Nobody Panics When It's According To Plan

Ironically the Joker is a fictional example of a metastable chaos agent having a highly sophisticated plan that does not rely on rigid execution. One may see this as an allegory for the role of the director on the film set. In this essay, I will...

What are we trying to do here? Specifically. We’re gonna make America great again, dawg, we’re going to win so much and so on. But in order to win, someone else has to lose - it’s a mean, nasty world out there, and so we’re gonna fuck ‘em. Yeah, fuck ‘em. Who is “‘em”, in the hypothetical? Europe. China. Japan. Wall Street. Fuck ‘em, man, they’ve been screwing us, and we’re gonna screw ‘em right back. We’re gonna build stuff again, it’s simple, you build it in America and you don’t pay a tariff. The President has been clear on this since the 80s. And if they don’t? Fuck ‘em.

My timeline is full of this shit.

The fact is that the administration tariff rollout has gone not necessarily to America’s advantage. Trump started by promising “reciprocal” tariffs, which is still how it is billed in his social media. If you place trade barriers with us, even if it’s “delayed at port for inspection” rather than “taxed”, we are going to retaliate by placing equivalent barriers to your goods. No barriers to American exports - no tariffs. The goal isn’t to juice the stock market, but to the extent the stock market represents a very real bet on the present value of future profits, the market interpreted this as “awesome, we’re going to make more stuff, we’re going to export it, and we’re going to substitute at least a bit for imports from countries that don’t get with the plan.”

That is not what happened. Evidently, some staffer drew up a policy option that corresponded to the stated intention - reciprocity, as a lever towards fair trade and decoupling from China. They also used ChatGPT to draw up a whimsical plan, where instead of targeting trade barriers, in an attempt to reduce them, they targeted trade deficits, for goods only, on a country by country basis, including on our putative allies, with weird exceptions for French Guyana and bizarrely punitive treatment of abandoned Pacific islands.

(The next person, including the Secretary of the Treasury, who says this is about “closing loopholes”, is going to get to spend thirty-six hours in detention by CBP as they explain to him under the fluorescent mood lights that “country of origin” does not depend on where goods were last transshipped through. You might be surprised to find out that they do this for a living and take personal offense when someone tries to claim that a container ship full of ABS pellets that is visible from space originated from an island populated solely by penguins. T-shirts with the tags snipped in Vietnam are not your major trade problem - the high-value stuff has pretty clear supply chains, and again, CBP is happy to keep your shit in a warehouse, at your expense, until it can be straightened out.

I will also point out that Chinese direct-to-consumer Temu bullshit is untouched by this, and it is in fact still possible to run the same “snip the tags in Vietnam” maneuver, except now you are avoiding potentially 50% tariffs from China and have a relatively even more favorable cost structure than your American competitors, who just had their entire foreign supply chain blown up. This is an inspection problem for low-value goods, not something you fix by sanctioning every country with a port.)

An astute reader will note that trade barrier reduction and trade deficit reduction are two different things. If you reduce trade barriers, then yes, American exports will in expectation go up, and so will American imports. We will sell more software and medical equipment to the EU, because they impose notorious (particularly non-tariff) trade barriers to the operation of American companies, but we will also import more Rolexes, because the Rolexes get cheaper. Every country exports more of what they specialize in. We do a little comparative advantage.

If you target trade deficits for goods only, you are doing something stupid. You are trying to make sure that you buy and sell the same amount from every country. You are penalizing a model where you buy raw materials from some African shithole, because that’s what they have to sell there, make it into steel and circuit boards, and sell it to a rich country like Denmark, because Namibia can’t afford precision electro-optics or whatever. You are penalizing any American manufacturing with foreign inputs, which is most of it, and reducing their foreign markets when the inevitable retaliation kicks in. You are also reducing investment inflows as foreigners no longer have as many US dollars flowing into US assets.

You are also not considering barriers to American services, at all, which you might note is the better part of American employment. When countries sell stuff to America, end up with dollars, buy American assets with those dollars (real estate, government bonds, and so on), and hire Americans to keep an eye on their money, that is a service export. Collecting the vig on invested oil money is arguably the entire point of American presence in the Middle East. America has a strong tech sector, which is entirely excluded from China and arbitrarily fined by Europe - which under the current proposal, they are free to keep doing.

So just to recap, if you reduce trade barriers, trade goes up, if you increase trade barriers because you are trying to crush imports by taxing the hell out of them, trade goes down.

I can’t emphasize enough how these are, in fact, incompatible with each other, and no one in the administration, least of all the President, has their story straight on which one is the actual goal.

Not only that, but the administration decided, incredibly, to put our allies, our enemies, and countries teetering in the middle on the same side. If you have a strategic goal of migrating away from China, because you can’t trust that their supply chain is secure or available, and you don’t want to strengthen them more than necessary long term, you could do something like buying stuff from somewhere else while you try to spin up domestic capacity. It takes time to build things. The timeline for things like semiconductor buildouts and electronics packaging and assembling is years long. So you switch from buying from your enemies, to buying from your friends. Your friends are grateful, hopefully, and you get a good deal, which further isolates your enemies, while you collect yourself at home and start building.

Or, you could try to fight everyone in the room at once, to the extent that China, South Korea, and Japan are in discussions with each other about the possibility of joint responses. Do you know how much these countries hate each other? But the American government is threatening to carpet bomb them jointly, so, they’re all friends in the same foxhole now. We do a little Asian co-prosperity, with Chinese characteristics.

So what is happening as we speak, is that everyone is trying to figure out what the real plan is. Every foreign ruler is calling Trump and pretending they didn’t hear the part where he pivoted from the original plan to the new “screw everyone at once” strategy. “We love America. You are very wise. I’m so glad we will… reduce trade barriers, together. Would that work?”

A stupid man would point to this as evidence that a brilliant metastable chaos agent open-high-settle-mid negotiating strategy is paying off. I am looking at two adjacent stories on my news feed, as I type this.

“White House economic adviser Miran says would encourage countries to approach Trump with offers to reduce tariffs”.
“Navarro On Tariffs: ‘this Is Not A Negotiation’”.

Does this seem like someone you should bank on making a deal with, or something you might as well try a Hail Mary for, while you figure out how to have as little as possible to do with them long term? BPD pussy I’m told hits different - BPD economic policy not so much. Maybe we make a big beautiful deal. Maybe we kill your pet rabbit and burn your house down. Toss-up, really.

Meanwhile, every business owner with any part of their supply chain overseas has slapped the “pause” button. If your business model involves buying parts or supplies or equipment overseas and manufacturing with them domestically, possibly even exporting them, you have no idea what your cost structure will be like in a month. Maybe there is a new trans-oceanic free trade zone and you’ll be screwed if you buy inputs now. Maybe there will be retaliatory tariffs and your export market is gone. Maybe everyone’s costs go to the moon and the industry shrinks, and you’re the low man on the totem pole. You don’t know, but writing big checks now is out of the question. You’re just trying to make payroll until the dust settles.

This whole debacle has crashed most stock markets by over 10% and sent volatility spiking to COVID levels, with further chaos arrested only by the possibility this whole thing is walked back, and every insistence that this is the plan twisting the knife. Again, one does not want to target securities markets directly, but they are saying they fully expect this policy to crush US economic activity. They also expect it to dry up the market for US Treasury bonds (ie, interest rates for long term debt are rising, even given the fact that there is an emergency Federal Reserve meeting today, presumably to figure out at what point they cut short term rates), and reduce demand for commodities essential to manufacturing like oil and industrial metals. In short, people are placing large bets that if this continues, it will substantially de-industrialize the USA.

I do not, frankly, expect Trump to be a master of economic policy. The exact breakdown of every potential bi- and multilateral trade agreement in the world, tariffs vs non tariff barriers, supply chain complexities, strategic industries - these are all technical subjects. And his goals are directionally correct - ensure fairer trade arrangements that build American industry and decouple from our enemies.

The problem was that somehow a staffer came up with a bad plan, on a complex technical topic that is meant to advance a concrete policy agenda. They did not realize it was bad. They presented it to Trump, because there is evidently not a system set up to keep trash out of the Oval Office. Trump did not realize it was bad. Sounds good! Aggressive! Fast and strong! Now that plan is government policy.

I trust Trump to set priorities. I do not trust him to competently plan a combat jump into downtown Caracas to slap around Maduro until he agrees to take back his “asylum seekers”, and if a staffer somehow presents that as a credible option after a heated ChatGPT session, I would expect him to say something like “that sounds extremely cool” and plausibly pull the trigger on it. That is why we do not formulate military policy in that way. The same systems in place for approving military operations need to be in place for critical economic policy.

Hopefully Trump manages the walkback of this into the original proposal, while keeping the fig leaf that the Plan, indeed, was Trusted (enabled by the fact that statistically zero voters can explain the difference between a “trade deficit” and a “trade barrier”). The damage to US credibility and stability is done. Ideally someone would fall on their sword over this, but admitting that you put some 25 year old idiot in charge of drawing up proposals to direct trillions of dollars of commerce with no real checks is bad enough. So instead we will, hopefully, play pretend, and hopefully do better next time.