The fog of tariffs

It was an all-caps kind of evening for the President. “RECIPROCAL TARIFFS TAKE EFFECT AT MIDNIGHT TONIGHT!” Donald Trump wrote on Truth Social last night, minutes before the clock struck 12am. “BILLIONS OF DOLLARS, LARGELY FROM COUNTRIES THAT HAVE TAKEN ADVANTAGE OF THE UNITED STATES FOR MANY YEARS, LAUGHING ALL THE WAY, WILL START FLOWING INTO THE USA. THE ONLY THING THAT CAN STOP AMERICA’S GREATNESS WOULD BE A RADICAL LEFT COURT THAT WANTS TO SEE OUR COUNTRY FAIL!”

The Santa imagery is interesting, and fitting. For decades now, one could be forgiven for thinking some kind of magic was being conjured up, as consumer choice skyrocketed while prices plummeted at the same time, and once-deemed luxury items became accessible for the vast majority of households. Not quite a bearded man, “LAUGHING ALL THE WAY,” dropping them down through the chimney. But not far off.

No one knows if Trump those yuletide blessings of free(ish) trade have come to an end. Very early evidence suggests US businesses have been trying to swallow the costs of the universal 10 per cent tariff on imported goods, which came into effect this spring. Slowly but surely, that cost looks like it’s getting passed onto American consumers. 

Nor do we know what the fallout will look like in the coming hours, and weeks, as the “receipriocal tariffs” go into effect for dozens of America’s trading partners. Attempts are ongoing to get trade deals over the line, which would reduce some of the headline tariff rates. It’s a move Trump has signalled he is still open to. Were deals to keep rolling in after tariffs take effect, it would help ease the mixed market reaction that appears to be taking place: a market rally this morning was essentially erased by this afternoon.

The confusion is understandable. No one really knows the details of what’s coming into effect. Even countries that have secured trade deals have not firmed up many of the specifics, especially around key areas like pharmaceuticals, which the President has his eye on. Meanwhile Trump is dramatically changing tariff rates here and there, as well as announcing new ones for specific sectors: India had an additional 25 per cent tariff added just yesterday for its decision to keep using Russian oil. The decision to put a tariff of “approximately 100 percent on chips and semiconductors” was also announced yesterday.

This makes it far harder for investors to grasp the full scale of the New World Order: one which Trump and his administration are counting on to return manufacturing and output to US soil. This has prompted some headline announcements, including this week that Apple would invest an additional $100 billion into its US manufacturing. Yet the picture overall suggests tariffs are stifling companies: economic activity connected to manufacturing is actually down since Trump took office for the second time in January. The only certainty so far is that these tariffs are indeed bringing in revenue, as Trump has been boasting today on social media. The part left out is that it’s not other countries, but American business and consumers that are paying for it. 

What is being billed as the largest tax hike on Americans in modern history has been fully ushered in today – one that Trade Secretary Howard Lutnick is estimating could bring in “$50 billion a month in tariff revenue.” It’s a kind of stealth tax that might make Zohran Mamdani or AOC green with envy. Let’s see how America stomachs it.