View this post on the web at [link removed]

AP notes on tariffs - Sunday, Apr 13 2025
0/5 - BACKGROUND/MOTIVATIONS
The general assumption on the left appears to be, a la Krugman, that Trump is a madman and one should not try to make sense of the madness.
The right either wants to claim Wednesday’s pause, pivot, and putative global alliance in an ‘embargo’ against China was, a la Secretary Bessent, the plan all along, or that Trump, after looking at bond markets and wisely changed the plan.
Both of these are incorrect.
The truth is that, whatever the outcome was and — in 90 days, will be — it is neither planned nor unplanned because President Trump has no plan.
This is not necessarily a good or bad thing. Plans clarify values. Yet in a complex world, plans are almost always hubris: “man proposes, God disposes.” Nowhere is this more true, perhaps, than when the plan, such as it is, is to reconfigure the entire global economic order since (at least) 1991.
I actually think that is quite doable in one presidential term, though reasonable people will disagree about whether it is desirable.
My personal view:
Bill Clinton was dead right to get ahead of globalization in 1992 — and lead it.
Bernie/Trump are also dead right that this had disastrous consequences for the 2/3rds of Americans without a college degree; these voters form the Bernie/Trump populist base.
Obama was wrong to dismiss ‘Occupy Wall Street’ populism and blindly ratify neoliberalism: 2008 was not 1992. Bill saw this. Hillary didn’t.
Vance/Bessent et al are dead right that overreliance on China terribly endangers our national security, as we learned during COVID.
We therefore need a hard reset of the post-1991 global economic order.
But whether a hard reset is wise or unwise, no one knows how to do it, because it has never been done before.
Smoot-Hawley was pre-WWII; it is N/A
If you’re trying to do something that’s never been done before, it’s tough to plan. Much better to (1) set intentions + (2) experiment + (3) improvise/iterate on the results.
The president has an intuition that the American economy can be (possibility) in better shape than it is now. It is a contrarian intuition vis-a-vis college-educated white collar professionals, esp. Wall Street, and their financial dependents (spouses and children). That’s why everyone on TV lit their hair on fire this week: why would you “crash” or “destroy” the economy (defined, at least in the very near term, as the stock market) for “no reason” ??? !!!
Notice two things about this contrarian intuition:
(1) It is contrarian. Most experts think the economy is doing well. Trump is arguing, no, it is not doing well — or at least not as well as it could be doing — for as many people as it could be doing well for, and in as many ways that matter.
Personally, I’m not convinced trade deficits matter.
But productive capacity does — or the lack thereof, especially for, e.g., battleships or pharmaceuticals.
So does inequality. The top 10% of Americans own 93% of the stock marke [ [link removed] ]t. [ [link removed] ]The bottom 50% of Americans own 1%. [ [link removed] ] Those on the asset/equity stack have done very well since 1990. Those on the income/debt stack, which is most Americans, have not.
As with most things Trump-related, your attitude depends on how you felt about the status quo ante. If it was working for you, this week was horrible; if it wasn’t working for you OR if you just have a high risk appetite + a strong conviction that current levels of relative poverty in America are totally unsustainable, and will eventually cause violent revolution, as I do, this week was inevitable — and interesting. Even if wild and crazy.
(2) It is an intuition. A common theme of Trump critics in engagement with Trump is that they keep demanding logic, reason, data, plans, and prognoses from a person who simply rejects those modes of cognition per se — that is, as a class.
In Krugman’s words, there is no “thinking” going on here.
Sure. But that doesn’t mean there is no cognition or intelligence going on. Not everyone can make their living thinking, as Paul does — nor should they.
As president, Trump has an obligation to provide leadership. Leadership is mostly two things: 1. decision-making/judgment and 2. communication. He must decide. And he must communicate (verbally, visually, or otherwise). But he has no obligation to think, if that’s not how he best acts.
In fact, thinking doesn’t always help you lead or take action.
As Justice Oliver Wendell Holmes said about the left’s favorite president, FDR, “He has a second-rate intellect, but a first-rate temperament.”
Intellect may, or may not, have anything to do with what we call intelligence. And it has nothing whatever to do with wisdom. Trump’s actions may seem wise or unwise to voters. But either way, that’s not for lack of thinking.
1/5 - UNCERTAINTY
Policy uncertainty on tariffs is a feature – not a bug. But it’s a double-edged sword.
Unless courts or Congressional Republicans check him — which seems, in the near term, unlikely — President Trump wields unilateral and almost plenary [ [link removed] ] authority to impose/remove/amend tariffs.
As a consequence, understanding what might happen next on tariffs requires understanding one man, at least to some very basic extent.
Legacy media and the left sincerely hate the president, and disagree with him, but they’ve lost 2 of 3 elections because they basically don’t understand him.
One of many reasons Democrats don’t understand Trump is they expect him to engage in deduction and play chess; instead, Trump embraces induction and plays poker.
Deductive vs. inductive reasoning
deductive thinkers crave general principles and apply them to particular situations to generate concrete conclusions/decisions (think Sherlock Holmes)
inductive thinkers tackle particular situations in all their contingency [ [link removed] ] and particularity, make a decision, then move on to the next situation; in doing so, they apply all their prior experience and apply heuristics [ [link removed] ], but don’t engage in much, if any, abstraction — i.e., they don’t require consistency, regularity, or feel a need to have conclusions/decisions fit a larger theory, and certainly not a ‘unifying theory of everything’ in the way more academic minds crave
liberals, and especially elite liberals, tend to be deductive thinkers + demand top-down logic and deductive reasoning for things Trump decides based on bottoms-up/inductive gut checks, so they consistently fail to ‘get’ Trump
because they don’t get Trump — i.e., they have a faulty mental model — they cannot reliably predict what he will do next
because they cannot reliably predict what he will do next, they cannot, like a good sports team would, ‘gameplan’ against him
Poker vs. chess
similarly, most establishment Republicans and most liberals, and especially elite liberals, approach life and politics as if it’s a chess match: they think several moves ahead, game out possible moves and countermoves, calculate, plan, execute, then iterate/adapt. Chess is about knowledge, analysis, foresight, and control. It has a human element, but AI can easily beat even the best human chess players because ultimately it’s just calculation
by contrast, Trump has always approached life and politics like poker. AI usually beats humans in poker, too, but it’s much harder because of asymmetric information. You can tell how well your opponent is doing in chess and they can’t bullshit you about it: just look at the board. In poker, you may have no idea. And in multiplayer poker, this gets even more complex. Poker is about letting go of control and playing the odds. It’s not just about calculation; it is about betting.
global trade negotiations are a game of multi-player poker that Democrats and the legacy media are trying to understand as chess
as a consequence, they have no chance of understanding what’s happening: their mental model is all wrong
they cannot predict what Trump will do next because Trump can’t predict what Trump will do next; he is playing poker, this hand, then the next hand, then the next, as it unfolds in real time before him — not chess
As a poker player on global trade, Trump has at least 3 distinct advantages vis-a-vis other nations:
(1) ‘Big Stack Poker’
A big stack is a player with a chip stack that is considerably larger than the standard starting stack, usually defined as 91 big blinds or more. With a big stack, you can afford to play aggressively even with a weaker hand simply because you have more chips to cover potential losses. It basically means you can push people around the table even if they have better cards.
See, e.g., what happened Tues: British PM Keir Starmer, in an oversight hearing across the pond, said that the UK will not be imposing retaliatory tariffs on the United States. A trade war hurts both the U.S. and the UK, but it hurts the UK a lot more — and at a time they can least afford it. The UK will eventually have to fold, so might it may as well fold right now. Many other countries have done/will do the same.
The president famously told Zelensky “you don’t have the cards.” What he also could have said is “you don’t have the chips.”
Trade wars hurt everyone absolutely; relatively, they hurt America the least — we have the biggest stack.
(2) High risk/pain tolerance and political incentives
Trump has made crystal clear his sights are set on Mount Rushmore and winning a Nobel Peace Prize — i.e., legacy — not short-term electoral results.
The president probably figures he’s getting impeached by a Democratic House come Jan 2027 no matter what he does.
The president is probably right about that.
As a consequence, his political incentives are vastly different from Republicans in Congress, who must survive 2026 and 2028. Trump doesn’t have unlimited tolerance for political pressure and financial pain, as we saw this week. Relative to past presidents, it is quite high.
(3) Capacity to bluff
Fareed Zakaria said in 2016 that the way Trump speaks does not quite make him a liar; instead, he is a ‘bullshit artist.’ A more neutral word for b.s. is bluffing.
In global trade negotiations/geopolitics, that is an asset.
In capital markets, it is a liability.
The liability inherent in Trump’s approach is that markets abhor uncertainty, and even more seriously, uncertainty freezes major capital investment.
Although a small percentage of Americans own significant stocks, those Americans tend to employ everyone else
Small businesses, esp. those with complex supply chains, will be hit hard by tariffs and perhaps even more by tariff uncertainty
It’s not just net importers who will be stymied. Even a business owner considering re-shoring or investing domestically in manufacturing will rightly wonder whether tariffs/tariff exemptions, here today, might be gone tomorrow
The obvious doom loop is tariffs freeze investment => freezes hiring / causes layoffs => freezes consumer spending => more layoffs, etc., etc. = recession
A recession may prove ‘worth it’ if it transitions us to a balanced economy and fair trade that works for more Americans, esp. the non-college educated
But, by when? How? And at what cost — as always, in any transition, the working poor will suffer most, and for an uncertain result
2/5 - AMBIGUITY
The political ambiguity is deliberate and strategic – not just “confusion.”
There’s a saying that “if you don’t know where you’re going, any road takes you there.”
The political corollary: if you don’t yet know what success looks like, because this particular thing has never been attempted before, define success in a thousand different ways. This gives you maximum flexibility to eventually declare victory no matter what:
Tariffs are necessary to generate tax revenue.
Tariffs are necessary to rebalance current account deficits, which are bad.
Tariffs are necessary to incentivize domestic productive capacity.
Tariffs are necessary to renegotiate trade deals so we can have fair trade.
Tariffs are necessary to reduce reliance on foreign adversaries and enhance national security.
Are these rationales somewhat mutually exclusive? Yeah, that’s kind of the point. What the administration is trying to do, as far as I can tell, is set up a bunch of different ways to win to maximize optionality — no matter what.
3/5 - RISKS OF EXTREME PARTISANSHIP
Extreme partisanship makes smart people dumb, kind people cruel, and otherwise effective people useless — I have seen it firsthand, and it’s getting worse daily.
Applied to investing, partisanship is a recipe for major capital loss. Beware.
It’s best to wait before freaking out or celebrating. And while easier said than done, best not to pre-judge with partisan prejudice a set of empirical issues:
A recession seems probable, given economic logic, but not yet certain.
If tariffs and/or tariff uncertainty persist, we won’t know whether we entered a recession for a couple of months, probably.
If a recession happens, we won’t know for a while how long or how severe.
Even if severe, we won’t know for years whether it will have been ‘worth it.’
If the pain proves worth it, or at least up for debate, we won’t know for years what a new economic world order looks like — even in a best case scenario.
These are all very inconvenient truths if you want to play in the Team Red/Team Blue, or as I like to call it, Q-Anon vs. Blue Anon tournaments.
4/5 - DISCIPLINE(S)
By definition, you can’t have facts about the future. So anyone who makes a prediction about something that hasn’t happened yet and presents this as a ‘fact’ is a liar, and probably an undisciplined liar.
History: So is anyone presenting as fact what are more honestly extrapolations based on the past. Historians aren’t that useful here because tariffs have never been attempted under these geopolitical conditions.
The past is always a very imperfect guide, but it’s especially imperfect here because of three novel variables:
(1) American hegemony
(2) China’s challenge to it
(3) Trump
Historians, by definition are experts about the past. And the past is relevant.
But I am very skeptical whenever historians try to predict the future.
Law: The law may be against Trump here — he went fast, but on shakier legal footing — but that doesn’t mean the courts will be.
Trump explicitly campaigned on tariffs, so they have democratic legitimacy, even if some (read: establishment R’s) didn’t take his promises seriously.
SCOTUS, and especially the Chief Justice, is generally loathe to strike down signature policies for fear of appearing undemocratic (see, e.g., Obamacare).
Econ: Economists are right about tariffs’ impacts on the economy, but they could be wrong again here for the same reason they’re wrong about so many things: they make far too many value-based judgements/assumptions, and don’t make those philosophical choices/assumptions explicit.
Economics is a model of reality. It is not reality. It’s quite literally academic.
It is nevertheless extremely useful.
But I just recall the old joke: “economists have successfully predicted 9 out of the last 5 recessions.” They almost always prove too much.
5/5 - NEW WORLD ORDER
Trump’s trade policy is largely about redistribution; when he says “liberation” he means what Bernie Sanders calls “justice.” What they both want is fairness.
That is much easier stated than achieved, but voters in both parties — contra donors — have made clear they want someone to try.
Whatever happens next, Trump has changed the global economic order forever.
Best case scenario: no recession or a mild, short recession that transitions America into a more domestically capable, productive, and fair economy.
Worst case scenario: a prolonged, severe recession that torches the post-1991 global economic order and replaces it with an indefinite period of instability, global protectionism, and economic contraction for everyone. War with China.
Modal [ [link removed] ] outcome: Trump continues to make credible threats, negotiates, makes deals, and, eventually, this also includes China. America rebalances somewhat. We get greater domestic productive capacity with automation leading the way. AI hits the global economy like a freight train. Lots of jobs displacement. Pretty much everyone has to reinvent their work and pursue new careers in a new economic order. Creative destruction.
No matter what, American credibility for future comprehensive trade deals is diminished, if not gone.
Ad hoc deals will now become the norm — one bilateral transaction at a time. A few multilateral agreements, but, again, not nec. timeless or complete.
Transactional relationships, rather than transformative leadership:
Less idealism, more realism
Fewer illusions/more honesty —
America has always pursued self-interest, but tried to appear generous and disinterested; for better and for worse, we are transparently self-interested now
Explicit international hierarchies - it’s America and China at the top, everyone else basically told to live in the world we create/co-create
Power vacuum that may not be filled by any one nation, because almost no one really trusts China, either. Regional blocs/alliances might flourish
In sum, a multi-polar, transactional, ad hoc economic world order
Less order, more entropy (a more neutral word for what media calls ‘chaos’)
Challenges for all + opportunities for those who thrive in unstructured, uncertain arenas — and can take action given very limited information

Unsubscribe [link removed]?