A few days ago this graph appeared in the Financial Times (I unfortunately have lost the link):
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It demonstrates the worst feature of Trump's tariff mania. There seems to be no final state in it on which one could base an investment decision.
I have pointed out in previous posts that it will not only be the tariffs themselves that will damage the global economy but the uncertainty created by Trump's willy-nilly enacting of them:
The poison that still paralyses everything is the uncertainty and insecurity that comes with the 90 days limit of the deal and with no perspective of what might follow. Who will post orders for, let's say return-to-school items, if it is unknown what price will have to be paid for them?
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Uncertainty is a poison, suppressing real economic activities.
Two days ago those who had invested (or speculated) in U.S. copper took a hard hit:
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It was a direct consequence of uncertainty created by tariffs:
The copper market’s historic collapse is about how a single policy shift can puncture a carefully constructed financial illusion. For months, global copper flows were distorted by speculative bets around U.S. trade policy. Traders flooded U.S. shores with refined copper, expecting tariffs to lift domestic prices and widen arbitrage spreads. But when the Trump administration slapped a 50% tariff only on semi finished copper while exempting raw inputs like cathodes, ore, and scrap, the entire trade setup imploded. The copper that was supposed to benefit from protectionism is now stranded in warehouses with no premium, and in many cases, at risk of being re-exported into an already oversupplied global market.
This is unlikely to be the last investment based on tariff policies that will go wrong:
The copper collapse is a case study in how geopolitical uncertainty and financial leverage amplify each other and how fragile our assumptions are in a bifurcating world economy.
See also Atrios of Eschaton on Tariff Week:
We're past the "panic the market" phase of tariff posturing, for whatever reason, and now we'll see if actual real economy dangers can get them to do anything other than blame Powell.
I do stand by my earlier assertion that tariffs themselves wouldn't be economy-destroying, but the tariffs + surrounding uncertainty (new policy every day!) + plenty of other things they've done (ICE – workers and tourism, student loans, ACA premiums about to skyrocket, federal job cuts, …) …
The tariffs matter, the ongoing uncertainty – which will never stop under President Deals – matters more. You might invest in a factory if there's a 20% tariff, you won't if that tariff might be 50, or your competitors in other countries might suddenly get a better deal, or…
The Tariff Act of 1939 (Smoot-Hawley) brought the effective U.S. tariff rate to 20%:
Intended to bolster domestic employment and manufacturing, the tariffs instead deepened the Depression because the U.S.'s trading partners retaliated with tariffs of their own, leading to U.S. exports and global trade plummeting.
The current effective tariff rate is, according to the Financial Times graph above, now aimed at 17.5%. But that is without a deal with China which is still to come and which will likely increase the total level. It is unlikely that the high rate alone will have the similar negative effects as observed in the 1930s.
But combined with the uncertainty created by Trump's unpredictable enactment and retraction of tariff decisions the consequences may well exceed those.
Unless of course the tariffs get overturned:
“The constitution was very clear in saying there’s one branch that has the power to tariff and it isn’t the president and it isn’t the courts – it’s the Congress of the United States.”
“if you’re raising revenue, you’ve got to originate that bill in the House of Representatives… The president tried to do that in his first term and that legislation failed…”
“What’s happened here — and the way we’ve always historically done things — when presidents want to have trade authority or negotiate a deal or threaten tariffs, they go to Congress in advance and get that approval. They can’t go off on their own and say “Hey, I know what’s best and blow off Congress.”
It will be good for everyone if the courts decide the case against Trump.