I see a lot of people complaining about tariffs and stock market crash and all this. We all knew Trump's agenda was gong to hit the fake economy hard. But maybe it's hitting the real economy too, and maybe for no good reason. I have no opinion but I'm curious what you guys think.
Loaded question. Trump is not crashing anything--market participants determine market pricing. Trump's recent policy initiatives have reduced investor confidence, at least over a short or medium-term duration. The markets are fickle, and contain many different actors with different risk profiles and different time horizons. The effect of these policy initiatives affects each of them differently. My $0.02 is that Trump believes the current economic system is unsustainable and that he's right about that. Whether the prescription fits that diagnosis is up to you.
Public companies declining in value is a very high-quality signal that the new administration's policies are likely to decrease prosperity. I really believe that the price of Walmart's stock is a pretty good estimate of the net present value of its future net profit, which is highly correlated with the buying power of average Americans. And remember that Walmart is primarily a grocery store. So when the value of Walmart declines, yea I think that's a hard-to-fake indication that these policies are going to hit the real economy.
I think that statistics and markets are the best way to evaluate this, but I'll also give an anecdote. I work in the real economy. I work at a company that develops, builds, owns, and operates power generation infrastructure. We're not a startup. We're backed by one of the largest alternative asset managers in the world. The tariffs have paused every one of our projects. We're literally trying to put steel in the ground to power on new factories, but no one can contract for steel right now because the price could change 25% tomorrow. It's a disaster.
I'll give another example. My wife's family owns small businesses. One of their businesses is a restaurant, and they get most of their liquor from Mexico. Another one of their businesses is a retail establishment that mostly sells items imported from Mexico. The tariffs are disruptive to their business as well.
Tariff policy perversely impacts the real economy the most. Small businesses on one end of the spectrum, and industrials on the other end. And in between, the vast service economy experiences this all as purely a symbolic fight.
>>2738 It seems to me like these problems are rooted in the temporary uncertainty and in the long term are unlikely to hurt the economy at large. The tariffs seem to be a short term terrible idea, but a long term correction in incentives for the country at large. Namely, either we have a 25% tariff on many imported (but strategically vital) goods going forward, in which case we finally have the incentives for native industry to fill the gap; or the tariffs are used as a negotiating tool to reduce immigration, drugs, and crime domestically which creates a social structure in which the country is likely to prosper.
Either way, I can see how this will hurt in the short term, but I fully support it in the long term. And the fact that the economy at large is unable to reliably come to a conclusion about the uncertainty means it is actually an effective lever of power.
If tariffs were going to cause short term pain but long term gain, then financial markets would be reacting favorably. They're not.
I don't mind targeted tariffs on strategic goods. For example I supported President Biden's tariffs on energy equipment (even thought they ran counter to my personal economic interests). Because they narrowly targeted strategic goods, were paired with support (eg. loans) for domestic production capacity, and were introduced gradually with a clearly articulated goal and plenty of forward-signaling so that industry could react appropriately.
The Trump tariffs are very different. As you point out, it's unclear if the goal of the tariffs is to support domestic industry or to create negotiating leverage. No one knows what to expect about the future path of tariffs because no one knows what the goal of the tariffs is. So no one knows how to react. I'm not going to built more steel production capacity in the US if there's a change that the tariffs end next month because Canada agrees to more border security cooperation.
And if the intent is to create leverage, then I wish the administration would have tried using other points of leverage first. There are many, many, many points of contact in America's relationship with every other country. Every one of those points of contact could be leveraged in negotiation. It's hard to understand why the administration would reach first for a tool (tariffs) that creates so much blowback damage to the domestic economy.
The administration is completely incoherent on tariffs, and it's causing big problems.