...We know that USA is a consumerist society, the day the US consumer stops spending, not only will US economy backtrack and grind slower but the global economy too will be affected. Consumption represents 70% of the US economy.
...And US consumes more than it produces because their lives revolve around consumer spending. So if Trump wants to narrow the trade deficit by reciprocal tariffs and stiff tariff levies, it will mean higher costs will be passed on as higher US consumer prices. This lifts US domestic inflation and may cause the Fed to raise rates, and if higher prices don't dampen consumer demand, higher rates for longer will do the job. And because consumption is 70% of the economy, you can understand why the US economy will plunge into a self-inflicted recession. Talk about making higher cost of living worse. This does not yet include possible backlash against the US via possible US goods/services boycott and reduced export demand.
...this is why Trump thinking along the lines of P&L for the economy is misunderstanding how the economy works. At the company level, if you spend more, your P&L drops. At the economy level, when consumer spends more, it creates a multiplier effect, $1 spent on goods causes the goods manufacturer to spend $0.20 on materials manufacturer, $0.20 on transport and energy and the materials manufacturer engages labour and spends $0.09 and so on...So when you raise prices via tariffs, goods price go up, and the goods manufacturer gets lower demand due to higher price and that lower demand reduces demand for materials and transport and energy impacting other suppliers.
...now if that is so, why aren't the clever money men advising President Trump? They all have vested interests, and that is looking towards the tariff as the source of funding for a large tax cut which benefits them enormously. It is the poor common people who will suffer from high prices from the tariffs and small businesses that see lower demand for their goods and services arising from a slower economy.
...who gets a disproportionate share of the tax cuts? Those who earn a lot of income, that is high income individuals and large corporations like the Mag7. What would they do with the tax cuts? Do you think they will spend more? No, they will use it to buy back shares and invest in real estate, crypto, gold, stocks, and help shore up asset prices. Which benefits the rich because the poor do not own such assets. In economics, the wealthy has a lower propensity to spend that the lower income group. An extra dollar of tax cut savings goes into the bank for the wealthy, while an extra dollar to the lower income group means possible spending on items they wanted to buy but couldn't before and now could.
...Elon/Trump further exacerbates cost of living issue by implementing mass layoffs in the public sector and reducing Govt expenditure with gusto; yes, that is somewhat necessary to pare down deficits and debts, but their approach with such haste and intensity will fracture an already fragile US economy, as we must remember that there is already a US private recession, so Govt spending cuts including agencies would adversely cut off contractor worker jobs and their supply chain, indirectly also impacting the private sector, large and small.
...so you can see that what Trump does in the name of saving America and making it great is actually making it great for the rich and impoverishing the poor even much more.
...Gold rising is telling us that stagflation is just around the corner for the US economy. We will see a Trump vs Powell slug match on rates in the quarters ahead. Equity correction is by all means rather assured. The first signal we saw was the sharp pullback in US bank stocks last night.
...what Trump does in America do affect us in Australia, because tariff uncertainty and China trade impacts would affect our resource sector, and the LNP coalition would want to emulate Trump in cutting the public sector workforce and cut Govt expenditure and make the Govt smaller, which is not all wrong and not unnecessary, but wrong in terms of timing as reducing Govt participation in an economy on the brink of a private sector recession and commodity export market headwinds will be the final nail in the coffin. Australia has not be growing in GDP, and been kept afloat largely via Govt fiscal policy.
...Wake Up, those who support Trump. Especially if you aren't wealthy.
US Trade Deficit Just Exploded to $98.4 Billion
Imports +3.5%
Exports -2.6%
Trade gap widened by 24.7%—biggest in a year
America is buying way more than it’s selling. That math never works for long.
I did a rough calculation. The USA consumer has been able to purchase about $46 trillion dollars (inflation adjusted) more than the USA has produced in goods for other nations. $46T… so this talk of Subsidizing and trying to end the trade deficit… it’s nonsense. Be careful what you wish for. Closing the trade deficit will result in extreme short term pain. It will be closed with core inflation rising and the USA consumer being forced to consume less while working hard. There’s no free lunch… but there has been for the last 60 years as the US federal reserve has printed freely and funded a ponzi economy.
