So, it seems the tariff exemption worth 125% is only a temporary one, and something else is being discussed.
Once tariffs reach about 70% they essentially become meaningless since trade reduces to practically zero. Nobody is going to buy stuff and pay an extra 145% or even 70% for the privilege. They either do without or find an alternative. Some things might be easy to source elsewhere, but China has massive resources and capacity that can’t be replicated quickly and possibly not at all.
This is why America had to exempt smartphones. Apple would have gone out of business. Many US companies will fail, products may no longer be available, and in other cases, consumers will find prices rising rapidly as higher cost, lower quality, alternatives are found. None of this is good the the economy.
Trump has no orthodox economic theory behind him. He is in unchartered waters. He wants to bring back manufacturing jobs, but manufacturing is frequently highly automated with few jobs involved. Meanwhile, he’s destroying the service sector - industries like tourism, education, and financial services - which makes up 90% of the economy.
So, in the last few weeks, tariffs have been threatened, imposed, cancelled, re-imposed, increased, reduced, paused, had exemptions applied, and had exemptions removed. How anybody is keeping track is a mystery.
The problem that Trump has gotten himself into is entirely self-made. I don't mean that his administration has accidentally led him into a quagmire, but he has dragged everyone into a quagmire of his own making. It is his personal baby, and he cannot blame others (although he'll try).
Having advocated tariffs for years, campaigning on imposing tariffs that would be paid by exporters and exporting countries, announcing tariffs on liberation day, and just two days ago tweeting: "We are doing really well on our TARIFF POLICY. Very exciting for America, and the World!!! It is moving along quickly," he has no wriggle room whatsoever.
He has rejected any idea that he might budge, even labelling people who were urging him to stop the crazy policy ‘panicans.’ He has got himself into a real fix and cannot back down.
His adversaries found some levers last week when investors began dumping US Treasury bonds, forcing the price down and, therefore the interest rate up. Trump quickly executed a humiliating U-turn when he was told a market meltdown was imminent, pausing the tariffs for 90 days on countries other than China.
But now, China has blocked the export of rare earth metals (or raw earth metals, as Trump calls them). These are used across the defense, robotics, energy, and automotive industries. Seven rare earths were placed on an export control list last week. China produces around 90% of the world's rare earth minerals and the export restrictions show just how Beijing can bring a lot of pressure to bear on the West and on the US in particular.
Trump is rapidly learning the limits of US power in the 21st century. It's not what it was before.
All of this is leading to disaster for the USA and for Trump himself. He campaigned on being the smart businessman who could fix America's problems quickly and easily. What it's actually showing is just how incompetent he is, precisely what his opponents have been saying for years.
The Washington Post has a report about how this incompetence is playing out before an audience of billions:
"But 2½ months in, agencies such as the Social Security Administration have struggled to provide basic services. Trump’s team issues edicts, then reverses them. A leaked Signal chat suggests top security officials were unfamiliar with the basics of protecting military secrets.
"Crucial government workers have been fired, then rehired. A much-ballyhooed immigration detention center at Guantánamo Bay has faced logistical problems. Trump’s team told laid-off workers at the Centers for Medicare and Medicaid Services to contact a particular individual if they felt they were being discriminated against; she turned out to be dead."
"These and other missteps are now being compounded in dramatic fashion by a roiling stock market and bond sell-off prompted by Trump’s tariff policies, raising fears of a collapsing economy. Trump’s formula for calculating the tariffs has been widely panned by economists. And on Wednesday, he paused many of the levies just hours after they took effect, even while leaving a 10 percent blanket tariff in place and further hiking duties on imports from China."
There are dozens of other examples the Post could have included. Meanwhile, US farmers are being bankrupted by Chinese tariffs. America exports a lot of soybean to China, for example. They are (or were) the second largest supplier after Brazil, but a 125% tariff will kill that market and plenty of others, too.
During his election campaign, Trump kept pushing the idea that Biden was a doddering old fool who “has no idea what he’s even talking about,” as he put it at one rally. The voting pubic is starting to see who the doddering old fool is who doesn't know what he's talking about.
Another aspect is the potential for widespread corruption. When policy is being determined by one man, particularly a known fraudster, grifter and convicted felon, the scope for corruption is huge. It was notable that many of the companies exempted last week had contributed millions of dollars to Trump's inauguration.
Trump claims 75 countries have approached him to cut a tariff deal, although he won't publish a list, but I wonder how many US firms, global businesses have been in touch with The White House as well, asking for exemptions?
What would or could Trump demand in return?
