He is trying to remold the US into the country of his imagining, but does not have much of a grasp on economics.
He sees tariffs as a way to force all manufacturing, mining etc to be in the US. This will, of course, result in a huge recession, since the US cannot cost effectively make a lot of consumer goods. (And tariffs drive up prices of American manufactured goods as well.) So the cycle will go:
-High tariffs drive up cost of consumer goods
--Rich people don't care
--Middle class people lose money; they start depleting their savings to continue to buy what they need
--The poor simply starve/do without.
-Fewer people buying goods = fewer manufacturing jobs
--Unemployment rises
--Overall US economic output goes down
-Higher tariffs are needed as US companies fail and foreign companies become the sole source for some goods
--Consumer goods rise in price again
--Return to top of list
That will be the effect, but not the plan.
Agreed.
But isn't there also the issue of the revenue from the tariffs - effectively a new purchase tax levied on the whole population - funding the tax cuts he (and the tech bros) intend to make?
Another point about all this is that I don't believe business will invest in reshoring production unless the tariff wall is seen to be an enduring feature of the US economy. The capricious nature of Trump's decisions makes this a very unreliable assumption, to put it mildly. Even if Trump swears he will stick to it, his word is proven to be worthless. Furthermore, since most economists agree tariffs are a terrible idea, how likely is it that they will outlast Trump? That being the case, who, for instance, is going to invest $500m in a car plant taking 3 yrs to build and paying back over the next 5, on the basis of what we have seen to date? Only a moron with money to burn, surely? Like Musk, perhaps, but not General Motors, I suspect.
And then, regarding investment, there is also the little matter of the
rule of law in the USA. I read, for example, that business is worried about the new appointment to the antitrust division of the DoJ, fearing that its activities may be directed towards rewarding Trump's friends and attacking his perceived foes, rather than on the basis of any actual trust-related activity. Antitrust enforcement is just one example. There are good reasons to be worried about other areas of regulation and the law as well. If business cannot rely on rational, and thus predictable, application of the law, that is yet another risk for any investment decision.
I think most businesses will sit on their hands.
