Updated: Apr 12
“The good news is that the Italians make the pasta and the Swiss make the watches. But if we stop world trade and the Swiss have to make their own pasta and the Italians have to make their own watches, the world will probably... maybe arguably, people in both countries will be a little worse off.” - Howard Marks [1]
There have been multiple narratives on why the current US administration is engaging a war on trade.
Many say it all comes down to the huge US$9 trillion fiscal debt due this year, which the government can choose to either pay back or refinance.
But refinancing is costly because interest rates are high. So the idea is that Trump announces tariffs -> global trade volumes are affected -> costs go up -> earnings come down -> growth slows. Trump creates a synthetic recession and interest rates come down.
Some others say it is to bring back the jobs and manufacturing capabilities to the US. But doing this means uprooting asset-heavy supply chains. Capex is long-term and relocating manufacturing hubs doesn’t happen overnight.
Then there are those who think of the tariffs as a political tool. Get companies to pledge loyalty to the US -> local businesses will lobby to get import concessions -> foreign exporters negotiate bilateral arrangements -> US becomes the superpower of the world again.
But no matter how you try and make sense of it, the overall state of global affairs today looks something like this:
A thread on X recently written by Tanvi Ratna sums this up nicely:
There is apparently also much confusion as to who are paying for the tariffs. The tariff is paid by the importer of the goods, who then in theory, passes the increase in costs to the end consumer. But in reality, things aren't so simple. Exporters who are hard pressed to sell may end up having to reduce their prices, hence indirectly bearing the costs of these tariffs.
The pricing dynamics get even more complicated when we start looking across the spectrum from low cost items all the way to high value goods. It might be ok to pay a few more dollars for a pair of jeans but the purchasing considerations might be very different for an electric car.
Still, there is little sense in trying to predict what a madman is trying to do[2], what impact his decisions will have in a complex geopolitical system of moving parts, and how this will play out for global trade and financial markets in the near term.
Best to simply just go outdoors take a walk and enjoy the breeze.
And to draw some wisdom from Vishal Khandelwal:
“Quieten the constant chatter in your mind that may lead you to act all the time, do your work and then, please shut up and wait.”
[1] Howard Marks on credit yields and Trump's tariffs, Bloomberg TV - https://www.youtube.com/watch?v=KpnUyGM5M-I
[2] "Is Trump playing the mad man?", The Economist - https://www.youtube.com/watch?v=wIeTXYRajhw
Sunday, April 6, 2025