“SOTU” Reactions: Business Press Turning on Trump as Tariffs Whack Markets, Look Set to Increase Inflation, Approval Falls and Even Republicans Getting Restive
Four months is an eternity in politics. Much of the business community was euphoric when Trump took office. Fewer regulations! Lower (or at least not higher) taxes and less tax enforcement! Full-bore crypto boosterdom! No more DEI finger-wagging and language policing!
Trump’s State of the Union address came as the bloom is coming off many of his roses. A hard-to-ignore indicator is that the S&P 500, just before the speech, had given up all of its gains since the Trump win. But why should they be surprised? Trump campaigned on themes that the commercial community should have recognized might not be in their interest, even if they appealed to their personal sensibilities.
For instance, Trump promised to fight inflation but was thin on ideas as to how to do that. After he got into office, he flailed for a bit trying to get the Saudis to pump more oil so as to lower prices to pressure Russia (and of course ease US inflation pressure), when the Saudis were less than happy with Trump being an even more rabid Israel supporter than Biden. Trump has no idea what to do about the constant reminder of food inflation via ever-levitating egg prices and now egg shortages (funny how eggs were Biden’s Iran hostage crisis, but are as heated an issue under Trump).
It is true that the US has been running very large fiscal deficits, and in a more normal world, reducing them would cool the economy and with it, inflation. But again, as we have been pointing out, via careful research at the Institute of New Economic Thinking, and more recently confirmed by reporting in the Wall Street Journal, the big stimulative spending is now coming from the top 10%. The DOGE rampage (which has cut far fewer costs than claimed) is lowering incomes and employment much further down the food chain. And that damage will compound because many of these Federal programs provided commercial value far in excess of their cost. Think of the National Park Service. Federal parks are huge tourist magnets. The communities nearby gain via lodging fees, restaurant and food sales, even selling park-themed claptrap. What happens when the parks become shabby and even dangerous (think poorly-maintained trails) and visits fall off?
Or as a recent post set forth in detail, the USDA? A substantial part of its work is helping farmer in all sorts of ways be better and more efficient at the business of farming, such as giving free advice on irrigation. From that article:
Terminated employees helped farmers build irrigation systems, battled invasive diseases that could “completely decimate” crops that form whole industries and assisted low-income seniors in rural areas in fixing leaky roofs. That work will now be significantly delayed — perhaps indefinitely — as remaining employees’ workloads grow, the employees said….
Matthew Moscou worked at a lab in Minnesota, where he helped monitor diseases that could wipe out wheat production in the U.S., he said. He spent the past two-and-a-half years learning from a long-tenured employee so institutional knowledge could be passed on, but it’s unlikely that information is retained now, he said.
“They’ve destroyed the institution,” he said.
Without labs like this, crop diseases, such as wheat-killing stem rust, could flourish, he said.
“Either we’re going to have to rethink how we’re doing this whole thing, or we’re going to have a significant collapse in the long run,” Moscou said. “This current push has really cut us off at the knees.”
The post contains other examples of how now-impaired or eliminated USDA initiatives were critical to farmers.
Similarly, as we and many others have discussed, Trump’s comparatively modest tariffs in his first term created an infinitesimal number of new jobs, at very high cost….with the tariff income being used nearly entirely to provide relief to parties harmed by retaliation. For instance, from Wikipedia:
China implemented retaliatory tariffs equivalent to the $34 billion tariff imposed on it by the U.S.[12] In July 2018, the Trump administration announced it would use a Great Depression-era program, the Commodity Credit Corporation (CCC), to pay farmers up to $12 billion, increasing the transfers to farmers to $28 billion in May 2019.[13] The USDA estimated that aid payments constituted more than one-third of total farm income in 2019 and 2020
Needless to say, the brief market swoon with Trump’s first and quickly paused threat to impose 25% tariffs on Mexico and Canada should have been a wake-up call. The already-flagging US auto industry, which employees over 4 million people, will take a body blow. Car production has become a highly integrated activity across the US, Mexico, and Canada, with car components routinely crossing borders multiple times. To put it another way: big vehicle producers were so important to the US economy that they got a bailout during the crisis (the view was that a failure or bankruptcy at the top would blow out many suppliers). My recollection was that the headcount across the industry was estimated then as in the 2 to 3 million range.
Now that the tariffs are on, some are putting pencil to paper and coming up with big-ticket damage estimates. From A potential $110B economic hit: How Trump’s tariffs could mean rising costs for families, strain for states by Professor of Economics Bedassa Tadesse in The Conversation. Note this analysis covers only the Mexico and Canada tariffs, and not the now 20% further increase in China tariffs:
What I found is alarming: The U.S. economy could face an annual loss of US$109.23 billion. This shortfall would mean rising costs of everyday goods for American families and would disproportionately affect certain states. My analysis focused exclusively on the effects of U.S. tariffs, so it didn’t take retaliation from Canada or Mexico into account. If it did, the losses would be even greater.
Imagine your grocery bill surging by 17.5% to 25%, car parts costing hundreds of dollars more, and your favorite local restaurant raising prices as imported ingredients become unaffordable. Because tariffs drive up consumer prices, these scenarios, or others like them, will soon become reality across the U.S.
But not all Americans will be affected equally, I found. States that are deeply connected to North American supply chains will suffer the biggest economic blows. Texas, with its strong trade ties to Mexico and key role in energy, would lose $15.3 billion. California’s diverse economy would take a $10.2 billion hit. Michigan, heavily reliant on auto manufacturing, would face a $6.2 billion blow – over 1% of its gross domestic product.
The biggest losers from the policy on a per-capita basis would be smaller, trade-dependent states that lack the flexibility to absorb such a shock. New Mexico, Kentucky and Indiana would be among the hardest hit, with projected GDP losses ranging from 1.12% to 1.48%. These states rely heavily on manufacturing and specialized industries, making them particularly vulnerable to rising costs and supply chain disruptions….
For example, a family of four in New Mexico would see an estimated $3,288 additional annual costs, equivalent to three months of grocery bills or an entire year’s utility expenses. Families in Kentucky and Indiana would also bear heavy financial burdens, paying an extra $3,120 and $2,836, respectively. Even in wealthier states such as Texas, the added annual costs would reach over $2,000 per household….
My conservative estimate shows that such disruptions could cost the [auto] industry approximately $28.2 billion, putting around 680,000 jobs at risk across manufacturing, parts production and sales operations. And the ripple effects would extend beyond automakers to suppliers, dealerships and local economies.
But the pain wouldn’t stop there. Manufacturing, which plays a critical role in 17 of the top 20 states most affected by tariffs, would also face rising costs and shrinking profit margins. The agricultural sector – vital in at least 10 states – would endure higher input costs and potential retaliatory tariffs from Mexico and Canada. Past trade disputes have shown that American farmers often bear the brunt of such policies, with lost export markets and declining revenues.
Just as UK corporations were reluctant to criticize Brexit out of fear of Tory retaliation, so to there is likely reluctance among executives to openly or sharply criticize the famously vengeful Trump over his hare-brained schemes. So the fact that the business press coverage of the State of the Union address is turning on the Trump economic program is noteworthy. For instance:
The Bloomberg opening paragraph of Trump’s over 100 minute speech, only a comparatively small part of which discussed the economy, zeroed in on the recent wobbles and worries:
President Donald Trump took the lectern Tuesday for his primetime address beset by warning signs about the US economy, and acknowledged to Americans there could be more discomfort ahead.
Trump defended his plan to remake the world’s largest economy through the biggest tariff increases in a century, saying it would raise “trillions and trillions” in revenue and rebalance trading relationships he called unfair. He cast the economic pain the levies are expected to cause in the form of higher prices as a “little disturbance” the nation ought to be able to overcome….
Trump turned to inflation only after a 19-minute opener. He blamed high prices for eggs and other goods on his predecessor, Joe Biden, and offered few new ideas to lower costs.
Some of his proposals at times sounded like magical solutions, including complex energy projects that could take years to complete and using savings from Elon Musk’s cost-cutting campaign, which have amounted to a small fraction of the federal deficit, to help pay down the debt
The Wall Street Journal coverage of the State of the Union included a particularly damaging factoid: that the Trump Federal-program-slashing is going over so badly in quite a few Republican jurisdictions that the party grandees have told Congresscritters to stop holding town halls, no doubt to avoid damaging video clips that would have high odds of going viral:
But by ticking through the catalog of changes he has started or implemented, Trump bet that showing himself to be a leader taking “swift and unrelenting action” would persuade the country that he was on the right path. Trump said he was removing violent undocumented immigrants from the country, was acting to expand energy production and would strip money from schools that allow transgender girls and women to compete in women’s sports—all actions that polling shows to be popular.
His success in working with Congress to pass important parts of his agenda likely depends on whether voters see more progress than pain. The president has retained strong loyalty among Republican lawmakers, but tentative signs of unease are emerging.
Some Republicans worry that Trump, who campaigned on fighting inflation, is adding upward pressure on prices with his tariff program, which could anger voters. Protests at constituent meetings over federal cutbacks and his Ukraine policy have grown so confrontational that senior House leaders urged GOP lawmakers to stop holding in-person town hall meetings.
Trump’s actions so far have surely pleased the 38% of his 2024 voters who told pollsters that even substantial change in how the country is run wouldn’t satisfy them—they wanted complete and total upheaval. But some congressional Republicans need a broader set of voters in order to hold their House and Senate seats.
The not-business-focused Axios led with skepticism about Trump’s economic program:
President Trump wants to will the country back into the “golden age” he promised on the campaign trail, the headlines be damned….He recited the historic number of executive orders, touching every aspect of American life from immigration to sports.
- 🚢 To thunderous applause from his party, Trump announced a new office of shipbuilding in the White House, to help “resurrect the American shipbuilding industry, including commercial shipbuilding and military shipbuilding,” with “special tax incentives to bring this industry home to America, where it belongs.”
- 💰Trump pledged to fulfill his “no tax on tips” campaign trail promise to service-sector workers, and called for car loan interest payments to be tax deductible — if the car was made in America.
- 🕊️ Trump declared peace in Ukraine was closer than ever now that its president, Volodymyr Zelensky, wrote him a letter that said he was ready to negotiate.
Reality check: Trump will have a nearly impossible time balancing the budget, as he promised, and cutting taxes. And the economy shows troubling signs: Trump was unmoored from plummeting stock prices, sagging consumer confidence and the specter of rising prices due to tariffs.
The Financial Times’ chief economics commentator, Martin Wolf, made a key point as to why the Trump policies will never deliver…save short of creating a crash:
As Maurice Obstfeld, former chief economist of the IMF, has noted, the US’s trade deficits are not due to cheating by trading partners, but to the excess of its spending over income: the biggest determinant of America’s trade deficits is its huge federal fiscal deficit, currently at around 6 per cent of GDP. The Republican-controlled Senate’s plan to make Trump’s 2017 tax cuts permanent guarantees that this deficit will persist for at least as long as markets fund it. Given this, attempts to close trade deficits with tariffs are like trying to flatten a fully-filled balloon.
Now admittedly, Michael Pettis just vigorously contested that view, arguing that China has agency and its high savings rate is to blame.
But whatever transmission chain you accept, the conclusion is the same; Trump’s tariffs won’t solve the problem:
Despite Trump dominating the press since he took office, the public is not returning the love:
Bizarrely but predictably, instead of focusing on Trump’s obvious Achilles heel, his incoherent and contradictory economic approach, Team Dem and others of the hard-core anti-Trump persuasion focused on his lies, rather than how his approach is doing harm (and then, when appropriate, how his lies are trying to cover for that). For instance:
Now in fairness, some of the more effective Trump opponents zeroed in on the fact that Trump praised Musk as head of DOGE…when due to legal challenges, the Administration had denied that in court. As Newsweek explained:
During his speech to Congress on Tuesday night, President Donald Trump again said that the Department of Government Efficiency (DOGE) is “headed” by billionaire SpaceX CEO Elon Musk….
The White House has recently tried to build some distance between Musk and DOGE after the task force was hit with multiple lawsuits alleging that Musk, as an unelected bureaucrat, ran afoul of federal law by unilaterally shutting down congressionally created agencies and attempting to fire tens of thousands of federal workers.
Newsweek includes entertaining detail about how Judge Theodore Chuang has been unhappy about the Administration’s too-obvious evasiveness when trying to get clear answers about who was in charge of DOGE when.
And the legal response was swift:
Mind you, even though reality is starting to catch up with real costs of Team Trump’s demolition program, he has built up so much momentum that it will take a while to lose steam under the weight of its own contradictions, as well as Congress, in light of fading Trump personal popularity and constituent unhappiness, failing to support key Trump measures that require legislative approval. So bet on more of the same, likely accompanied by even more strident Trump insistence that what he is doing is perfect, which it surely is for his squiillionaire buddies.
Update 9:00 AM EST: Since I was apparently not explicit enough about what I thought about Team Dems’ response (heckling and stony faces in the gallery are posturing, not action), a just-released Financial Times opinion by Edward Luce will help. Luce was Larry Summers’ speechwriter. While he does write some independent-looking articles from time to time, he regularly publishes pieces that channel or burnish Goodthinking Democrats.
And of course it starts with Trump’s extreme bullshitting, his lack of concern with accuracy, as opposed to the concrete harm that Trump is or may be about to do to ordinary Americans. From the top of the story:
It is Mardi Gras in New Orleans. Yet no parade could match the carnival in Donald Trump’s Tuesday night speech to Congress.
As the US president declared himself author of not only the greatest comeback we have ever seen, but will probably ever see, one could almost hear the remnants of the fact-checking community snap their laptops shut. What purpose would it serve to point out that millions of dead centenarians are not receiving social security cheques, or that America has spent nowhere close to $350bn on Ukraine?
So what if Trump lies incessantly? What is the practical significance of these lies to real people?
As you can see, this is test-taking PMC members dealing with a cheater. How dare he give wrong answers
information and face no consequences? Or worse, be applauded because
his bogosity sounds plausible or appeals to the prior of key
constituents?
And notice, in a proof that the Democrats have learned nothing and forgotten nothing, that his write-up nowhere mentions either of the issues that were key in the election: inflation and immigration.