I'm not surprised about Canada being the most angry. You left out the whole part where President Trump threatens annexation and degrades the Prime Minister to a Governor in his speeches.
Also the argument on VAT needs some expanding. You make it sound like its a tariff which is wrong.
An disappointingly unbalanced take from you but certainly a new view for me.
Canadians didn't shift their anger to Trump, they shifted their anger to America, booing the national anthem at hockey games, boycotting bourbon, etc. And Canadians didn't even like Trudeau when Trump started trolling him. The comments on Twitter were vitriolic, Canadians refuse to believe their country has as big of a problem with Chinese organized crime as it does, they refuse to believe that their migrant program is promoting crime syndicates in the US and in Canada. There's a big denial over what happened to Canada these last ten years, and they refuse to look in the mirror and blame themselves.
I typed a long, angry comment but deleted it all. Nothing to gain from arguing with a stranger on the internet. Only 1 question: you support trump administration’s calculation of “tariffs “ because it’s impossible to calculate non tariff trade barriers from other countries. Is this view not entirely based on the assumption that all trade imbalances are a result of tariffs and other trade barriers? Do you truly believe this? Nike makes sneakers in Cambodia then export them to the US so Americans consumers can buy them. Cambodia imports nearly nothing from the US because, well, their people can’t afford anything. What role does tariffs or trade barriers imposed by Cambodian government play in this process?
My base assumption is all the numbers are just starting points for negotiations. I don't think that's a bad assumption based on Trump's past administration. I don't know the specifics of Cambodian trade barriers, one of my points is that the whole thing is a knotty mess that nobody can know.
I sure hope you are right about this being negotiation tactics. Still, the formula is idiotic and amateurish. Slapping a 20% on everyone would've looked much better than this. But I guess none of that matters.
Honestly, 10% or 20% flat, I don't think one is better than the other. I was more talking about the optics. Using a flat percentage would've made them look smarter. Anyway, at the end of the day it doesn't matter really, all that matters is what comes out of all this. The article was well written btw I should've said that at the beginning.
You are absolutely correct The formula is idiotic and will damage the US 's global influence as well as cause other countries to diversify even more or of the USD. I live in Vietnam. If they reduce tariffs to zero and the writer is correct that the US ends up charging only 10%, the overall balance of trade will hardly change. Vietnam is not in a position to make large purchases from the US, and and suppliers and importers will probably absorb the 10%. Net result is more revenue to the US Govt through a tax on US consumers and importers and possibly a damaged relationship with Vietnam.
Thank you for pointing all those things out. The world is not some grade-school playground, and the immature reactions you mention are embarrassing and naive. Canada needs to grow up
Personally I think the equivalent tariff is just mislabeled... And should really be trade imbalances and the reciprocal tariff is just the rate the make it balance... If that's what he said, then no one would be laughing at it.
Though this flies in the face of comparative advantage and probably a worse quality of life for everyone in the long run.
I understand your point of view, but when i read/listen that the US took upon themselves to fix/help the world, this is just wrong. there are no benign empires. But the damning proof was the end of cold war, when being offered a victory, the US - mainly - was not smart enough to include Russia in the ring of "friends", instead the US went on deranged run specially starting 21st century, creating problems and lots of conflicts around the world. You just had an amazing victory for the world to see. A victory over the Soviet Union, without shooting a bullet. What have you done ?!
What happened to Japan when flooded the US with their products ?
Also, asking ANTO nations to up the cost to 5% of GDP. I mean when does the bully stops ? At 7.5, 8, 9 ?
Hey, I'm not trying to paint the US as the good guys. The Morgenthau plan was responsible for a lot of civilian deaths. But the idea that the EU should defend itself is hardly bullying them. Is the US supposed to pay for everybody else? A lot of countries seem to feel that way.
No, it is not suposed to pay or babysit anyone, but it should not create problems that justify "the need" to pay. As i said, there was no danger posed by Russia after the cold war and instead of bringing the Russians to the club, you just moved NATO closed to them. Kennan was flabbergasted by this, the man responsible the containment of the Soviet Union simply died knowing all his work was in vain.
Tom Luongo is the expert on the US / UK alliance and how it shaped the last couple of centuries. Allegedly the US alienated Russia because preventing a German Russian alliance has been the priority of the UK for several hundred years. I also wish the US didn't start so many problems. Hopefully when the budget cuts get to the Department of Defense, the military industrial complex loses some influence.
WTF is wrong with giving the U.S. some credit?? We have been the most generous country in the world, and by a huge margin. Criticism is cheap, and Trump is doing what he can to level the playing field. I don’t give a damn what the markets do on a daily basis. I want a future for my AMERICAN children.
Fire post. Loved it. Especially the knock on the sudden economic “experts” who have no idea except what they read from other non experts who hate the president
VAT is applied to domestic goods, but in the EU that is instead of an income tax. US companies are at a disadvantage in Europe. The big trade barrier is agriculture protection, and it's a quality issue vs a quota issue.
VAT is applied on top of other taxes in most EU countries - it’s not a substitute for corporate income tax. EU companies pay both VAT (collected from consumers) and corporate income tax on profits, just like US companies do. So there's no special tax advantage or disadvantage in that sense.
As for trade barriers, I agree the real sticking points are things like agricultural protections, food standards, and sometimes subsidies - those are the areas where non-tariff barriers can genuinely distort competition.
But VAT? It’s just a neutral sales tax collected locally, no matter where the company is based.
And treating the UK VAT system as fundamentally different from the EU’s doesn’t hold water either - they’re still very similar in structure and function.
I think there's a misunderstanding about how VAT works. VAT isn’t a tariff or a payment made by companies to foreign governments - it's a consumption tax paid by the end customer, not the business.
US companies selling into the EU do need to collect VAT and remit it, but they don’t actually pay it themselves. The same applies in the UK post-Brexit. It’s not about “funding” the EU government - it’s just part of selling goods/services locally, just like sales tax in the US.
If we're talking about international tax fairness, that's a broader conversation - but VAT isn’t a good example of asymmetry.
It still makes US goods more expensive in Europe, the same as an import quota. It isn't unreasonable to include in comparison. But we need to remember that the US states have sales tax as well.
You and apparently the current administration seem to have a fundemental misunderstanding of VAT.
The VAT rate applies to the same goods no matter the origin. It doesn't distort the market in favor of local producers. It treats imports and domestic producers exactly the same. It's a local consumption tax. There is no real comparison to be made to a quote mechanism.
I'm surprised to read such nonsense from you.
This is also why I don't like the appeal to authority you are doing in this article (guy x has a PhD in y). Clearly, even people educated people in a certain topic can make mistake or spout utter nonsense (and I say that as PhD student in electrical engineering so I know how idiotic fellow academics can be)
And again on VAT. The US, as a national government, doesn't profit off of European companies. The EU, as a national government does. I understand that the EU also charges VAT to their domestic companies. And I understand that the EU has corporate taxes as well. And I understand that in the US, the state governments profit off of EU companies. It's just in that one regard, that the US national government doesn't profit off of EU companies that VAT is included in the comparison. Trump was focusing more on currency control, which I left out. It's frankly amazing what percentage of GDP the EU spends through government, 49%!
Switzerland is a federation as well. The national government gets most of it taxes through VAT (consumption tax) and very low income taxes while the states (cantons) get the lions share (90%+) through locally specific income taxes. Basically the opposite of what happens in the US.
I don't understand how this matters though as there is a limited amount of taxation you can apply how you shuffle them around it around is really up to the countries.
My point is that VAT, an actually well designe consumption tax (compared to sales taxation), is not affecting trade.
I agree academics can be idiotic. But the consensus on Twitter that the administration is a bunch of morons is almost certainly wrong. They have a point in doing what they are doing. They might fail, but people aren't even looking to see what the point of it is, just dismissing it outright.
I'm not claiming the administration is a bunch of braindead monkeys as twitter would like to believe you, but is abundantely clear that they like to work with faulty assumptions despite working with economic PhDs. How can you even hope to solve a problem when you work with wrong assumptions?
There is some internal political dynamic involved in the decision making process that I don't understand.
US companies have no disadvantage here compared to companies from the same country or the EU - the same VAT rate applies to all!
So no, US goods and services are not more expensive in this sense; and there is no quota mechanism either.
And how would you exempt US companies from VAT without destroying the VAT system? Just think about it, EU companies would set up US intermediary companies to sell into the EU.. all EU companies would be at an approx. 20% VAT disadvantage in their home market compared to US companies.
Either the VAT system is misunderstood or something completely different is going on..
Also worth noting it that many of your favorite stocks are the main benefitor of these tariff policies.
$TITN, ALTG, CTOS: lower interest rate, their iventory/fleet is now more worth instanantly, esp CTOS fleet with car tarrifs
$TITN, TWI: Trade agreements will lead to US agriculture beeing open to new markets, EU and Canada f.e., probably they will get premium
$TWI: their competitor in Europe and Japan will now faced with tarrif, which increases thei margin
$FOA: very levered to lower interest rate, tarrifs layoffs, DOGE and market crash forces, will force many to search for liquitity
$ALTG: maybe the tarrif inspection will need many new fork lift, for inspection of the incoming goods. If manufacturing comes back to the US, they would profit too
Very interesting article. I don't know enough about this to add an opinion. When I asked my resident analyst Perplexity AI, the conclusion is quite different:
The Trump tariffs represent a fundamental shift in U.S. trade policy, moving away from decades of trade liberalization toward a more protectionist stance. While proponents argue these measures will strengthen American manufacturing and address trade imbalances, economic research consistently indicates negative long-term consequences including reduced GDP, higher consumer prices, and regressive effects on lower-income households.
Most economic analysts project that while tariffs may achieve certain political or strategic objectives in the short term, they are likely to impose significant economic costs on the American economy over the long run. The full impact of these policies will depend on their duration, the extent of global retaliation, and whether they ultimately succeed in reshaping global supply chains in ways that benefit the U.S. economy.
If tariffs are so bad, then why do our allies do it to the US? There has been a dogma in economics for free trade for several hundred years. There have always been excellent economists who questioned this. AI can only grab consensus, which in a social science is worthless. Maybe ask perplexity about famous minority opinions criticizing or limiting free trade?
One of the best pieces I have read on this "Day After Liberation Day," and I have read a bunch of them. Feel free to continue to add some "Macro Musings" along with your regular small-cap write-ups.
Let's hope trump is a calculating genius trying to restore some balance in USA's general affairs and not a narcissistic megalomaniac having one last dip in the political candy jar. Love the different perspective which I haven't totally appreciated. And your comments about the Canadians response is true because they should be blaming Trump not America. But he started with the big bad wolf of China and included Mexico that would have been fine but somehow it's become all together something else and it feels a bit out of control , with the almost unintended effect of unifying the world in opposition. Finally I note Israel reduced its tariffs to zero but it's still being taxed at 20% whereas Iran is on 10%
This was a great article. I found myself absorbing points you make in this article far easier than where I’ve heard them elsewhere, I expect partly due to your writing style which I find especially lucid.
I know you said it’s back to regular small-cap programming after this, but I for one wouldn’t mind you dropping a macro cookie like this occasionally.
FYI this is in the Nz news today - but we still got hit with the 10% tariff …New Zealand exports about $9 billion worth of goods to the US, so the cost of a 10 percent tariff would be about $900 million to exporters.
"I think there is some pretty clear evidence that will be worn by US consumers, not New Zealand exporters," he told reporters.
As for what New Zealand's average tariff rate is on the US, McClay said it was around 2 percent.
That figure, and how low it is, is a point that has been made to the US in talks between the two countries, he said.
I'm not surprised about Canada being the most angry. You left out the whole part where President Trump threatens annexation and degrades the Prime Minister to a Governor in his speeches.
Also the argument on VAT needs some expanding. You make it sound like its a tariff which is wrong.
An disappointingly unbalanced take from you but certainly a new view for me.
Regards, a guy from Switzerland.
Canadians didn't shift their anger to Trump, they shifted their anger to America, booing the national anthem at hockey games, boycotting bourbon, etc. And Canadians didn't even like Trudeau when Trump started trolling him. The comments on Twitter were vitriolic, Canadians refuse to believe their country has as big of a problem with Chinese organized crime as it does, they refuse to believe that their migrant program is promoting crime syndicates in the US and in Canada. There's a big denial over what happened to Canada these last ten years, and they refuse to look in the mirror and blame themselves.
I typed a long, angry comment but deleted it all. Nothing to gain from arguing with a stranger on the internet. Only 1 question: you support trump administration’s calculation of “tariffs “ because it’s impossible to calculate non tariff trade barriers from other countries. Is this view not entirely based on the assumption that all trade imbalances are a result of tariffs and other trade barriers? Do you truly believe this? Nike makes sneakers in Cambodia then export them to the US so Americans consumers can buy them. Cambodia imports nearly nothing from the US because, well, their people can’t afford anything. What role does tariffs or trade barriers imposed by Cambodian government play in this process?
My base assumption is all the numbers are just starting points for negotiations. I don't think that's a bad assumption based on Trump's past administration. I don't know the specifics of Cambodian trade barriers, one of my points is that the whole thing is a knotty mess that nobody can know.
I sure hope you are right about this being negotiation tactics. Still, the formula is idiotic and amateurish. Slapping a 20% on everyone would've looked much better than this. But I guess none of that matters.
I'm surprised to hear you say a flat 20% is better. This should eventually be a flat 10%, and lower tariffs the other way.
Honestly, 10% or 20% flat, I don't think one is better than the other. I was more talking about the optics. Using a flat percentage would've made them look smarter. Anyway, at the end of the day it doesn't matter really, all that matters is what comes out of all this. The article was well written btw I should've said that at the beginning.
You are absolutely correct The formula is idiotic and will damage the US 's global influence as well as cause other countries to diversify even more or of the USD. I live in Vietnam. If they reduce tariffs to zero and the writer is correct that the US ends up charging only 10%, the overall balance of trade will hardly change. Vietnam is not in a position to make large purchases from the US, and and suppliers and importers will probably absorb the 10%. Net result is more revenue to the US Govt through a tax on US consumers and importers and possibly a damaged relationship with Vietnam.
Thank you for pointing all those things out. The world is not some grade-school playground, and the immature reactions you mention are embarrassing and naive. Canada needs to grow up
Personally I think the equivalent tariff is just mislabeled... And should really be trade imbalances and the reciprocal tariff is just the rate the make it balance... If that's what he said, then no one would be laughing at it.
Though this flies in the face of comparative advantage and probably a worse quality of life for everyone in the long run.
Good point
I understand your point of view, but when i read/listen that the US took upon themselves to fix/help the world, this is just wrong. there are no benign empires. But the damning proof was the end of cold war, when being offered a victory, the US - mainly - was not smart enough to include Russia in the ring of "friends", instead the US went on deranged run specially starting 21st century, creating problems and lots of conflicts around the world. You just had an amazing victory for the world to see. A victory over the Soviet Union, without shooting a bullet. What have you done ?!
What happened to Japan when flooded the US with their products ?
Also, asking ANTO nations to up the cost to 5% of GDP. I mean when does the bully stops ? At 7.5, 8, 9 ?
Hey, I'm not trying to paint the US as the good guys. The Morgenthau plan was responsible for a lot of civilian deaths. But the idea that the EU should defend itself is hardly bullying them. Is the US supposed to pay for everybody else? A lot of countries seem to feel that way.
No, it is not suposed to pay or babysit anyone, but it should not create problems that justify "the need" to pay. As i said, there was no danger posed by Russia after the cold war and instead of bringing the Russians to the club, you just moved NATO closed to them. Kennan was flabbergasted by this, the man responsible the containment of the Soviet Union simply died knowing all his work was in vain.
Just saying the way this is being done, is wrong.
Tom Luongo is the expert on the US / UK alliance and how it shaped the last couple of centuries. Allegedly the US alienated Russia because preventing a German Russian alliance has been the priority of the UK for several hundred years. I also wish the US didn't start so many problems. Hopefully when the budget cuts get to the Department of Defense, the military industrial complex loses some influence.
WTF is wrong with giving the U.S. some credit?? We have been the most generous country in the world, and by a huge margin. Criticism is cheap, and Trump is doing what he can to level the playing field. I don’t give a damn what the markets do on a daily basis. I want a future for my AMERICAN children.
Fire post. Loved it. Especially the knock on the sudden economic “experts” who have no idea except what they read from other non experts who hate the president
It's really good article. I'll definitely borrow some points from it. I'm not sure about VAT as it is applied to domestic goods also.
VAT is applied to domestic goods, but in the EU that is instead of an income tax. US companies are at a disadvantage in Europe. The big trade barrier is agriculture protection, and it's a quality issue vs a quota issue.
VAT is applied on top of other taxes in most EU countries - it’s not a substitute for corporate income tax. EU companies pay both VAT (collected from consumers) and corporate income tax on profits, just like US companies do. So there's no special tax advantage or disadvantage in that sense.
As for trade barriers, I agree the real sticking points are things like agricultural protections, food standards, and sometimes subsidies - those are the areas where non-tariff barriers can genuinely distort competition.
But VAT? It’s just a neutral sales tax collected locally, no matter where the company is based.
And treating the UK VAT system as fundamentally different from the EU’s doesn’t hold water either - they’re still very similar in structure and function.
Yeah, I'm not sure why Trump gave the UK a pass. Tom Luongo is big on the US / UK relationship
I think there's a misunderstanding about how VAT works. VAT isn’t a tariff or a payment made by companies to foreign governments - it's a consumption tax paid by the end customer, not the business.
US companies selling into the EU do need to collect VAT and remit it, but they don’t actually pay it themselves. The same applies in the UK post-Brexit. It’s not about “funding” the EU government - it’s just part of selling goods/services locally, just like sales tax in the US.
If we're talking about international tax fairness, that's a broader conversation - but VAT isn’t a good example of asymmetry.
It still makes US goods more expensive in Europe, the same as an import quota. It isn't unreasonable to include in comparison. But we need to remember that the US states have sales tax as well.
You and apparently the current administration seem to have a fundemental misunderstanding of VAT.
The VAT rate applies to the same goods no matter the origin. It doesn't distort the market in favor of local producers. It treats imports and domestic producers exactly the same. It's a local consumption tax. There is no real comparison to be made to a quote mechanism.
I'm surprised to read such nonsense from you.
This is also why I don't like the appeal to authority you are doing in this article (guy x has a PhD in y). Clearly, even people educated people in a certain topic can make mistake or spout utter nonsense (and I say that as PhD student in electrical engineering so I know how idiotic fellow academics can be)
And again on VAT. The US, as a national government, doesn't profit off of European companies. The EU, as a national government does. I understand that the EU also charges VAT to their domestic companies. And I understand that the EU has corporate taxes as well. And I understand that in the US, the state governments profit off of EU companies. It's just in that one regard, that the US national government doesn't profit off of EU companies that VAT is included in the comparison. Trump was focusing more on currency control, which I left out. It's frankly amazing what percentage of GDP the EU spends through government, 49%!
There is really no free lunch anywhere to be had.
Switzerland is a federation as well. The national government gets most of it taxes through VAT (consumption tax) and very low income taxes while the states (cantons) get the lions share (90%+) through locally specific income taxes. Basically the opposite of what happens in the US.
I don't understand how this matters though as there is a limited amount of taxation you can apply how you shuffle them around it around is really up to the countries.
My point is that VAT, an actually well designe consumption tax (compared to sales taxation), is not affecting trade.
I agree academics can be idiotic. But the consensus on Twitter that the administration is a bunch of morons is almost certainly wrong. They have a point in doing what they are doing. They might fail, but people aren't even looking to see what the point of it is, just dismissing it outright.
I'm not claiming the administration is a bunch of braindead monkeys as twitter would like to believe you, but is abundantely clear that they like to work with faulty assumptions despite working with economic PhDs. How can you even hope to solve a problem when you work with wrong assumptions?
There is some internal political dynamic involved in the decision making process that I don't understand.
US companies have no disadvantage here compared to companies from the same country or the EU - the same VAT rate applies to all!
So no, US goods and services are not more expensive in this sense; and there is no quota mechanism either.
And how would you exempt US companies from VAT without destroying the VAT system? Just think about it, EU companies would set up US intermediary companies to sell into the EU.. all EU companies would be at an approx. 20% VAT disadvantage in their home market compared to US companies.
Either the VAT system is misunderstood or something completely different is going on..
Great Article.
Also worth noting it that many of your favorite stocks are the main benefitor of these tariff policies.
$TITN, ALTG, CTOS: lower interest rate, their iventory/fleet is now more worth instanantly, esp CTOS fleet with car tarrifs
$TITN, TWI: Trade agreements will lead to US agriculture beeing open to new markets, EU and Canada f.e., probably they will get premium
$TWI: their competitor in Europe and Japan will now faced with tarrif, which increases thei margin
$FOA: very levered to lower interest rate, tarrifs layoffs, DOGE and market crash forces, will force many to search for liquitity
$ALTG: maybe the tarrif inspection will need many new fork lift, for inspection of the incoming goods. If manufacturing comes back to the US, they would profit too
Very interesting article. I don't know enough about this to add an opinion. When I asked my resident analyst Perplexity AI, the conclusion is quite different:
The Trump tariffs represent a fundamental shift in U.S. trade policy, moving away from decades of trade liberalization toward a more protectionist stance. While proponents argue these measures will strengthen American manufacturing and address trade imbalances, economic research consistently indicates negative long-term consequences including reduced GDP, higher consumer prices, and regressive effects on lower-income households.
Most economic analysts project that while tariffs may achieve certain political or strategic objectives in the short term, they are likely to impose significant economic costs on the American economy over the long run. The full impact of these policies will depend on their duration, the extent of global retaliation, and whether they ultimately succeed in reshaping global supply chains in ways that benefit the U.S. economy.
If tariffs are so bad, then why do our allies do it to the US? There has been a dogma in economics for free trade for several hundred years. There have always been excellent economists who questioned this. AI can only grab consensus, which in a social science is worthless. Maybe ask perplexity about famous minority opinions criticizing or limiting free trade?
Thanks for this very informative article. I was having a little trouble trying to sort this all out. I share your optimism.
Thank you
One of the best pieces I have read on this "Day After Liberation Day," and I have read a bunch of them. Feel free to continue to add some "Macro Musings" along with your regular small-cap write-ups.
Let's hope trump is a calculating genius trying to restore some balance in USA's general affairs and not a narcissistic megalomaniac having one last dip in the political candy jar. Love the different perspective which I haven't totally appreciated. And your comments about the Canadians response is true because they should be blaming Trump not America. But he started with the big bad wolf of China and included Mexico that would have been fine but somehow it's become all together something else and it feels a bit out of control , with the almost unintended effect of unifying the world in opposition. Finally I note Israel reduced its tariffs to zero but it's still being taxed at 20% whereas Iran is on 10%
NFE and Offshore today - ouch!
Low growth, lower rates = Gold
This was a great article. I found myself absorbing points you make in this article far easier than where I’ve heard them elsewhere, I expect partly due to your writing style which I find especially lucid.
I know you said it’s back to regular small-cap programming after this, but I for one wouldn’t mind you dropping a macro cookie like this occasionally.
FYI this is in the Nz news today - but we still got hit with the 10% tariff …New Zealand exports about $9 billion worth of goods to the US, so the cost of a 10 percent tariff would be about $900 million to exporters.
"I think there is some pretty clear evidence that will be worn by US consumers, not New Zealand exporters," he told reporters.
As for what New Zealand's average tariff rate is on the US, McClay said it was around 2 percent.
That figure, and how low it is, is a point that has been made to the US in talks between the two countries, he said.