Trump is Crashing the Economy ... And his Presidency

Raising prices when everyone is mad about high prices is pure political self-destruction

I was out of the country last week on vacation with my family. I was mostly removed from the news, but it was hard to miss the epic shit show that was “Liberation Day.” Presidents hold lots of events. They make multiple announcements per week — many unrelated to the economy. So, a President standing in the Rose Garden, as Trump did last week, was not unusual.

What was unusual was the President standing in the Rose Garden trying to destroy his own presidency — and the U.S. economy at the same time.

The policy and the presentation were truly insane. The President, his advisors, and the Congressional Republicans charged with defending the policy have no idea what they are talking about. The policy is based on a fundamental misunderstanding of the basic concept of a trade deficit — something taught in every Econ 101 class. There is no strategy, no plan, no end game. The President just decided to raise prices and impose the largest single tax increase in U.S. history. Derek Thompson described this insane situation well in a recent piece for The Atlantic:

By the numbers, the tariffs are less an expression of economic theory and more a Dadaist art piece about the meaninglessness of expertise. The Trump administration slapped 10 percent tariffs on Heard Island and McDonalds Islands, which are uninhabited, and on the British Indian Ocean Territory, whose residents are mostly American and British military service members. One of the highest tariff rates, 50 percent, was imposed on the African nation of Lesotho, whose average citizen earns less than $5 a day. Why? Because the administration’s formula for supposedly “reciprocal” tariff rates apparently has nothing to do with tariffs. The Trump team seems to have calculated each penalty by dividing the U.S. trade deficit with a given country by how much the U.S. imports from it and then doing a rough adjustment. Because Lesotho’s citizens are too poor to afford most U.S. exports, while the U.S. imports $237 million in diamonds and other goods from the small landlocked nation, we have reserved close to our highest-possible tariff rate for one of the world’s poorest countries. The notion that taxing Lesotho gemstones is necessary for the U.S. to add steel jobs in Ohio is so absurd that I briefly lost consciousness in the middle of writing this sentence.

The markets responded to the chaotic announcement with abject panic. In the worst selloff since the onset of the pandemic, more than $6 trillion disappeared due to an impetus and incompetent President.

The consequences of Trump’s tariffs policy to the U.S and global economies are far-reaching, and impact inflation and the prices of goods from food to cars to iPhones. But the political ramifications for Trump and the GOP could also be immense.

In my overly long career in politics, no politician at any level has done something so stupid and politically suicidal. Maybe Trump will back off the tariffs, but if not, we may look at the self-proclaimed Liberation Day as the day the Trump presidency collapsed.