Tariff Meltdown
- Tim Morton, CFA
- Apr 6
- 2 min read
What a week! So much noise and panic. I thought it might be useful to flow chart possible outcomes.
There may be no point in over analyzing the tariff team. Are they all at a "genius" level or mentally challenged (#1)? My own view is that Liberation Day heavily leans towards "unskilled" at best. But perhaps it doesn't matter. This is the situation we find ourselves in.
Point #3. Tariffed Countries give in and learn to live with tariffs. This seems very remote. The tariff levels are simply to high.
Point #4. If the tariff levels stick, then there is a new world order. New trade alliances will form over time. In the short to medium term expect major global economic damage.
*******
But what happens on the right side of the flow chart (Point #2) if countries apply reciprocal tariffs. We are partially there already with more reciprocal tariffs likely to come.
Point #6. If there is no negotiation to an equitable compromise, then expect a recession / depression. This seems to be what the stock markets started to price in last week. This leads to point #8...all countries lose. Again, I think this is an unlikely scenario. The U.S. is in a strong position to demand tariff action, but there is a limit to how far one can push this agenda.
Point #5 leading to point #6. The U.S. negotiates from this position of strength. Trump's team has the world's attention but do they really want to cause, at a minimum, a significant recession? Trump's team have focused the issue of U.S. exports being subject to high tariff levels (true for some countries), in what I regard as "unskilled / arrogant" behavior. Carry a very big stick and threaten to use it (similar to Putin's threat to use nuclear weapons to attack Ukraine......make yourself as big as a "Russian Bear").
Perhaps the negotiation technique is to hit you hard and see what falls out. Not pleasant and terribly disruptive. Then sit down and work out an equitable trade arrangement.
Getting to that point will be stressful for investors and businesses.
regards, Tim
Is there any point during the seismic economic shifts that the majority in Congress will challenge the tariffs? The rest of the world has been left largely powerless in the course of events.