Effect on consumer prices
For a crude, back-of-the-envelope, calculation of the net effect of an average 25% tariff on imports, start with the statistic that roughly 11% of US consumption is imported and about 89% is domestically produced.
1.25(0.11)+1(0.89) = 1.0275
So a 25% increase in the price of 11% of the goods translates into an average overall price increase of 2.75%. I obtained the 11%-89% data from a DuckAssist query; input whatever figures you prefer. A 15%-85% split (Statista) would result in 3.75%.
This is not an inflation rate or even an addition to an inflation rate. It doesn’t take into account dynamic or higher order effects or changes in inflation itself. It is a one-time increase in consumer prices directly attributable to tariffs, akin in aggregate effect to a 2.75% national sales tax.
Of course an aggregate does not imply that all goods and services prices will rise the same amount. The price of a car might rise 20% or more, while a house or rent or eggs might be unaffected. Not does this represent that the only effect of the tariffs is on consumer prices.
Since more goods and less services are imported, we could also expect goods prices overall to rise more than such an estimate would imply and services prices to rise less.
Tariffs themselves, like other direct taxes, all else being equal, are disinflationary, to the extent they displace money printing as a source of revenue.
Don’t be surprised however if prices overall rise more, because the Fed, with the eager assistance of the establishment media, might use tariffs as a cover to inflate more aggressively. The disinformation machine is already warmed up and ready to roll.
The Media’s War on Tariffs
The basis for the determination of the “reciprocal” rates is likely to be controversial. The imputed tariff imposed by other countries on US goods is not only explicit tariffs, but if I understand correctly, value added taxes. VATs are technically neutral as to imported and domestic production, so strictly speaking should not count towards tariffs.
This leaves the administration’s rationale open to criticism. Yet it’s not completely unjustified. The US does not levy a VAT, but the income tax does discriminate between domestic and foreign production, taxing domestic but not foreign. Tariffs complement it by taxing foreign but not domestic.
So what the administration really appears to intend by “reciprocal” is setting tariff rates such that the combined effect of US income tax and tariffs is roughly equivalent to the combined effect of trading partners’ import tariffs, income taxes and value added taxes.
OK……………….its 8:45 am here in blighty & lets see what is what.
The British Lib MSM is pissed, not as pissed as they were when Trump pulled the plug on “Project Ukraine”. Frankly i think they missed the point, this IS the Killer blow!
Its not been lost on the EEC, the CCCP 2.0 knows this could be the end to them…thank GOD!
I need to feed Mum & Jess so i be back later
Ok, GOLD GETTING KILLED!
You can say that again. For no obvious fundamental reason. Yesterday I saw a technical analysis pointing to $3167 (near hit overnight) as a target though, so far the only hint at a cause.
The only green on my screen this morning is Treasuries and an XS dividend stock fund (SCHY).
Meantime in the ECCP (EU)
https://x.com/Megatron_ron/status/1907759414074839439?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
More bait and switch in the EU. Lagarde wants to change the voting procedure to simple majority vote.
So if you joined the EU under the promise that if it proposed to do something you didn’t like, you could veto it. Under this proposal, the majority can run roughshod over you. Your only other choice is to leave; and you can be sure they won’t make that easy either.
First you joined what was supposed to be trading bloc. Then you had to give up your monetary sovereignty. Much of your judicial and regulatory sovereignty. Next it will be your fiscal sovereignty.
Bait with trade, switch to monetary, fiscal, judicial, regulatory.
Bait with the veto, switch to the majority.
Yep. the old Eastern europe leaders remember the CCCP, the ECCP is much the same.
Its coming apart……….
You Brits were the only ones smart enough to get out. So far … let’s see if any more escape before they lose what’s left of their nationhood.
Really sleazy the way it’s happening too. None would have joined up in the first place if the current federal arrangement had been what’s on offer.
https://x.com/Megatron_ron/status/1907806132179001413?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
Completely aside from the contents or merits of the tariff action, there is a possible silver lining that’s receiving no attention. Its political unpopularity may lead to reigning in excesses of executive power.
Congress has ceded far too much of its constitutional prerogatives to the Executive over in recent decades. This includes the effective power to declare war, and has facilitated most US military adventurism since World War II. Executive agency rule making has become the new legislative branch, a clear violation of the principle of separation of powers. The Supreme Court has even felt compelled to step in in reversing the Chevron doctrine.
Another less appreciated effect is the highly contentious nature of presidential politics. The more power the president has, the more is at stake. Less presidential power would make politics less acrimonious. If it matters this much who the president is, it’s because too much power has been invested in the office.
Regardless of whatever other effects this president’s executive orders may have, if they prompt a review and reduction of executive power it will have been a good thing. Not even just for Congress … the Constitution reserves most powers to the states and to the people.
OK, the ECCP is saying it is going to hit back!
They are going after Tesla BIG time! & Space X.
Delightful news, i hear F1 racing is dumping Hybrids & going back to V 10 power!!!!!
Mike
Macron says EU retaliation will come in two doses
Emmanuel Macron has said that the EU will inflict retaliation on the US in two stages, as he attacked Donald Trump’s “brutal and unfounded” trade war.
He said that Americans will be “weaker and poorer” after Mr Trump’s tariff announcement, which he said would have a “massive impact” on the European economy.
Europeans “need to remain united and determined in this phase. And I say this also because I know what can happen – the biggest players have a tendency to go it alone, and that’s not a good idea,” he said.
Macron reaffirmed the French government’s position that a “European response” would come in “two stages”.
“The first response will take place in mid-April and will address the tariffs already decided, particularly on steel and aluminium,” he said.
“The second, more massive response, to the tariffs announced yesterday, will take place at the end of the month after a detailed study, sector by sector, and work with all member states and economic sectors,” he said.
EUSSR has been in self destruct mode since it raised its centralization aspirations beyond the original common market trading bloc. Between its socialist technocracy, rampant open borders, and warlust, it’s been all downhill since. France, Germany, Spain, Italy, Greece, Poland, etcetera are all better than the European Union. It hardly needed US tariffs to have a “massive impact” on its culture and living standards.
https://www.youtube.com/watch?v=aLvY6xpKoIs
Bloodbath!
Stocks were reduced to sticks today, with the world market (via VT) down 3.95%. Even gold was not spared, though it recovered early losses to end (via IAU) down 0.59%. US Treasuries were the rare winners today (via GOVT) closing up 0.74%.
Because these changes cover the 24 hour period since the Trump’s Big Tariff Day announcement, it’s fair to presume a prima facie causal relationship absent a compelling reason to conclude otherwise.
But not to get carried away. Treasuries were already in rally mode and stocks in bear mode, all perfectly natural sequelae to the yield curve inversion and uninversion we’ve seen over the past couple of years. A recession and bear market were in the cards. Tariff news likely provided a transient boost to these trends and a particle base to seed crystallization from a supersaturated solution these entities. It is of course the supersaturated state and not the seed crystals that is the ultimate cause of the phase transition. To use a more familiar metaphor, a bubble in search of a pin.
Not cause, but catalyst.
Regardless, considering the declines since the February 18 top, we have a genuine, real live, stock market crash on our hands.
It’s not impossible that this market reaction is just what the administration wanted. Recall recent remarks by TSec Bessent that they were targeting lower yields on the ten year Treasury?
https://www.youtube.com/watch?v=zAC-xobV42U
Good Talking points
https://x.com/Megatron_ron/status/1907900351224631784?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
Well, quite a 10 weeks since Trump started the job
It is said that that there are decades where nothing happens; and there are weeks where decades happen.
These were some of those weeks.
From Business Insider:
“Ernie Tedeschi, the director of economics at the Budget Lab at Yale, said the price hikes are expected to increase the overall price level of goods in the United States by 2.3%, costing the average consumer household about $3,800 this year.”
In the ballpark with my 2.75%.
“Tedeschi told Business Insider that the existing tariffs against Mexico and Canada alone account for an expected 1% price increase of about $1,700 per household. The “Liberation Day” tariffs announced Wednesday are expected to result in a further 1.3% hike, or $2,100 per household.
“So 1.3% may not sound like a lot to the normal person, but $2,100 is a meaningful amount,” Tedeschi said.”
It’s less than the Fed has been doing, compounded year in and year out. Yet its easy money receives Wall Street media applause, while a smaller one-time bump from Trump raises screams of bloody murder.
Readers are encouraged to ponder why that might be.
Here’s another media nugget to chew on. Bloomberg is running a headline crying that stocks lost $2.5T in market value due to Trump’s tariffs.
This begs for deconstruction. The total amount of goods and services available for purchase in the world today is virtually unchanged from yesterday. Therefore the total amount of purchasing power in the world is unchanged. There has been no net loss of wealth. Therefore the purchasing power lost by stocks must have been gained elsewhere, for instance by currencies and bonds.
I look forward to the headline highlighting the gains.
At Advisor Perspectives, Michael Townsend of Schwab states:
”Importantly, tariffs are not paid by foreign countries. Rather, tariffs are paid by the U.S. companies that import goods from other countries and are typically passed on to consumers in the form of higher prices. Economists fear that rising prices will curb consumer spending, leading to job losses and a broader economic slowdown.”
If this were accurate, then why would other countries threaten to retaliate?
In short, it’s not the truth. Consumers will pay only a part of those costs. Part is paid by the exporting countries and part from corporate profits. And who exactly are these unnamed “economists”? This economist is certainly not one of them.
Let’s see if just one of them would appear here to defend these claims.
https://www.telegraph.co.uk/business/2025/04/04/trump-wants-cut-taxes-tariffs-raid-could-pay-for-it/
Suddenly we seeing another side to this, yes an ave Yank might see their cost go up $2000 ish………..but what of their income taxes?…….could the ave Yank do very well out of this?
Mike
I don’t like paying taxes any more than the next guy, but I’d rather see it go towards deficit reduction first. Get the debt cost down now, and later the savings could cover more sustainable tax cuts.
It’s a pipe dream for now, but it’s possible that one day the federal government might be financed entirely through import and export taxes, corporate income taxes, sales taxes and service fees. The personal income tax could be completely eliminated.
British stocks down 1.5% today as yesterday……….low speed crash?
ok, mid day here in Blighty, Our stock market down 3.9% today & 1.75% yesterday
Gold recovering, China went with 34% taxes on US goods & reduced exports of rare earths.
Going to have dinner wash Jess
Mike
Part of the increase in costs due to tarriffs will be offset by tax cuts to workers.
This is where the word “tariff” plays perfectly. As you mentioned tarriffs ARE taxes but to the average worker they sound less like taxes. So when Trump announces tax cuts people will feel happier. The other effect is that a strong dollar makes stuff cheaper anyway!!! Every hour worked today already buys more oil, copper, gold than yesterday. In the UK the media are reporting how every country is moaning about the harm tarriffs will bring.
What’s the general feeling in the US?
I’m not sure there is a general feeling. Clearly a lot of people are upset, especially on Wall Street, as any casual contact with the business news reveals. As my last few comments indicate, I have less than zero trust in the mass media. I suspect rural and working class support remains strong but haven’t had enough contacts the past twenty four hours to say for sure.
Then there is the question of for what. Speaking for myself, for example, I support the 10% across the board part but not the 25% on Canada and Mexico for fentanyl, 25% for autos, and sundry other selective or punitive tariffs. But I also think it’s too soon to judge. As you point out, the tariffs are intended to be part of a broader tax reform package. They just happen to be the only part Trump can do by himself. And part are likely negotiating gambits whose goals and benefits are not yet apparent.
I also agree about the strong dollar part. Short term, asset market developments are clearly deflationary, but will take weeks and months to begin to flow through to broader consumer prices.
Just had a chat with my neighbor across the street. He’s totally on board with what Trump is doing. Bear in mind it’s a small sample and this is what might be called a “red state” area, but he’s probably fairly representative, and better yet it’s real life and not media propaganda.
JE SUS
UK stocks down 5%, 1.5% yesterday thats almost 7% over 2 days
We now can declare a full on deflationary crash.
Hard as it may be for Wall Street, the implications for Main Street are so far positive. The difference couldn’t be simpler. Wall Street loves inflation, Main Street hates it. As I pointed out earlier, the losses in purchasing power being experienced by stocks are matched by increases in purchasing power of other assets, notably currencies and bonds. The increase in the value of currencies, however, now abundantly obvious in asset markets, will take time to flow through to the much slower to respond consumer goods and services markets. The contest between immediately obvious losses and slowly evident gains makes for an easy optics case for the pro-inflation Wall Street media.
This media, which rarely meets an interest rate cut it doesn’t like, is loathe to mention the upside of substantial rate cuts seen in the bond market over the preceding days and hours. The US Treasury is already benefitting from lower borrowing costs. Consumer and business borrowers can share in the benefits as well. A generation accumulating assets for the future is finally able to access the benefits of lower prices and prospects of returns more in line with those enjoyed by previous generations.
The Federal Reserve, is, as usual, asleep at the switch with its fascination with lagging data. The same Fed that couldn’t wait to cut rates six months ago hasn’t been able to bring itself to acknowledge that it actually may have justification now. Fortunately the much more important and awake bond market is on the case.
Indeed UK bond prices are falling, cheap(er) loan rates…
Mike
6:33PM
Trump may add Fed war to trade war, warns economist
There is an increasing risk that Donald Trump will launch a war on the US central bank in the middle of his trade war, an economist has warned.
Professor Costas Milas of the University of Liverpool said: “Jerome Powell is in a very tricky place because the Fed currently faces the prospect of higher inflation and lower economic growth. One problem the Fed has is rising inflation expectations.
“In fact, next year’s inflation expectations in the US jumped up from 4.3pc in February to 5pc in March, well above the current inflation of 2.5pc.
“Rising inflation expectations will surely translate into higher inflation through, for instance, higher wage demands made by workers. This implies, and rightly so, that Jerome Powell and Fed’s policymakers will either delay interest rate cuts or – even worse – be forced to raise interest rates to reduce inflation in light of the inflationary impact of tariffs.
“Such an unwelcome scenario will not go down well with Trump who is already pressing the independent Fed for interest rate cuts. Here comes the problem: in the middle of Trump’s trade wars, there is an increasing risk of Trump starting a ‘domestic’ war with the Fed, which will destabilise financial markets and the economy further.”
Not on my top ten worry list. Inflation ground to a screeching halt this week. Team Trump is already getting lower interest rates courtesy of the $37T Treasury bond market. Unless stocks and commodities bounce soon and bounce hard, the Fed will soon follow, slashing and printing. Not to placate Trump, but to placate Wall Street.
Trump’s tariffs will put 100,000 Britons out of a job, Deutsche Bank warns
Donald Trump’s tariffs could cost 100,000 jobs in the UK, an investment bank has warned.
Sanjay Raja, senior economist at Deutsche Bank, said that the tariffs would wipe off 0.3 to 0.6 percentage points from Britain’s gross domestic product.
“Based on our analysis, we estimate that the potential labour market hit could amount to something like a 0.2 ot 0.4 percentage point increase in the jobless rate… This would equate to a near 50,000 to 100,000 increase in jobs lost as a result of President Trump’s tariffs.
“This reflects the weaker demand environment, alongside the need for lower production due to higher global prices.
“What industries are likely to be hit? On our count, the biggest impacts are likely to be seen in machinery, autos, metals production as well as in services industries such as professional services and admin/support services to name a few.”
It makes me angrier and angrier all the time to read this kind of Fake News (and in this case junk economics). I’m assuming that it’s reasonable to believe that if 100,000 Britons will be put out of a job that some number, maybe 100,000, of Americans will gain a job. Unless the article is claiming that the tariffs is going to put everybody on the planet out of a job.
Let’s assume that it is the first case, that 100,000 Britons will be put out of a job and at least some of those jobs will migrate to the U.S. Isn’t that the job of the federal government of the U.S., to look after the interests of the country and its citizens (Americans)? The news article other is essentially saying that the U.S. should put all Americans out of work and turn them into vassals or slaves of foreign powers, that the benefits of the country is reserved for foreigners first and Americans last if at all.
I saw a related thing during Trump’s first term in office when he spoke of ending the H1-B visa program. Indians were complaining in various forums that the U.S. had no right to prohibit foreigners from getting visas into the country and that the U.S. had no right to the high-paying jobs in this country. Last I checked, there is no natural law that prohibits or makes impossible India being a country that has high-paying jobs and a decent standard of living.
The same goes for China. China’s retaliatory tariffs are a weaponization of the advantages it gained when it demanded technology transfers and siting manufacturing in China from foolish and corrupt western management.
I’m fairly confident that if the world goes into tariff wars that the U.S. and its citizens will face hardship for a few years. Some Americans, most likely the pseudo-liberal and far-left Democrats, will screech non-stop about losing their cheap SHIT. Some will become violent as they’ve already shown with their terrorist activities going back to 2020. But in the long run, the U.S. will be better off as it weans its dependency off nations that have sought to hollow out the U.S. economy and indenture or enslave the country.
Bloomberg, probably the ultimate voice of Wall Street, just ran two headlines within minutes of each other, one repeating that “economists” warn of higher “inflation” due to tariffs, and another that soybean prices had fallen over 4%.
No shame whatsoever. Make no mistake, these are not economic reports, they’re cries of anguish from Wall Street as its Washington gravy train rolls to a stop.
Soybeans, Oil, Gas etc
You bet, Mike. Copper too … even gold is taking a well deserved breather. So stocks are cheaper, metals are cheaper, food is cheaper, energy is cheaper, the dollar is stronger … we are in the throes of at least a “transitory” retreat of inflation. Wall Street wailing notwithstanding.
Inflation came to a screeching halt this week.
The only prices I see that are up this week are of bonds. This is of course a retreat in interest rates.
I’m not suggesting there are no negatives from these tariffs; but the establishment media’s apocalyptic prognostications are patently one-sided self-serving financial industry propaganda.
Jim Rickards
https://www.youtube.com/watch?v=ohh3hTCSOBU
Just before Taxes.
Mike
Here are some rate cuts delivered by the markets in just the last five days:
1 year US Treasury -18bp
10 year US Treasury -26bp
US Treasury Yield Data
No endless talk, no fuzzy minded speculation; just clean, decisive, action.
Who needs a committee of central planners?
https://x.com/Megatron_ron/status/1908249154842689718?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
What is a deflationary crash?
Now that the dust has settled a bit on a white knuckle blitz of news flow, market drama and media noise, let’s get out our macroscopes and zoom out for some context.
This has a lot less to do with tariffs than media coverage would suggest.
It goes back at least to 2008. The financial crisis kicked off an era of unprecedented central bank activism. The Federal Reserve slashed its policy rate to zero and began aggressively buying assets with freshly minted currency. Once the crisis was over, however, it didn’t stop. It held rates near zero for most of the next decade, and whenever stock prices threatened to fall, intervened by buying more aggressively.
Then following an attempt to normalize in 2018, it gave up when stocks fell about 20%. The yield curve inverted and univerted in 2019, presaging a bear market and recession in 2020. By the time it began to develop however, the Covid sensation and associated government interventions eclipsed memory of the financial developments that led up to it. The ensuing deflationary crash prompted the most aggressive central bank interventions yet, with the Federal Reserve again slashing rates to zero, promising to keep them there for years, and printing dollars by the trillions.
When these inflationary activities finally spilled over into broad increases in consumer prices, the Fed responded with an aggressive tightening, but once stock prices had fallen around 20%, once again caved to Wall Street demands and prematurely abandoned its tightening program.
The sum of these repeated interventions reinforced the storied “Fed put”, and the pervasive market perception that no matter how high stock prices went, investors could confidently buy knowing that the Fed had their backs. By late 2024, US stocks had reached valuation levels higher than in 1929 and 1999. Even at superbubble prices, investors were so certain that stocks could only go up against currencies, that shorting currency against stocks seemed like a no lose proposition.
This means borrowing currency to buy stocks, both indirectly and directly. Both individuals with Robin Hood accounts and stock options and institutions like hedge funds and investment banks played the game.
Once again, this occurs after a yield curve inversion and uninversion, this time one of the longest and deepest on record. A recession and bear market were in the cards. Media declared a bear market today, but Financology went on Bear Market Watch over three months ago and issued a Bear Market Warning nearly one month ago. This would not have been possible if the true cause were just the day before yesterday. The amnesiac financial media doesn’t even acknowledge the conditions in place prior to this week and the history that led to it, let alone analyze it.
But this explains this week’s extreme market action. Tariffs merely served as a catalyst, like a spark to a pile of dry tinder. But it’s the tinder, not the spark, that is the source of instability. Without the tinder, a spark poses no danger, no more than a pin is a threat to an uninflated balloon.
The financial system had built up a massive short position in currency. The surge in its value is a result of a classic rush to cover. This global short squeeze caused the value of dollars and other currencies to surge, not only torpedoing the prices of stocks but of commodities like oil, copper, gold, etc.
Traders are familiar with the surge in a stock in response to a short squeeze, but not when it happens to currency. The certainty that central banks create by persistent inflation invites the buildup of short positions. Their goal of a nice smooth, even rate of currency depreciation is a fantasy only possible in a world without financial markets or human beings.
When inflation begins to unravel, traders sell not only what they want, but what they can, to acquire the currency to satisfy their borrowings. This demand drives up the value of the currency even further, prompting more falling prices and more currency short covering.
This is what I refer to as a deflationary crash.