The President Gets a Mulligan

President Trump's reciprocal tariffs are calculated by a simple formula boiled-down to dividing the trade deficit the US runs with a given country divided by the value of US imports, divided by half, with a minimum tariff of 10%.  That’s long division, folks.

As I waxed both philosophically and technically yesterday, it s a hopelessly flawed calculation that doesn't account for specific trade barriers such as actual tariffs, digital services taxes, value-added taxes or monetary policy.  Furthermore, the value of services are omitted from the Trump calculation.  Only the trade deficit in goods is measured.  Avocados are quantified while the intellectual capital and contributions of a software engineer is not.  Financial services, tourism, education and such count for nothing.  Considering that our GDP (total economy) is 68 to 70 percent services this omission has left the economic community scratching their collective heads.

This formula concludes that until imports and exports between the US and every country balance out, all of the countries with whom we trade will face tariffs.  The president completely ignores the idea that some countries are the only place a specific commodity can be obtained or that other countries might actually be better at manufacturing specific things or that importing certain products simply benefits Americans and improves our standard of living.

This afternoon the President blinked. I suppose more sober advisors finally got thru to Trump and convinced him of the folly of this economic shit show and how it might self-immolate the economy, benefit Communist Red China, vaporize everyone's retirement plans and make the citizenry sufficiently grumpy they would take out their collective ire on the GOP beginning with the midterm elections.   

And just like Khrushchev; Trump blinked.  The president reversed course on his tariffs and with the exception of China most of our trading partners would see relief.  Canada and Mexico?  We're waiting on clarification. 

Of course, it's only for 90 days so who knows what happens before or after.  That's anybody's guess when the master of chaos is calling the shots.

Diane Swonk, the chief economist at KPMG and one of the many business economists who spent many hours calculating the impact of Trump’s maximalist tariff plan that went into effect at midnight only to have the 90-day pause on them announced today, didn’t mince words voicing her frustration.

This is nuts. Damage done. Market relief is a head fake, unless the administration makes a major course correction.  Uncertainty is its own tax on the economy.

Time will tell.....