comments:
- I hear that in addition to the concerns about markets, what really made Trump blink were a few calls from CEOs of major US manufacturing companies the past day or two telling him that they would halt production, and start laying off people, within a week or two because of trouble with their supply chains, caused by the tariffs.
- My impression is that very few people would share Nouriel’s trust in Bessent providing good advice - if he ever were to get inside Trump’s circle of real advisors. I share that doubt.
Thanks Erik. The policy was so dangerously mad that I am not surprised he was getting those calls from CEOs too. I am sure there are many saying the same today re the China tariffs so I wonder how long he can hold out on that. Re Nouriel’s optimism re Bessent, I don’t share it either. He strikes me as vastly over-rated, mostly by himself. In everything he has said since he took the job, I have never heard an ounce of humility that running the world’s biggest economy may be different to running a hedge fund. I was going to do a whole item on him, but thought 10 was enough!
Two further points to ponder, Simon. 1) What prospects for retail investors, since the rot hasn’t stopped. People bleeding out 10pc from their retirement funds are petrified and feel powerless. 2) Trump himself will rat on any promise or signature if it suits him in the moment. How does America begin to walk that back? Removing him, technically possible but politically probably not, would only be the start of eradicating the virus and mending fences. There has to be some better option than containment by bond markets.
Yes, both great points John which I’ll come back to in future posts. The retirement point is clearly a hugely important factor, particularly given that this is a self-inflicted crisis so the political responsibility is clear. I am certain that heads, perhaps many, will have to roll before a line can be drawn under this crisis.
Very clear and cogent. Dooliz Trussp? I don't think Bessent amounts to much though. Maybe Xi was right in simply ignoring Trump and not engaging. Who needs who?
Thanks Michael. I think Bessent is greatly over-rated, not least by himself. I think he is much diminished by association with this debacle and when heads finally do roll, his may need to be among them. I bet Trump hates him for being right
You may be right about Waltz and Hegseth, but that won’t satisfy the bond vigilantes. There will have to be blood sacrifices in the Econ team. Lutnick, Navarro, the trade fellow who is named after an Irish whisky… Eventually Bessent too
Great article. Thanks. One question - doesn't China really have escalation dominance in this unfolding game? The US is now fairly constrained as you say, and can't fill Walmart with import substitutes. China can boost domestic demand and do deals elsewhere to absorb excess capacity. The problem for the US is that Trump thinks he has the escalation dominance (someone must have told him that the trade deficits is his strength) and China can use that dunning-kruger insight against him.
Yes, I fully agree that, in the short term at least, to put in language Trump would understand, China holds most of the cards. But I’m pretty sure Trump doesn’t see it that way. He will presumably now pivot to try to isolate China with these putative trade deals with allies, using the threat of withdrawing security guarantees. So I fear it will take a while for this to play out, with the potential for very bad outcomes and unforeseen consequences…
Some US commentators argue that the $US will survive as the world's trade currency because there is no alternative.
Well, necessity is the mother of invention.
If you were to speculate / extrapolate - how might a replacement for the $US work?
Would, Canadian PM, Mark Carney play a key role in this? Would it work as a multipolar currency (€, Can$, Scandinavian currencies, Aus$, GBP£ etc...)? Would 'multiple poles' give it legitimate defence against the 'mad (wo)man' that both the UK and US have ensured and imposed in the world? Would it include other currencies too - Indian Rupee or Brazilian Real?
A good, concise analysis. A thought. You correctly say China is more at risk but the other side of the coin is that I read that many Chinese exporters to the US are halting shipments. The American consumer - and especially the MAGA consumer - has been seduced over the last two decades by the drug of cheap Chinese products. It may take a few weeks but they will not be happy if these are unavailable or double the price.
Yes, I fully agree Tony. I think the distinction is between the short term where China has the best hand and the medium term, where China gets hurt more. But in the medium term we are all dead
Good article.
An end goal of tariffs is a renaissance in US factory manufacturing. However …
Restoring manufacturing to America assumes a large cohort of unemployed workers with fitness, skills and desire to work in factories. Is there? 18% of Americans are 65+. Meanwhile median age in Vietnam is 33. Would be interesting to compare China and America’s demographic cliffs in regard to aging and non-replacement of workers.
Skills and education? China STEM graduates exceed 3.57 million annually (40% of graduates).
U.S. graduates 584K STEM annually (20% of graduates). And the current seems to be diligently destroying an already dysfunctional educational system.
Fitness? 40% of Americans are obese. Opioid addiction is rampant. And many cannot access or afford the basic health care needed to remain healthy. US life expectancy is 77.5 years. Canada’s 81.3, Japan 84.5.
Highly paid unionized auto manufacturing jobs are the exception, not the rule. Are Americans willing to work making shoes and garments for minimum wage?
Finally, the disruption of supply chains of parts and materials from China will devastate many US manufacturers, especially mid-sized entrepreneurs making niche products.
Excellent point - as I read last week 'do the millions of 18-30 year old American men whining online really want 40 years on a production line'?
If only there were some way to ask them. 😉
Hi Simon, excellent piece - again. Just two comments:
- I hear that in addition to the concerns about markets, what really made Trump blink were a few calls from CEOs of major US manufacturing companies the past day or two telling him that they would halt production, and start laying off people, within a week or two because of trouble with their supply chains, caused by the tariffs.
- My impression is that very few people would share Nouriel’s trust in Bessent providing good advice - if he ever were to get inside Trump’s circle of real advisors. I share that doubt.
Thanks Erik. The policy was so dangerously mad that I am not surprised he was getting those calls from CEOs too. I am sure there are many saying the same today re the China tariffs so I wonder how long he can hold out on that. Re Nouriel’s optimism re Bessent, I don’t share it either. He strikes me as vastly over-rated, mostly by himself. In everything he has said since he took the job, I have never heard an ounce of humility that running the world’s biggest economy may be different to running a hedge fund. I was going to do a whole item on him, but thought 10 was enough!
I agree re Bessent. He seems a nincompoop.
Funnily enough that was exactly the word that came to my mind too…
DONALD CHUMP
Two further points to ponder, Simon. 1) What prospects for retail investors, since the rot hasn’t stopped. People bleeding out 10pc from their retirement funds are petrified and feel powerless. 2) Trump himself will rat on any promise or signature if it suits him in the moment. How does America begin to walk that back? Removing him, technically possible but politically probably not, would only be the start of eradicating the virus and mending fences. There has to be some better option than containment by bond markets.
Yes, both great points John which I’ll come back to in future posts. The retirement point is clearly a hugely important factor, particularly given that this is a self-inflicted crisis so the political responsibility is clear. I am certain that heads, perhaps many, will have to roll before a line can be drawn under this crisis.
Very clear and cogent. Dooliz Trussp? I don't think Bessent amounts to much though. Maybe Xi was right in simply ignoring Trump and not engaging. Who needs who?
Thanks Michael. I think Bessent is greatly over-rated, not least by himself. I think he is much diminished by association with this debacle and when heads finally do roll, his may need to be among them. I bet Trump hates him for being right
I reckon Waltz will be first out the door followed by Hegseth. Bessent will linger, unfairly. How dreary he seems.
You may be right about Waltz and Hegseth, but that won’t satisfy the bond vigilantes. There will have to be blood sacrifices in the Econ team. Lutnick, Navarro, the trade fellow who is named after an Irish whisky… Eventually Bessent too
Many thanks Simon. Do you see China putting the future of Taiwan on the table as/when the US tries to de-escalate?
Excellent as always Simon.
One black swan to ponder: what stops him sending a tweet one day threatening to default on US debt?
Great article. Thanks. One question - doesn't China really have escalation dominance in this unfolding game? The US is now fairly constrained as you say, and can't fill Walmart with import substitutes. China can boost domestic demand and do deals elsewhere to absorb excess capacity. The problem for the US is that Trump thinks he has the escalation dominance (someone must have told him that the trade deficits is his strength) and China can use that dunning-kruger insight against him.
Yes, I fully agree that, in the short term at least, to put in language Trump would understand, China holds most of the cards. But I’m pretty sure Trump doesn’t see it that way. He will presumably now pivot to try to isolate China with these putative trade deals with allies, using the threat of withdrawing security guarantees. So I fear it will take a while for this to play out, with the potential for very bad outcomes and unforeseen consequences…
Some US commentators argue that the $US will survive as the world's trade currency because there is no alternative.
Well, necessity is the mother of invention.
If you were to speculate / extrapolate - how might a replacement for the $US work?
Would, Canadian PM, Mark Carney play a key role in this? Would it work as a multipolar currency (€, Can$, Scandinavian currencies, Aus$, GBP£ etc...)? Would 'multiple poles' give it legitimate defence against the 'mad (wo)man' that both the UK and US have ensured and imposed in the world? Would it include other currencies too - Indian Rupee or Brazilian Real?
Adam Posen's latest article in F Affairs lays out clearly who is holding the better cards in "Trade wars are easy to lose".
A good, concise analysis. A thought. You correctly say China is more at risk but the other side of the coin is that I read that many Chinese exporters to the US are halting shipments. The American consumer - and especially the MAGA consumer - has been seduced over the last two decades by the drug of cheap Chinese products. It may take a few weeks but they will not be happy if these are unavailable or double the price.
Yes, I fully agree Tony. I think the distinction is between the short term where China has the best hand and the medium term, where China gets hurt more. But in the medium term we are all dead