Making America Great Again

I guess I should preface this with my thoughts. Would a sane man do something such as what Trump is doing? What would be the point of raising tariffs and crashing the economy? Business will recoup; but will citizens quickly? There are millions of citizens who do not have the $millions who may never recoup. Some may have over extended (which under this president, I would not risk anything other than to sit tight) and will suffer the consequences.

Trump looks down on people who he envisions as not being his equal. He has little interest in minorities. The results of his tariffs impacting the citizenry other than the one-percenters do not bother him. It makes America Great Again . . . a realignment. Making Americans Poor Again.

April 6; Matt Stoller: Monopoly Round-Up: The Trump Market Crash?

The stock market slides as Trump’s tariffs roil markets. Wall Street is terrified and mergers slow. Plus Capital One-Discover gets the green light, and Zuck lobbies Trump directly on antitrust.

The monopoly round-up has good and bad news, but is mostly dominated by Trump’s tariff disaster, which is roiling markets and shutting down merger deals. I’ll look at that, and then I’ll do the rest of the round-up.

First, I have a question for readers of BIG, particularly those who work in commerce or run businesses. What are you seeing? What are your plans right now to deal with current conditions? Any details would be helpful, like your region, import dependence, et al. What I’m hearing is that consumers have slowed spending on anything outside essentials, but supply chain problems haven’t hit yet. You can just respond to this newsletter and I’ll read it.

Ok, let’s get into it. As I’m writing this, Dow futures are down 1067 points, or 2.8%. If that keeps up, the markets will be down roughly 13% in the past three trading days, and that’s a sharp downturn. Will that continue? Will it turn into a significant crash?

That’s up to President Donald Trump. I can guess, but that’s all any of us can do. Trump-ology isn’t a science.

Here are a few thoughts:

First, his tariff plan is bad. On Friday, I discussed it in a technocratic way. Let me be more blunt now. It’s incredibly stupid and destructive. That’s not because tariffs are bad, but because across the board immediate and high tariffs, without any certainty they will continue, combined with zero aid from the government to re-shore anything and no time to adjust, is a recipe for depression. Every day I read about more parts of government he’s shutting down that could help this transition. Today it’s the elimination of Manufacturing Extension Partnerships. Tomorrow it’ll be something else. And the day after. And the next. You can’t rebuild through arson.

More broadly, it takes years to reorient supply chains and rebuild factories, the only thing you can do in a few days is cut all cash going out the door and try to hunker down. So I suspect that’s what’s happening. For instance, Howmet Aerospace, a major supplier to Boeing and Airbus, declared it may halt shipments based on the tariffs. To offer a metaphor, it’s like trying to get someone off heroin by promising them that withdrawal will be fun, and then immediately putting them to work in the hot sun without water. It’s not that getting someone off heroin is a bad thing, but that approach may end up killing them.

Geopolitically, the U.S. might have just suffered a significant setback. Tomorrow, the Trade Council of the EU is holding a press conference with two items on the agenda. The first is trade relations with the U.S., and the second is trade relations with China. It’s quite possible that, as semiconductor analyst Doug O’Laughlin guesses, “there will be reciprocal tariffs and a trade deal announced with China, which will stand together against US tariffs.” For the past fifteen years, the U.S. has sought to harden Europe’s resolve against Chinese power. That seems over.

And that gets to the second point, which is that we seem to be in the middle of a financial crash. Investors are selling because the flow of commerce and money across the globe has been interrupted. And it could accelerate and spread to other markets. For instance, large investors are now compelled to liquidate stakes in hard-to-sell private equity assets because their stock portfolios are declining, and they have to keep a certain balance in their portfolios across asset classes. With pension funds, insurance companies, endowments, et al selling illiquid assets into a market with few bidders, that’s going to be ugly. On the bright side, mergers are totally frozen.

And that leads to a third point. Stuff in financial markets will start to break. Firms who have borrowed so they can speculate will have their loans called in, as the assets against which they’ve borrowed have gone down in value and banks will try to salvage whatever they can. I wouldn’t be surprised to see hedge funds that borrowed money blowing up, or even major bank failures. It’s really not a good thing that Trump has been firing large numbers of people across financial regulators at this particular moment.

My fourth point is commerce in the real economy is likely to slow sharply. Though jobs numbers are still pretty strong, that’s a lagging indicator and government layoffs are only starting to show up. Consumers are nervous, and with stock portfolios down and corporations slashing investment, demand will take a hit. Roughly half of spending comes from the wealthy in America, and they are the ones who can immediately cut expenditures, and will do so when stocks decline.

Finally, Republicans are going to start freaking out. Last week, multiple Republican Senators publicly said they do not support tariffs except as a bargaining ploy. Privately, the number is much higher. Top House and Senate Republicans believe that Trump will have to back down if things go badly, and things are going badly. One possible way to push back on Trump would be to use a Congressional resolution to void emergency declarations, but the specifics don’t really matter. Right now, Republicans are more scared of Trump voters than they are of Wall Street and the public, and Trump voters trust Trump. That will change when they feel the effects, but it could be too late.

There are a lot of follow-on consequences, like a sharp decline in mergers, a retrenchment of lending to less powerful firms, and increased importance of the Federal Reserve. But this is uncharted territory, and I don’t want to say too much more. Instead, I’d like to hear from you about current conditions in your area.