I got up this morning to start writing and show prepping. Much of what is below was written last night with the goal of getting up this morning and revising.
Instead, I have some conjecture based on a very, very early phone call that relates to a guess I made last night seeing the futures.
Given overnight markets, I’m told by someone in close Trump orbit that the President is considering a pause on the tariffs (despite his statements last night). He came under extraordinary pressure from major donors late yesterday to find any excuse at all to claim he could pause the tariffs.
The speculation is pretty much what I had guessed. He will claim he has so many offers to negotiate that tariffs need to be paused because he cannot negotiate so many deals before tariffs affect all those begging for relief.
I’ll take it. The bottom line is that I am told very reliably that yesterday major business leaders who backed Trump’s election made clear to him that bad things are coming if the tariffs are not paused.
Keep in mind this is not a guarantee. parts of the close Trump orbit there is a growing belief that, given his conversations yesterday, he’ll hit pause sometime this week.
On Groceries
We don’t grow much coffee within the United States because only Hawaii and Puerto Rico are really capable and even if they started up tomorrow, American consumers demand so much that we would still import coffee.
Tariffs will cause the price of coffee to go up. Profit margins are so low in the coffee business, most of the 10% tariff will go to price increases, more depending on the country.
We don’t produce bananas in the United States because our climate is not sufficient to grow bananas. They must still be imported.
Tariffs will cause the price to go up.
Cinnamon, cumin, black pepper, most red peppers, cardamom, paprika, vanilla beans, and many additional spices are unable to grow in the climate of the United States of America. They all must be imported.
Tariffs will cause the price to go up. That increase will spill over into processed foods that use those commodities and into restaurants as well.
Many seasonal fruits only grow in the United States for a limited time of year. In the off season, we import those fruits. They range from limes to lemons to apples and more.
Tariffs will cause the price to go up.
The price will probably not rise, in many cases, by 10% — the total minimum tariff. Companies will cut their profits, which will impact shareholders, including many of the retirement plans of working class Americans. Companies will slow hiring or cut jobs to avoid passing on the full cost of the tariff to consumers. In some cases, companies will spread out a price increase broadly to all products. Prices will go up.
In some businesses with tight margins, like some grocery stores and restaurants, the price will go up more as the profit margin is so much smaller.
For four years, Donald Trump lamented grocery price increases on Americans under the Biden Administration. Now, because of the broad nature of his tariffs, Donald Trump will see prices go up on American consumers for many of their regular household grocery purchases.
Even if one accepts the tariffs are necessary, needed, or appropriate, raising grocery prices right now is not just an extra burden on Americans, but a terrible political idea that could really hurt Republicans.
These are tax increases. Claiming tariffs are not tax increases is akin to Democrats believing transwomen are women.
President Trump wants to restore manufacturing to America, but one cannot manufacture coffee, spices, bananas, and other grocery staples in the United States. Placing a tariff on those items makes no practical sense.
Please, Mr. Trump, fix this.
You claim, sir, that short term pain will lead to long term gains. But if the pain last for a few more months, you’ll see no gains. Instead, you’ll see a Democrat controlled Congress and many more Democratic governors and state legislators.
Watch This Today
A well known investor tells me he normally does not pay attention to the day to day ebbs and flows of the markets. But he’ll be watching today. Here’s what he tells me he is looking for.
If the markets go up or down just a bit, he’ll take it as sign the markets think there might be some changes coming, but the path is still uncertain.
If the markets rebound today, it is a sign the markets have found a path through the uncertainty and see light at the end of the tariffs.
If the markets fall again notably, it is a sign the markets believe this is only going to get worse.
He believes Thursday and Friday were panic and uncertainty. But if the markets, having had a weekend to cool down, assess, and adjust, still fall more today, it will be a very bad prognosis that the collective wisdom of people in arms length transactions believe bad things are coming.
The overnight futures and Asian markets and what we’re seeing so far this morning suggest today will not be a good day.
Bill Ackman of Pershing Square, overnight warned that if President Trump does not pause his tariffs today that “we are heading for a self-induced, economic nuclear winter, and we should start hunkering down.”
Identity Politics
Here’s my plain, honest, and candid thought.
As Hispanic voters trended Democrat, white Democrats embraced serious identity politics to the extent they concluded they needed to embrace the socialist left, an open border, and things they presumed Hispanic voters wanted. They ignored that Hispanic voters came here legally and resent open borders that flood the country with illegal aliens. They ignored Hispanic voters fled socialist regimes. They ignored Hispanic voters did not want government subsidy, but the American dream for their families.
Now, as working class voters trend Republican, wealthy white Republicans have embraced serious identity politics to the extent they concluded these workers want factory jobs, want their kids to work factory jobs, and these workers are willing to pay higher prices today so their children can work the assembly lines of the future with robots that help keep costs down. They have ignored two generations of American factory workers who busted their asses so their children would not have to. They ignored an entire body of cultural commentary from the seventies of working class dads pushing their kids hard to avoid the steel mill and the factory floor that gave rise to the Reagan era. They ignored that in the United States today only about 10% of Americans work in factories. They have ignored that working class voters are more vulnerable to price increases than the upper income populist politburo members planning an industrial policy that takes Americans back into the factories their parents worked hard to get them out of.
In short, a bunch of wealthy Republicans are cosplaying as working class in the same way Democrats cosplayed as Hispanic. And it will hurt them.
The Silver Lining
Look at treasury bond yields. They are going down. Oil prices, a futures market, are going down too.
The silver lining to the tariffs is the cost of federal government borrowing is going down. That allows the Treasury Secretary some room to maneuver. I suspect, as this plays out, we’ll get a new talking point that the point of the tariffs was always this.
If you want to believe this was all part of the plan, I can’t stop you. I suspect, as this heads into recession, that will be what keeps people on board. The problem, however, is that the drop in the bond yield actually is not part of a master plan, but rather a warning sign of a recession coming because of the tariffs. That’s the issue with oil as well. Again, oil is a futures market. The futures market is predicting a recession now and recessions tend to bring reduced productivity and, with it, reductions in oil usage. So oil prices fall.
Let’s go six months and see. We’ll have a lot of people in the comments making sure to remind everyone I was wrong if I’m wrong. But if I’m right, we’ll have a whole lot of people squealing like stuck pigs about how demeaning I am and talking down to people when I remind you these tariffs were more likely to cause a recession than to restore manufacturing in America.
I suspect, however, that if we get the recession a lot of people defending tariffs will try to blame something other than the policies they, themselves preferred.
It’s Like Inflation
Remember, Larry Summers told Democrats if they passed their massive COVID package in 2021, they’d provoke massive inflation.
Democrats passed their COVID bill. Inflation came as Summers and other economists predicted.
Democrats blamed corporations, shrinkflation, etc.
This time, Republicans will blame corporations, banks, and globalists claiming they are orchestrating a conspiracy to bring back the Democrats and oust Trump by wrecking the economy.
Never mind that the loudest voices in the room, major economists, and history itself all showed tariffs would wreck the economy.
The backers of tariffs will, like the backers of the Democrats’ COVID plan, never ever admit they caused exactly what was predicted. Instead, it’ll be the World Economic Forum, George Soros, or something else to blame.
My Guess
If the President pauses tariffs this week, which I’m told is very likely, the problem will be that this will create more economic uncertainty. Many will still wonder whether or not the tariffs will come back, when, what rate, etc. Will a pause impact automobile tariffs, Canadian and Mexican tariffs, etc.? There will be still be so many questions.
Like the Biden Administration, playing Calvin Ball with the economy is unwise. It was always and always will be “transitory.” No politician, nor that politician’s supporters, are ever willing to say “we did that” when the that is not bad, but the predictable outcome.
