Trump’s Tariff Playbook

Who Wins, Who Loses, and What Comes Next

The Power and Pitfalls of Tariffs: Trump's Economic Strategy and Global Ramifications

Image by Akhlaq Ahmed from Pixabay

If you think Donald Trump is a bumbling idiot, you can be forgiven. He comes across as an unmoored member of the global elite blinded by both hubris and exceptionalism. A man disconnected from the issues of the average joe both here at home and everywhere abroad.

But you’re reading him wrong. There’s much more going on beneath 47’s bluster and bravado.

He certainly was able to capture the sentiments of enough voters to win the Presidency of the United States, not once but twice. And both times he correctly recognized the anomie and disaffection of the average white voter. It did not change between elections, despite what the Dems might lead us to believe.

I don’t want to get into the minutiae of Trump’s electoral win, but I do want to point out, there’s more to him than meets the eye.

This is particularly important when it comes to understanding Trump’s Tariffs going forward. There’s much more to them than meets the casual eye. Let’s unpack them, you’ll see for yourself.

The Core of Trump’s Tariff Strategy

Donald Trump’s economic vision is often misunderstood as erratic, but his use of tariffs follows a deliberate strategy aimed at reshaping global trade to favor the United States. His approach is two-pronged: using tariffs as a pressure mechanism and leveraging them in economic negotiations.

Phase 1: Using Tariffs as a Pressure Mechanism

• This gambit imposes tariffs on imports from China, Germany, Mexico, and now even Canada and Europe, making their goods more expensive in the U.S.

• This reduces demand for these goods, shrinking export revenue for these nations.

• Economic slowdown in affected countries forces their central banks to cut interest rates to stimulate growth.¹

• Lower interest rates in foreign countries weaken their currencies, making their exports cheaper relative to the U.S. dollar.

• This offsets the price increase caused by tariffs, ensuring American consumers don’t feel the full cost. This is a particularly important point. Should Trump’s plan work, American consumers may not actually feel the increased costs.

• Overall, this ensures foreign economies bear the economic pain while local importers continue to generate revenue for the U.S. government.

Phase 2: Negotiating Economic Concessions

• Once tariffs weaken a country’s economy, Trump has the ability to isolate them in one-on-one negotiations.

• Trump can demand they revalue their currency (making their goods more expensive in the U.S.) or swap short term U.S. debt holdings for longer-term, lower-interest debt. It’s interesting to note that reports are surfacing where this process of issuing hundred year debt - are being considered. See the Mar-a-Lago Accords.

• If Countries refuse to revalue their currencies, tariffs remain, ensuring continued economic losses.

• This mirrors the 1985 Plaza Accord, where the U.S. forced Japan and others to revalue their currencies.

• This approach forces trade partners into a dilemma:
  Comply – And lose competitive export advantage.
  Resist – And face continued economic losses through tariffs.

As you can see, once we get past a superficial analysis of Trump’s Tariffs, you can see how devious they really are. It’s a way for Trump to weaponize the US Economy even as he punishes countries around the world. But this strategy is not without significant risks.

The Broader Economic and Geopolitical Fallout

U.S. Trade Deficit and the Global Economy

• The U.S. runs a massive trade deficit, importing more than it exports.

• Countries like China and Germany depend on selling goods to the U.S. for economic stability.

• U.S. trade deficits fuel global capital flows, with foreign countries investing in U.S. Treasury bonds. (They do this to make use of the US dollars they earn in trade with the US which creates the deficit.)

• If Trump sees this system as an economic burden rather than an advantage he may well attempt to force trade partners to adjust or risk economic instability as discussed before.

Europe’s Economic Dependence on the U.S.

• European economies rely on U.S. trade deficits to sustain their industries.

• Germany’s response to U.S. economic policies has been muted, even after the destruction of the Nord Stream pipeline.

• The Munich Security Conference revealed European leaders’ anxiety over America’s shifting focus.

• This may well lead to the development of other alliances as Europe attempts to mitigate the effects of unexpected and significant changes in foreign policy as America redefines its own economic interests.

China, Russia, and BRICS as Alternatives

Due to rising distrust of America’s economic and foreign policies, several countries around the world have formed an economic block within which they can trade among themselves - potentially bypassing the American market entirely and even sidestepping the use of American dollars to do it.

• This economic block (known as the BRICS) has expanded to 11 nations, controlling 38% of global GDP, surpassing the G7’s 28%.

• Trump’s recent pivot toward Russia may be an attempt to divide BRICS and weaken its challenge to U.S. financial dominance.

• However, this strategy risks isolating Europe, potentially driving it closer to China and Russia.

The Contradictions in Trump’s Tariff Plan

Tariffs as a Tax and a Political Contradiction

• Trump is using tariffs as a major revenue source, contradicting traditional Republican tax-cut rhetoric.

• The 2017 tax cuts for corporations and the wealthy expire in 2025, reducing federal revenue.

• To compensate, tariffs are positioned as a substitute tax that looks like economic nationalism but functions as fiscal necessity.

The Inherent Contradiction: Revenue vs. Reshoring

• If tariffs succeed in reshoring manufacturing, fewer goods are imported, leading to less tariff revenue.

• If the U.S. collects significant tariff revenue, companies are not reshoring and are still producing abroad.

• This creates a paradox—reshoring and tariff revenue cannot both be maximized.

Why Reshoring Won’t Happen at Scale

• Moving production back to the U.S. is expensive and risky, given Trump’s unpredictability.

• Companies won’t commit billions to reshoring if tariffs or policies could change within months.

• Higher production costs in the U.S. could drive inflation, negating any consumer benefits from job growth.

Conclusion: Trump’s Tariff Gamble – A High-Stakes Bluff?

• Trump’s tariff plan is both political theater and an economic gamble.

• It contradicts itself—if tariffs raise revenue, companies aren’t reshoring; if companies reshore, tariffs won’t generate revenue.

• The global order is shifting, and the U.S. can no longer rely on coercion without consequences. Alternate trade routes already exist which if used may well further isolate the American economy, even from traditional allies.

• If America continues to double down on economic confrontation, it risks accelerating its decline rather than reversing it.

• Ultimately, Trump’s tariffs are a geopolitical weapon—whether they restore American dominance or accelerate decline remains an open question. We wait to see how they unfold.

My apologies my friends for a data heavy article. This is my attempt to understand and share the nuances behind Trump’s tariffs. They seem to be a high stakes gamble with significant downsides as the rest of the world figures out if they can survive without selling into the American consumer market.

Let’s hope good sense prevails, though as far as I can tell, there’s a massive shortage of simple common sense these days.

Fingers crossed that we do not see a massive recession/depression caused by the foreign policies and trade practices of our current President DJ. Trump.

In the meantime, walk good.
Mitch.

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If you want to monitor the effectiveness of Trump’s Tariffs yourself, here are some indicators to show whether they are working or not.

• Lack of Reshoring: No significant increase in U.S. manufacturing and factory openings.

• Higher Consumer Prices: Increased inflation due to rising import costs.

• Declining Exports: U.S. businesses face retaliatory tariffs, reducing overseas sales.

• Job Losses: Manufacturing and farming sectors experience layoffs due to reduced demand.

• Evasion of Tariffs: Companies simply reroute supply chains to non-tariffed countries instead of reshoring.

• Trade Deficit Persists: No significant reduction in reliance on foreign goods.

• Global Economic Isolation: U.S. trade partners pivot toward alternative trade agreements.

Links to web resources useful in tracking the effectiveness of Trump’s Tariffs.

• BEA Trade Data (Trade Balance)

  • Tracks the overall U.S. trade deficit or surplus.

  • If tariffs work, imports should decrease, and the trade balance should improve.

  • If the trade deficit remains unchanged or worsens, tariffs may not be having the intended effect.

• BLS Import/Export Indexes (Import & Export Prices)

  • Measures price changes for imported and exported goods.

  • Helps determine whether tariffs are making imports more expensive or if foreign producers are offsetting costs by reducing their prices.

  • If import prices rise significantly, it suggests tariffs are raising costs for consumers.

• BLS PPI Data (Producer Price Index - PPI)

  • Tracks changes in the selling prices received by U.S. producers.

  • If tariffs are effective in reshoring, domestic producers should see higher demand, reflected in rising producer prices.

  • If PPI increases too much, it could indicate inflation due to higher material costs.

• BLS CPI Data (Consumer Price Index - CPI)

  • Measures changes in the price level of consumer goods and services.

  • A sharp increase in CPI suggests tariffs are driving inflation, making everyday goods more expensive.

  • If inflation remains stable, tariffs may not be significantly impacting consumer costs.

• BEA GDP Data (GDP Growth)

  • Shows overall economic growth.

  • If tariffs work, GDP should increase due to higher domestic production.

  • A slowdown or contraction may indicate that tariffs are hurting the economy instead.

• BLS Employment Data (Employment Trends)

  • Tracks job creation and layoffs in various industries.

  • If tariffs are successful in reshoring, manufacturing employment should increase.

  • If job losses occur in affected industries (e.g., farming, manufacturing), it suggests tariffs are doing more harm than good.

• Census Economic Indicators (Business Inventories & Sales)

  • Measures levels of unsold goods and overall business activity.

  • High inventories could indicate businesses are struggling to sell goods due to tariff-related costs.

  • Strong sales would suggest tariffs have not disrupted demand significantly.

Footnotes:

How lowering a country’s interest rates weakens its currency:

Step 1: Lower Interest Rates Reduce the Return on Investments

• Interest rates dictate how much investors can earn on bonds, savings, and other fixed-income investments.

• If a country lowers its interest rates, the return on investments in that country decreases.

• Investors look for the best return on their money, so they move their capital to countries offering higher interest rates.

Step 2: Capital Outflows Reduce Demand for the Currency

• When investors move their money to foreign markets with higher interest rates, they sell the local currency to buy the currency of the country they’re investing in.

• This reduces the demand for the local currency, causing it to lose value relative to other currencies.

Step 3: Weaker Currency Makes Exports Cheaper

• As the currency depreciates, it takes fewer foreign dollars to buy the same amount of goods from the country with the weaker currency.

• This makes the country’s exports cheaper and more attractive to foreign buyers.

• A weaker currency can help counteract the effect of tariffs, making goods more competitive despite added costs.

Step 4: Imports Become More Expensive

• A weaker currency means it takes more local currency to buy the same amount of foreign goods.

• This makes imports more expensive, which can lead to inflation if a country depends on imported goods.

Example: U.S. vs. Japan

• If the Federal Reserve lowers U.S. interest rates, investors may shift their money into assets in Japan where interest rates are higher.

• Investors sell U.S. dollars to buy Japanese yen, increasing demand for the yen and reducing demand for the dollar.

• This weakens the U.S. dollar relative to the yen, making American exports cheaper and Japanese imports more expensive.

Conclusion

1. When a country lowers its interest rates:

1. Investors move their money to countries with higher rates.

2. Demand for the local currency decreases, causing it to weaken.

3. Exports become cheaper, boosting trade.

4. Imports become more expensive, potentially increasing inflation.

This is why Trump’s tariffs often cause targeted countries to lower their interest rates—it helps offset the trade impact by making their goods cheaper despite the tariffs.