Trade tariff policy continues to promote uncertainty in financial markets. Stocks, bonds, and the dollar itself moves into Team Trump’s daily words.
Is extreme tariff policy one of President Trump’s “art of contract” tactics? Or is the ground changing below the foot of the global economy and financial markets?
This week, the joys of the stock market were all about damage control. Treasury Secretary Scott Bescent, on delivery remarks It was revealed in the Institute of International Finance Global Outlook forum “America doesn’t mean America alone.” This came the day after Bescent It is listed That’s what the ongoing tariff showdown against China is “Unsustainable” And he expects a “escalation” In a trade war.
When you play with fire, you will get burned. In this regard, the initial damage has already been done. But of course there is more to come.
According to Port Optimizerthe Port of Los Angeles for the week ending May 3rd shows a weekly decline of 28.53%. Additionally, the week ending May 10th is projected to see a 34.54% decline in scheduled imports compared to the previous year.
Is this the beginning of a long-term global trade contraction?
The world trade cycle for the past 200 years has often expanded over a long period of time, and people have come to believe that they are permanent. These expanded and expanded episodes lead people to think that increasing global trade is a linear phenomenon. Destined to continue without interruption.
For example, trade as a global share of gross domestic product has increased from about 25% in 1970. 63% 2022. Shouldn’t this increase in trade continue indefinitely?
Rise and decline
We need to find someone who has memories of the global trade contraction, going back to the US, Japan and Western Europe before 1960. China’s latest trade expansion began in the 1970s. Eastern Europe began in the early 1990s.
But when you come back to the first half of the 20th century, you will discover something that will counteract your life experiences. Global trade declined between the onset of the First World War and the 1960s as part of total economic activity. It is a 50-year global trade agreement.
The geopolitical shock coincided with the beginning of this decline in world trade, like the split of the classic gold standard at the start of World War I. In the wake of the contraction, Eastern Europe suffered ramping hyperinflation in the 1920s, but inflation appeared in the epic stock market bubble in America.
When people were burned out and the world was caught up in the Great Repression, the Smoot Holy Customs Act of 1930, and the TIT of the TAT retaliation tariffs, destroyed the rest of the world trade. This also booked the start of World War II.
Until after World War II, until after international trade was restored. This trade was hesitant at first, but it blossomed in the second half of the 20th century. But that doesn’t mean that trade continues to expand indefinitely.
As mentioned above, geopolitical shocks have regularly disrupt or reversed the overall long-term trend in expanding global trade. There is a very high possibility of multiple geopolitical shocks, including trade tariffs, currency turmoil, and wars of both cold and hot, which will suspend or reverse the expansion of global trade that has been taking place since the 1960s.
In fact, at this moment, we may already be taking part in another long-term global trade contraction.
Economic perversion
The driving force behind the trade contraction is the politically motivated trade war brought about by President Trump’s trade tariffs. Damage control this week isn’t the end of the trade war. It’s not a long shot.
To be clear, the trade war has a major impact on the economy, supply chain, and the overall production and distribution of goods and services.
What this means is that we are entering an age where the world is in the process of transforming into something very different from what people know and expect. When you shop at Walmart or Costco, you see it with your eyes and feel it in your pocket book. It may change the way you make your daily bread.
Trump believes that this change will give working Americans a fair shaking and decent wages. I’m not sure.
What we know is that the US and its trading partners are becoming economic perverts. Like the caterpillars that form Chrysalis, once again straying from the threat of trade and trade tariffs, turning economic activity inwards.
Inside the casing created by the trade barrier, a conversion occurs. Old, established relationships built over decades will quickly collapse and disappear. At the same time, new specialized domestic producers will be developed.
A beautiful butterfly comes out of chrysalis and fly? Or will it become an ugly nighttime moth that bounces back into flames and dives into your own final mise?
In general, trade wars cause painful economic perverts. Initially, artificial price spikes will occur for imported products. Soon those foreign products will disappear from store shelves.
This could give domestic producers the advantage they need to enter the market. However, this benefit comes at the expense of American consumers who pay higher prices and have fewer options. In effect, American consumers will subsidize domestic production.
More importantly, foreign manufacturers produce products domestically where they can produce false arrows at a cheaper price. Resources that can be used better elsewhere apply to artificially protected businesses and sectors.
Government interventions may create some jobs, but these are jobs that should not exist in the first place.
Make depression great again
Economic perversion changes even further as the trade war escalates. Retaliation tariffs imposed on American exporters destroy their business. In foreign markets, we no longer want American manufactured products at artificially high prices.
American exporters are then forced to adjust their production. That is, they need to scale back their businesses and lay off workers. They may also discover that imported raw material inputs become more expensive. This will further disrupt production and raise prices for both domestic and foreign consumers.
In short, the entire structure of production and consumption is distorted. Artificial incentives reallocate resources from efficient global producers to inefficient domestic producers. This reduces overall production capacity and ultimately reduces the standard of living for everyone.
The uncertainty that arises from a trade war also thwarts long-term capital investments. As international trade rules continue to change, companies taking a “wait and see” approach will delay projects. This further limits innovation and economic growth.
Trade wars essentially force the economy to adapt and transform into an artificial world. This metamorphosis is not the result of adapting to natural market-driven changes in supply and demand. Rather, it is an inefficient and unnecessary restructuring caused by government intervention.
Perverts ultimately lead to less productive, more efficient and weaker economies than economies led to free and voluntary exchanges. Benefits for certain domestic industries are superior to the increased costs imposed on consumers and other (non-proposed) domestic producers.
President Trump started something he could not stop with his customs program on his release day. Economic metamorphosis – the fork between the East and the West – is already underway. World Trade is contracted. The supply chain is broken.
This is exactly what Trump wanted. But that’s his wealthy supporter and not what their fat inventory portfolio wants.
Damage control this week could be a good headline. It could also push the stock market index at least temporarily higher. However, you cannot reverse the pervert that is already happening.
However, you can interrupt and delay it, extending the conversion. This is an important point.
As is now, political prevalence is how a recession becomes depressed, and how depression becomes larger.
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From the heart,
Mn Gordon
For economic prism
From depression, it returns to a wonderful prism again
