Trump Caved. Now What?

When I started this site in June of 2021, I really had no intention of writing about politics. Biden was in office after a hotly contested election, and his administration was dragging us out of the depths of the Covid pandemic. Back then, "inflation" equalled "transitory," and we hadn't hit the 9%+ price increases that incensed not only American citizens, but voters the world over that unceremoniously booted out the incumbent parties, ushering in a wave of far-right nationalism to shake up the world order.

Well, we got what we asked for. We're here, and Trump is back in the Oval Office, but this time, he's got poster board. In our last post, we chatted about the effect that potential tariffs on Canada, Mexico and China (our three largest trading partners) might have on your wallet, specifically in regards to travel costs. However, I'm back to tell you that it's worse. Much worse.

On April 2 (also known as "Liberation Day" to those employed by the Trump Administration), old Donald wandered out to his platform in the Rose Garden to unveil a series of new tariffs. On which countries, you might ask? All...all of them. I'm not joking.

In a move that stunned even the most stalwart Republican politicians, Trump unveiled blanket 10% tariffs on pretty much every country, with heightened "reciprocal tariffs" on those countries that Trump has deemed to be taking advantage of the United States and our trade with them. This took tariffs for countries like China to near-100%, and the stock market abruptly shit its pants.

As of April 9 at 3:10pm EST

Over the next two trading days, the Dow dropped nearly 4,000 points, the most ever in a two day span, and the third-largest single day points drop in stock market history. The S&P 500 dropped 10%, taking a baseball bat to the kneecaps of the retirement accounts of soon-to-be-retirees. Hedge fund managers took to X to voice their displeasure at the thing they enabled to happen, and were seemingly stunned that Trump did exactly what he said he was going to do all along. There was pandemonium in the streets, blood in the water, and a massive economic windfall for the GOAT, Warren Buffett, who made over $13 billion in the last week in his treasury bill holdings while the rest of the world went to shit.

Then, in a flash, it was gone. April 9 saw the reversal of these tariffs with a suddenly-mentioned 90 day pause on most reciprocal tariffs (except China who got torched to the tune of 125% tariffs). The markets responded in kind, skyrocketing 9.52%+ on the day. So what happened?

He Caved!

Yes, it's really that simple: Trump caved.

Since the unveiling of these tariffs one week ago, Trump's camp has faced unrelenting pressure from, well, everyone. JPMorgan Chase CEO Jamie Dimon, often viewed as the smartest and most level-headed economic mind in the room, said a recession was a "likely outcome" of these tariffs. Companies like Walmart and Delta pulled their full year revenue guidance because they literally couldn't even hazard a guess as to where these tariffs were going. Republican members of Congress were appearing on any news station they could find espousing that they had buy-in from enough Senators and Representatives to pass a veto-proof bill taking tariff control away from the President. And finally, most critically of all, Trump's approval rating tanked, especially in the economic questions section.

Now, according to the White House and their extremely questionable Press Secretary, all of this was "part of the plan."

So it was part of the plan to have two of the worst trading days in Wall Street history?

It was part of the plan for right-wing activists like Bill Ackman and Dave Portnoy to abandon ship?

It was part of the plan for the 10-year treasury yield to skyrocket, at one point reaching 4.5% in the strongest sign yet that a recession was incoming?

It could be argued that Trump did all this to lower gas prices (crude fell below $60 per barrel), but that would be burning the house down to get the stain out of your couch. There are just better ways to do it.

The real story here is that there was no off ramp, and no end game. Let's take a look at some possible outcomes and where we've netted out:

Trump is looking to rectify injustices against American trade and bring manufacturing back

This one goes first because it's the official party line. Commerce Secretary Howard Lutnick has been yelling this from the rooftops for the better part of a month, culminating with a truly bizarre interview on "Face The Nation" after the stock market slump where he claimed that Americans yearn to screw in their own iPhone screws, then shortly conceding that actually factories will be mostly robots anyway so really we're looking to reshore American "robot lube" jobs rather than American "manufacturing" jobs.

There are also other problems here outside of sending meemaw back to Foxconn to test out those suicide nets. We have the issue of term limits. Despite Trump's insistence that "there are ways" to run for a third presidential term (there aren't), his time in the White House will come to an end in the next 4 years. It takes the average factory 3-5 years to spin up. So let's say you're the CEO of a multi-billion dollar multi-national conglomerate that is looking to play ball with the president and move your manufacturing to the United States - is that a solid use of your company's cash, knowing that after Trump has been evicted, these tariffs could just evaporate?

We also have the issue of cost. Like it or not, capitalism is the economic model that we've selected as a nation. For all its positives, capitalism has one very nasty darkside: the cost of labor. Companies have spent billions of dollars and thousands of man hours figuring out how to outsource labor to the cheapest parts of the planet, optimizing their supply chains, shipping patterns and strengthening the sewing fingers of the Chinese kid constructing your Air Force 1's so they can squeeze as much profit as possible into their share price. Reshoring manufacturing to the United States blows all of that up, and more. You think you can pay an 18 year old in Austin, TX, $2.50 an hour to build Macbooks? Try again. We have minimum wage labor laws, healthcare costs, insurance premiums, 401(k)'s to match. This will be a decimation of the economic model like we've never seen before, and the consumer will be the one at the end of the line paying up for this. Don't believe me?

Finally (for this part of the article, at least), what the fuck is the point of bringing manufacturing of these items back to the U.S? The children are not yearning for the factories. We are not desperate to get back to our Ford Motor Company lifestyle where bolt four tires onto a Mondeo before heading to a diner and calling a minority "boy." We have moved on. That was the whole point of moving labor away from our population and onto the population of other, less wealthy countries. America has become the land of innovation, and, as such, we have moved up the value chain. We are not sitting in factories 40 hours per week slaving over the nuts and bolts of a Kitchen-Aid. We are sitting in conference rooms with an iced latte discussing the circuit patterns of the newest Nvidia chips so we can head home at 4:30 to our labradoodles and run clubs, capping off the perfect end to our "day in the life of a product manager" TikTok videos.

Trump wants to replace income tax revenue with tariff revenue

Here's another one of those random, off the cuff explanations Trump bandied about on the campaign trail. After strangely hammering away at the idea of getting rid of taxes on tips and overtime work (which, hilariously enough, did not make it into the newest version of his tax cuts proposal. Got them again, Donny), he then shifted his focus to income tax as a whole. Trump is attempting to get rid of the main source of revenue for the United States, despite looking to spend the most of any president in history (including a $1 trillion annual budget for the Department of Defense). But the question remains: Could he replace the Internal Revenue Service with the External Revenue Service and completely replace federal income tax with tariffs?

As the Peterson Institute for International Economics so eloquently puts it: "No, and trying would be regressive and harm economic growth."

The report, written in June 2024 and long before we started tariffing penguin colonies, does the math for us. Global trade totaled $3.1 trillion in 2023. Incomes in the United States totaled over $20 trillion in the same year. To replace income taxes with tariffs would create a tariff so implausibly high that it would effectively kill trade partnerships with key countries, decimating our economic way of life. Trump's plan of 10% blanket tariffs combined with 60% reciprocal tariffs (which he blew past on April 2), would total about $225 billion in revenue per year. This would be about 11% of the total that the IRS brings in from income tax each year. This would provide a few issues:

1. It would murder the lower class. The American tax system is marginal: the more you make, the more you pay (generally). Those at or below the poverty line tend to pay $0 in federal income tax, and those in the lower class pay less than 10% in income taxes. Shifting income-based taxes to a consumption-based tax system would impose the same tax on everyone, regardless of your socioeconomic class. This means that suddenly someone making $25,000 per year and someone making $150,000 per year are paying the same in taxes when they go out to buy the same banana, making these tariffs a disproportionate penalty on lower earners.

2. The deficit. We keep hearing politicians say they'll lower the deficit as a key campaign plank, only to go on and suggest tax cuts and defense spending that balloons the budget. But what exactly does this mean? It means that the generation in charge (Baby Boomers and Gen X) are taking the credit cards of Millennials and Gen Z and are racking up the charges to pay for themselves. Well at some point, the bill comes due, and that bill is interest payments. Of the three categories of federal spending included in the annual budget (Mandatory, Discretionary and Interest), interest payments to debt holders is 13% of total spend, and growing. The more money we borrow, the more interest we have to pay back, which brings us to...

Trump is playing chess, not checkers

If you have spent any time on the internet in the last week, you'll see an odd trend emerging from Trump loyalists/those who spent money on red hats: Trump is playing chess, not checkers. Now, doubting that these people know what either of those games actually are or how they're played, let's dive into this theory.

The prevailing theory is that Trump is intentionally crashing the stock market and weakening the economy with tariffs. In doing this, he's lowering asset prices for young people, crashing house prices to make the American Dream more affordable, he's weakening the U.S dollar to lower costs around the world and prevent further currency manipulation by other countries, and he's crashing treasury bond yields so the U.S can refinance it's federal debt at a cheaper rate moving forward. This idea was given credibility this week by...Trump himself, who shared a popular TikTok video with this idea to his own Truth Social account. It even featured a made up quote from the aforementioned Warren Buffett, who then had to issue a statement saying that the quote was false.

Again, we'll default to our favorite format of a numbered list to illustrate why this is wrong:

1. Trump isn't lowering asset prices; he's tanking the value of the companies themselves - You may be asking "what's the difference?" Well, there's a fundamental difference between a lower stock price and a broken value proposition of a company. If Apple's share price goes lower on a Tuesday because people are cashing out and the value falls, but the fundamental model of the business is the same, then you'd better believe I'm buying. But if Apple's share price crashes because it will now cost billions of dollars to reshore production of their biggest product, which will then cost 3x what it does now meaning it will be less accessible to consumers, then I will think again on making that share purchase.

2. It doesn't matter if home prices fall because rates aren't matching - I'm a homeowner. We bought our home in 2018 with an interest rate of 4.80%, and I distinctly remember in our closing the lawyer turning to me and saying "wow! That's a pretty steep rate." We then refinanced in 2020 at a 3.25% interest rate, lowering our monthly payments by $500. Fast forward to now, when the 30-year mortgage is hovering somewhere around 6.5%, and it's refusing to budge. In the decade of near-zero interest rates, the Federal Reserve accidentally created a ticking time bomb: home prices. People, like myself, are unwilling to move to newer homes with higher rates that will skyrocket their monthly payments, leaving less discretionary income for other things like vacations and food.

3. The debt refinancing thing - Yeah, this sounds great on paper. The coupon on the 10-year treasuries fall so the United States can print more money at cheaper rates and we can start to "boom" as the president likes to type in all caps on his social media platform no one uses. And typically, he has a point. When stocks fall, investors flee to the safety of American bonds. This causes an uptick in demand to the same supply which, in an auction-based trading system, lowers the cost of the yield of the bond because people are just desperate to buy them. But something curious is happening: yields are going up. Overnight on April 8, 10-year treasury yields hit 4.5%, a level that we haven't seen since late 2024. People are actually selling their bonds, not buying them, and there's a simple reason why: they believe a recession is coming and they can get higher rates down the line. In fairness, there's also something going on called the "yield trade" where hedge funds lever up to the balls to take advantage of yield arbitrage, but that's something for another day and if you think Pershing Square has the same effect on the economy as Japan's $1 trillion debt pile, I have a tariff to sell you.

So that's just it. There is no endgame here. There is no offramp. There is no plan. These tariffs are an incredibly elegant way for someone with a fifth-grade understanding of the economy to jump into the fray and start throwing haymakers at their own team. The sheer insanity of the tariff means that any good news at all makes the markets explode faster than a man on prom night. On Friday, a random X account tweeted an unsubstantiated rumor that Trump was going to pause tariffs for 90 days. That turned out to be "fake news" as the White House called it, but the rumor caused a $4 trillion swing in the stock market before it was debunked.

And then again, today, April 9, Trump officially did pause most tariffs for 90 days on the back of heavy reciprocal tariffs levied by China and the E.U. This caused a market frenzy that resulted in the biggest single day gain in the S&P 500 since 2008.

We are dealing with deeply unserious people.