April 4, 2025 - 3:00pm
The consequences of the Liberation Day whirlwind are in full flow. Recently, Donald Trump’s trade policies have been a minor driver of market decline, but now there is little doubt that they are the main source of instability. Global financial markets are in free-fall after the White House imposed tariffs so high and so extensive that — if they stick — effectively signal the end of globalisation. In response, China has announced retaliatory tariffs of 34% on American imports to take effect on 10 April.
Much of the chatter around the tariffs has focused on technical details of levies on imported goods. Just as the Covid pandemic created a slew of armchair epidemiologists, so too Liberation Day has minted a gaggle of armchair economists. The crux of the matter is that the tariffs are designed to force the United States to balance its trade with the rest of the world — or, perhaps more accurately, to force the rest of the world to balance its trade with the United States.
This means that tariffs are calibrated relative to the size of the trade deficit that any given country runs with America. For example, Russia barely trades with the United States due to a decade of sanctions and so despite nominally being an adversary, it was hit with limited tariffs. Meanwhile Vietnam, nominally an American ally, got hit significantly because it runs enormous trade surpluses with the US. These policies have nothing to do with fairness or tit-for-tat trade war: they are part of a radical plan aimed at restructuring the global economy.
No one, even those in the Trump administration, know if they will work to America’s advantage. Tariffs this large should be expected to cause inflation domestically. Yet today it was announced that Opec+ is set to ramp up oil production dramatically, and, as a result, oil prices have crashed. Falling oil prices may be enough to offset the price increases from tariffs, although gas has remained relatively cheap in America due to the scale of internal production. Russia has long resisted an increase in oil production and the fact that Vladimir Putin’s trade envoy is currently in DC hammering out a bilateral economic partnership suggests that there is a much larger global strategy at play here.
As for the markets, there seems to be no end to how far stocks will fall and many are talking about another financial crisis. If they are correct, Wall Street could suffer more than it did in 2008. This is because its business model is the inverse of the globalised trade deficit model that the United States has run for years. In this model, America sucks in imports from the rest of the world and sends its trade partners paper dollars in return. Wall Street then recycles these paper dollars.
The Trump administration has signalled that it is deadly serious about rebalancing trade, which means that the excess dollars will stop flooding world markets. If this happens, much of the stock market’s current business model will no longer be viable. Financial markets should expect layoffs during the current downturn that will never be reversed.
Though many are wondering if the Trump administration understands how seismic its plan is, there is plenty of evidence that it does. Stephen Miran, Chairman of the Council of Economic Advisers and himself a veteran of Wall Street, released a blueprint weeks ago for how tariffs would be implemented. It shows, clearly and concisely, the potential downsides and what sort of problems might be faced as it is implemented. For example, Miran knows that American voters may bear the brunt of higher prices. “There is a path by which these policies can be implemented without material adverse consequences, but it is narrow,” he has conceded. The Trump team may be radical, but it is not completely ill-informed.
The US is taking an enormous gamble. Amid stiff competition from China and an ever-increasing deficit at home, American power has been waning in recent years. If it had continued as normal, its dominant global influence would have almost certainly been sacrificed. This new strategy, then, can be understood as a high-risk gambit to get the country on a stronger economic footing in an increasingly multipolar world. Russia, hardly hit, seems to be onside, while China, clearly aggravated, may be able to absorb much of the pain. Europe is the piggy-in-the-middle: disoriented, trapped, and unsure what to do next.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
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SubscribeGets it just about right.
> Wall Street is the loser from ‘Liberation Day’
I think this is kind of the point. Wall Street since basically 2008ish has made money not by producing things but by playing financial games increasingly removed from reality and more and more at the expense of their fellow citizens. They have been aided and abetted by a government that is desperate to ensure nothing bad happens so they can stay in power. The fact of the matter was that in ’08 there was correction needed, the politicians and “experts” were too focused on “the economy” as an abstract mathematical model, and then there has been constant efforts to avoid the reckoning thats been due since then. But it couldn’t be avoided for ever and so now we must pay the piper with over 10 years of interest, and the reality is coming home that most of the “wealth” that has been built over the past 20 or so years is actually just fancy spreadsheet games.
Basically the security blanket that many have been using to convince themselves things are fine has been torn away and the stark reality of the conditions for the average American has been revealed and can’t be denied any longer by hiding between fancy statistics and complicated jargon from “the experts”
I have no idea how this will play out, but in its apparent willingness to prioritise Main Street over Wall Street, the Trump administration is already a vast improvement over preceding administrations, Democratic and Republican.
It will likely lead to increased prices for US consumers in the short term. If it also means that manufacturing jobs and capacity return once more to the US, then strategically it is an intelligent and possible essential move. Whether incomes then rise enough, and quickly enough, to offset the price increases will likely determine who wins the next election.
‘Apparent’ being the debatable point SD.
So we have Trump looking to cut healthcare and social security for millions, increase the price of their groceries and find a way to enable tax cuts for Billionaires. Quite a smart cocktail that.
It may be that he genuinely thinks he’s going to create lots of jobs for Americans (albeit US labour market is tight already so quite who is doing the jobs? Immigrants?), but it’s not how it’s going to feel for some time for many. And he doesn’t need many to switch sides to lose Congress in 20mths. Suspect panic will build in GOP. Even before the tariffs the recent elections had shown significant swing away from them.
Only the terminally deluded could hope that Wall Street’s Financialisation & Unproductive Assets Class, which has serially f**ked Main Street USA for several decades now, is going to respond to having vast chunks of their virtual wealth obliterated overnight by investing whatever real money they turn out to be worth…in the long-term, very modest returns available – and then only possibly – from any slow, substantial, strategic rejuvenation of American domestic industry.
These people are vicious jackals in rented suits, who would boil Joe Sixpack’s children for soap if they thought it might help their slippery pretend-money slide into – and out of – the next Ponzi grift a little faster. The notion that ordinary worker wages and incomes will be allowed by either their or Trump’s kind to rise ‘quickly enough’ to offset inflation…is less wishful thinking than ‘useful idiot’ intellectual negligence.
Wall Street is not going to rescue the US economy or the US workforce from this act of suicidal economic self-mutilation. It will be too busy kicking everyone else down and trampling over them in the race to be first out the US economic exit. One of course doesn’t wish these investment bank CEOs, venture capitalists and hedge fund managers any more physical ill-harm than one would want to see befall any other greedy, nasty, pretend-money industrial imposter – health insurance fund bosses, for example. But the next six months is very likely to see the hatred of Wall Street from Main Street USA reach pre-1917 Russia levels.
For the first time a second American civil war doesn’t seem like such a hysterically undegraduate impossibility. Or maybe a second War of Independence, only this time as an attempt by the people to escape the tyranny of their own elected government.
Trump has just shattered the precarious hand-to-mouth subsistence economics that already immiserates the daily lives of vast chunks of his own (already dwindling) base, UnHerders. Think about the impact of that final oligarchic betrayal for a second – without your ideological blinkers on.
Oh, bless..
meh
Those financial games were of course facilitated by money creation after 2008 and the pandemic. After the GFC showed that the economic expansion produced by financial games, prior to 2008, essentially wasn’t real. But all that money is still in the economy.
For example, the M2 money supply in the US jumped from 15 to 20 trillion during the pandemic. Although some of that money might evaporate after a stock market crash due to margin calls, and what not, I think a lot of excess liquidity still has to go somewhere. I also wonder if central banks will start QE (printing money) again in case of a recession, re-inflating the bubbles once again.
So I suppose that if we really want to get rid of the ‘everything bubble’, central banks have to remain hawkish as well. Or the government has to redistribute money towards main street. But Trump is not a tax guy.
Right on!
This is the sort of sober analysis that maks this journal worth the subscription.
Not just an impartial reading of events but, as the Prayer Book uses the word in its old sense an ‘indifferent’ one. A very rare and precious thing indeed.
Perhaps the issue is whether the ‘sober analysis’ as prevalent in the White House?
And economics can both be influenced by the classic ‘animal spirits’ and longer term thinking on big investment decisions. The reshoring Trump hopes he’ll stimulate (if one can assume he has some coherency to his thinking) is not going to happen quickly. The scale of investment decisions mean they won’t be rushed. In meantime ‘animal spirits’ will prevail and generating panic and uncertainty usually not good for more than a small minority.
Well, as a holder of a portfolio of shares and keen private investor, this has been painful.
But I choose to listen Warren Buffett who always implored investors not to panic and hold tight through these things. There are some good discounts to be had in such times; opportunities among the destruction.
Onwards.
Not really I suspect. If you’ve held the investments any length of time you’ll be sitting on huge gains from the US stock market which have only very partially been given up – i.e. still well ahead. These are the sort of problems you want – better than most alternatives. And yes, there may be some opportunities emerging.
It’s hard not to see the US stock market as being in a massive bubble for the past few years – most recently in the AI craze. Housing bubbles still persist everywhere.
But it’s high time someone called time on the financial model of the last 30 years where governments and central banks have always acted to prop up financial markets and assets – thus making them ever more expensive and excluding large groups of people from participating. Sadly, it won’t be the Wall Street operators who suffer the most here.
If Trump blows this whole thing apart and delivers the necessary “hard reset” to the system (whether accidentally or not), this may well be a good thing in the end, however painful the transition is. Someone has to eventually. I’ve felt we (in the West) have been living in an economic fool’s paradise for at least the past 30 years.
Agree with elements of this. Your key point for me though is reference to who may ‘suffer the most here’. Short/medium term it’ll not be the v rich to any really discernible degree and in not distant future alot of folks I think will notice that. The WWF Trumpian rhetoric bit out ahead of the reality coming isn’t it, so once that blows through…
The rich will always f**k the poor. Until the poor become big and ugly enough to f**k the rich. The bubble has been inflated so far, and for so long, that I think a violent catharsis might almost be inevitable now.
Buffett has been accumulating cash for the past year, at last count he was holding over 300 billion. We have to assume he has also shorted several overvalued stocks. He has giving several warnings about overvaluations and destructive Trump policies. It’s only beginning as the tariff war spreads , recession begins, unemployment rises and inflation sets in from all the tariffs and lower dollar. If anyone believes that companies will suddenly close factories in Vietnam or elsewhere and move them to Wisconsin, they are dreaming in technicolor, because the costs of new factories, infrastructure and labor in the US is much higher regardless of tariffs. Companies will sit back and wait for the investment climate to improve before making any long term investment decisions. In the meantime, prices will rise thanks to the tax on consumers. The Trump experiment will be a total failure, this will be obvious in the next 12 months as the economy tanks. Of course, he will try to deflect the blame to the federal reserve for not doing enough, and his supporters will blindly believe it
Didn’t Buffet bale out some months ago? Saw what was coming perhaps?
It’s no surprise lots of asset holders now suddenly waking up to who they helped gain the White House. All the WWF schtick not so pretty now?
Having just read the Rapley article, I’d really like it if Unherd hosted a debate or discussion between him and Pilkington on this subject, since their analyses diverge quite drastically (though I consider Pilkingtons analysis superior almost every time).
“Today it was announced that Opec+ is set to ramp up oil production dramatically, and, as a result, oil prices have crashed”
If there is a global recession then price of other raw materials will also crash. So I’d say
“Russia, hardly hit, seems to be onside,”
seems unlikely.
China, as the workshop of the world, is also going to be hit hard so I wouldn’t be sure about
“may be able to absorb much of the pain”
No-one knows how this will play out.
Trump has implemented radical left policies that Corbyn or Sanders could only dream of doing!
Just like the political left would never have gone for Brexit, they would never have gone for thus either.
An element of radical Left always anti-EU. Corbyn/McDonald weren’t great Remainers, and if we go back to likes of Benn there was a considerable Left tradition on this. The lumping all Left into one amorphous lump misses this a bit I think.
Thus I also think an element of the radical Left would have gone for some of what Trump is doing. Which is one of the great ironies and paradoxes. The radical Left likes chaos and revolutionary atmosphere/environment.
That’s why I said political left, though it’s probably not the best phrase to have used. Corbyn, despite his own personal beliefs, never took Labour to a position of supporting Brexit despite it having some clear ‘left’ aspects, which is the point I was trying to make. It took a ‘right’ party, in no small part voted for by the working class, to force a referendum.
Re: the paradox, we think of the political spectrum as a line, but it’s really a circle with an opening. The negativity of both extremities of Right and Left keep it from joining.
Imagine the money being made by people with deep pockets right now!
How so?
Flipping blue chip holdings that dive and bounce. Harvesting strategically shorted stocks. Hedge fund transfers. Currency trades. Throwing vast reserves of cash at opportunity bargains. And god knows what in the crypto quarters of the market.
The digitalisation of the world’s markets means you don’t have to shove diamonds up your ass and bolt anymore.
Yes, there will be some people making money out of this mess. But in some cases when big changes like this occur, the money moves from one person’s pocket to another person’s. In this case the vast majority of the trillions of dollars of money just disappeared.
Money is just an abstraction, so no real wealth vanished. But money does real wealth creation, so we will likely all lose out on a lot of economic growth. The future was a lot brighter before last Wednesday.
Classic Oligarch tactic to erode billionaire wealth and shrink wealth inequality between the 1% and the masses. Like tax cuts, everybody knows a booming stock market helps the “Millionayahs and Billionayahs” the most.
All the Labour Marxists must be horrified!
You forgot about the millions who hold those assets in retirement accounts and pension plans, you are dreaming if you think this is the way to deal with inequality, you ain’t seen nothing yet, wait until stagflation kicks in , jobs disappear and businesses go under. The Trump show is about to become the nightmare on main street.
Got it. So low taxes only benefit the rich but stock gains are universally shared. Thanks Dave!
No problem with taxes as long as the money is well spent on education, infrastructure and other needs of the country. The US really needs to look at the overcostly, inefficient and profiteering health care system. Way too much money is wasted going to insurance companies for instance, that’s just one thing.
A tariffs is literally just a tax on international corporations. You either tax individuals, domestic corporations or international corporations.
I don’t understand the argument that only tariffs “pass on costs to consumers” while high taxes on domestic companies don’t inflate costs.
So far, I haven’t seen a discussion of Trump’s political calculation here.
In the short term, markets will drop and prices will rise for consumers, and Trump will be blamed. One question is how long the “short term” lasts before/if long term benefits start to accrue from this tariff strategy?
Already mid-terms aren’t too far away, and it’s less than four years to the general election. The Republicans might lose their slim legislative majority at the midterms if voters are feeling the financial squeeze. It’s also possible the US economy might only start to improve as the 2028 election approaches and Trump’s successor Republican candidate will not reap the benefits at the polls.
Yep bits of it seem politically v daft and GOP will go into panic mode, esp given the recent elections in Wisconsin and Florida already showed big swings away from Trump.
I suspect a theory may build that Trump going to ameliorate the political risk by election interference and deployment of tactics from all angles possible now he’s his sycophants in all the key jobs (bar the US Fed Reserve of course where his rage will build). A test of US democracy yet to come perhaps. I have more faith in the US system and it’s Constitution but one can see what could be coming given he’s already tried to overturn an election he lost by 7m votes.
If he’s truly serious in the ‘intent’ to re-shore to help the Little Guy and stuff the asset holding parasites then there is a nobility to what Trump is trying to do. Certainly some Leftists will grasp and appreciate that even if they dislike alot of the other Trump tripe. Problem is it’s just too early to conclude how much is that or how much a massive vanity project? The fact he keeps encouraging deals seems to suggest ‘deals’ more interest to him than fundamental long term reshoring. He’s not going to be around in the White House to see the fruits of fundamental reshoring so something doesn’t quite tally.
As everyone knows a key immediate issue is how much pain for US consumers will this create and how long will they put up with it because they really believe in the potential reward later. Again too early to say. Conjecture on both will rage for the time being.
As regards unintended consequences – Trump already seems slightly nervous he might unleash coordinated retaliative action from others. And he may have prodded others out of their slumber too to the effect the US actually weakens its influence. Trump’s retributive emotion then could have this spiral well beyond trade. And then that further crashes Business confidence. This isn’t going to remain contained just to tariff and investment decisions for long.
And Xi will be pondering whether the time and excuse for stronger action on Taiwan is more rapidly approaching. Taiwan has been clobbered by Trump too and that can’t aid the cause of resistance to China. Other US allies have been battered. Serious tension in the South China Sea would further shock the world economy, although again medium/long term might have some benefits in similar fashion to Trump’s tariffs. But in the short term does it all burn the house down?
Scott Bessant spelled it out on the All In podcast – main street over wall street. Tariffs is one part of the 3 arrow plan. It is a more sophisticated approach than Liberation Day optics would suggest. That said, pulling multiple levers for success always risky. I console myself that there is some serious practitioner firepower in this presidency (Bessant, Wright, Lutnick). I’m hoping they can pull it off. They could hardly do worse than the political and academic types, could they?!?!
Watching closer it’s discernible Bessent uncomfortable answering questions on this strategy. Luttnick previously on the record detesting tariffs and saying never work. The sycophancy may not last as long as folks think.
Interesting to note the currency fluctuations as well.
If any of us had a nickel for every time the experts have pronounced Wall Street as in “free fall” and certain not to recover, well, we could buy a lot of stock and be rich as Croesus. The market is as skittish as a Congressman in November by its very nature. Please calm down.
Everything we know about Trump tells us that he has zero appetite/ability to play the Long Game. He’s driven by whims and grudges, yes, but also by a desperate desire always to be able to present himself as the Winner. Thus I conclude there is zero chance that he will stay the course with this policy, which even on the most optimistic assessments would take years to pay off (if people really are going to be persuaded to onshore/reshore American manufacturing, just how long will it take to get those factories designed/permitted/up and running, particularly if you are asking the companies involved to make major capital allocation/investment decisions at a time when the bottom has just fallen out of the global economy precisely because of this new tariff policy ?).
Just watch.
If Liberation Day results in surpluses rather than deficits, the dollars will continue to put into Wall Street. It could be the saving of them. Trump had to take action to turn around the debt and deficit situations. I’m not sure though if Liberation Day is the right action.
So what? The market goes up and down and really down when the “Wall Street insiders” decide to get really greedy and screw everyone else. I am in the market but this is what needs to happen: a national and global reset, and the “wealth managers” better start earning their money.