Tariffs and Tech Bros.

Part One of Two.

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1. Tariffs aren’t that complicated. John Authers’ superb daily commentary on “markets” today offers two terse analyses of tariffs from two smart Wall Streeters:

The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine. David Kelly, Chief Global Strategist, JPMorgan Asset Management.

and:

If they are imposed as threatened, US industrial activity will fold at once, and we will not have to wait until the next ISM survey to know about it. Critical sectors of the economy face existential threats from the Trump tariffs and likely retaliation. Autos, energy, and aerospace are three that come to mind very quickly. Appliances, electronics goods, furniture, and clothing come to mind next. — Carl Weinberg, chief economist at High Frequency Economics.

That said, they can be revoked at any time. And if markets continue to tumble, they will be. (Source for quotes above: John Authers, bloomberg.com)

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2. Treasury Secretary Scott Bessent disagrees. This from Bloomberg:

US Treasury Secretary Scott Bessent projected confidence in President Donald Trump’s expansive plans to tariff foreign nations even as the stock market slumped in reaction to the first round of levies on Canada and Mexico.

“Over the medium term, which is what we’re focused on, it’s a focus on Main Street. Wall Street’s done great, Wall Street can continue to do fine, but we have a focus on small business and consumers,” Bessent said on Fox News’s Fox & Friends Tuesday. “So we are going to rebalance the economy.”

To be sure, Bessent argued that there would be a transition period as the tariffs kick in this month and next, but he argued that the market selloff was only temporary.

“With the China tariffs, I am highly confident that the Chinese manufacturers will eat the tariffs — prices won’t go up,” Bessent said. “With Canada and Mexico, I think we’re in the middle of a transition, and as you mentioned, Honda moving to Indiana is a great start.”

So far, Trump has imposed 25% tariffs on all Mexican imports and most Canadian ones — except for energy products, which face a 10% rate. He also has doubled his new charge on China to 20%, while 25% tariffs on steel and aluminum imports are due to take effect next week. He’s also pledging to implement reciprocal levels of tariffs on foreign nations, and to place additional levies on lumber, pharmaceuticals, semiconductor chips, copper, and auto imports, beginning as soon as April 2. (Source: bloomberg.com, italics mine)

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The China tariffs/prices won’t go up bit is based on an (accurate) assessment that China suffers from surplus economic capacity; they make more stuff (say: cement), than they consume (60 million empty “housing units” equals end of property boom, equals zero new demand for yet more cement).

As a result, they have to “export” surplus economic capacity to the rest of us (USA, EU, Asia, Africa, etc.). If US tariffs are applied, China is left with a choice: raise prices and (probably) “export” less stuff or keep prices the same and “export” the same amount of stuff as before.

Walter Mead had a smart column on this subject a number of years ago, which holds true today: