Donnie Does Davos* and Mayhem in Minneapolis

 It was quite a week. We had President Trump on the scene in Davos doing his best to break up NATO with his threats to acquire Greenland by force. (See: Shulmaven: History Rhyming with Trump and Greenland ) His histrionics certainly put the conference back on the map and it made him the focal point of attention. That was his plan all along, because he quickly retreated. The conference ended with Trump's setting up his so-called Board of Peace which by its makeup looks more like a Board of War.

But not before Canadian Prime Minister Mark Carney gave him a scathing rebuke calling out his attempt to "rupture the world order." Indeed, the world might have changed last week. Carney is now the hero of the Davos set but I would your attention to the facts that he threw Israel under the bus by recognizing the Palestinian state and he has done nothing to bring a halt to the surging antisemitism in Canada. Thus he is hardly the paragon of Western virtue.

Meantime Minneapolis has exploded in a wave of mayhem culminating in ICE officers claiming their second (alleged) murder victim. With 3,000 ICE officers confronting 25,000 protestors on a daily basis in frigid temperatures things have and will continue to go south very quickly.  ICE looks like an occupying army out for revenge. Whatever Trump's motivations are, it is not helping his agenda as his polls collapse. Indeed, the entire enforcement operation is taking the focus off the real Medicaid scandal in Minnesota and he is making a hero out of the hapless governor, Tim Walz who is likely up to his eyeballs in corruption.

Finally, as of this writing Trump is a pulling an Obama (remember the Syrian redline of 2013) by failing to live up to his promise to support the Iranian protestors. Mass murder has taken place on his watch, and by encouraging the protestors, Trump set them up to be slaughtered on a mass scale by the Ayatollahs. 

*-With apologies to "Debbie Does Dallas" a 1978 porn classic.

Stocks too Complacent About the TACO Trade

 Last week brought with it the International Trade Court opinion declaring Trump’s use of the Emergency Economic Powers Act declaring his reciprocal tariffs on all of America’s trading partners to be illegal, the arrival of the new acronym TACO and a breakdown in trade talks with China. Coined by Financial Times columnist Robert Armstrong, TACO stands for “Trump Always Chickens Out.” That was brought home by Trump’s sudden pullback from his 50% tariff on the EU. (See: https://shulmaven.blogspot.com/2025/05/debt-tariffs-and-stocks.html ) When Trump was asked about it at a White House event he reacted very defensively because the one thing a bully can’t stand is being called “chicken.”

While the trade court ruling is being appealed, the Trump team said it would use all of the other powers available to him, of which there are many, to maintain his high tariff wall. On Friday he acted by doubling the tariffs on steel and aluminum from 25% to 50%. That will work as a dagger in the heart of America’s steel and aluminum using industries, namely automobile, aircraft, and machinery. This certainly won’t help Boeing, America’s leading exporter, on its road to recovery. 

The steel and aluminum tariffs will further estrange Canada from the U.S. where its direct exports will be clobbered, and it will make Canadian manufactured autos and parts even more expensive. If Canada weren’t heading for a recession before, it is now.

 

My guess is that in the long run the TACO trade maybe right, but in the short run, Trump will keep tariffs much higher than the 10% the market now expects. Thus, when the 90 day pause on high tariffs rolls around on July 2^nd, a whole new round of high tariffs will be put in place. Just when investors thought it was safe to go back in the water, a dangerous riptide will be pulling away from the shore

The Tariffman Strikes

Donald “the Tariffman” Trump will announce today a 25% tariff on all goods coming from Mexico and Canada and a 10% additional tariff on all goods coming from China. And this is only the beginning with additional tariffs on E.U. products and some specific duties coming. The tariffs on Canadian and Mexican products are an obvious violation of the United States-Mexico-Canada Treaty that Trump signed when he was president the first time. 

To put the tariff question in context, the U.S. imported $3.3 trillion of goods last year, about 11% of our GDP. On a purely arithmetic basis, a 10% tariff on all imports would raise the price level by approximately one percent and a 20% tariff would raise the price level by 2%. However, a potentially stronger dollar and foreign producers absorbing part of the cost would partially reduce the inflationary impact.

Although many economists poo-poo the long-term inflationary impact of the tariffs as a one-time increase, I am skeptical. Why? First, the tariffs will cause a costly rejiggering of supply chains in the longer run, and second in the short run there will be chaos at the Mexican and Canadian border points of entry where all goods shipment will be held up until the tariff is paid. Further it is not clear to me how consumers will respond to the price increases. Instead of thinking like an economist, many consumers might believe that a new inflationary spiral has started. Recall, all the talk about the transitory nature of inflation in 2022.

Importantly, we have to remember that tariffs are an excise tax on imports. As such they raise prices and reduce output with stagflation being the result. Throwing sand into the gears of the economy can hardly promote growth. To the contrary it will stifle growth and add to inflation.

The Silence of the Lambs: The Democrats on the Trump Tariffs

Free traders Cordell Hull, Franklin Roosevelt’s great secretary of state, and John Kennedy must be turning over in their graves at the silence of leading Democrats on the imposition of the Trump tariffs. Trump has already imposed about $400 billion of goods coming in from China, the E.U., Canada and Mexico. At an average 15% rate the tariffs amount to a $60 billion a year tax on American consumers. We are talking about regular folks here, not Trump’s fat cats.

Meantime as our trading partners retaliate our export oriented farmers (think soybeans) and manufacturers (think auto workers) are suffering. So I say, where are the Democrats? Their silence is deafening.

I guess the Democrats are so enthralled with the protectionist sirens offered up by Bernie Sanders in the last presidential campaign. When Bernie was talking it was only theoretical, but there is no excuse today as the real world effects of the tariffs become obvious. Every Democrat should repeat over and over, “A tariff is a tax on consumers.”

As a result, when the tariff induced recession comes, the Democrats will stand in the docket as indicted co-conspirators. In 1932 the Republicans took the full blame for Smoot-Hawley; this time there will be plenty of blame to go around. It is time for Pelosi, Schumer and the 20 or so presidential candidates to speak up!