"Swamp Trade"
If Bangladesh foolishly tries to protect its auto industry with a 50% tariff
on Cadillacs…is that a reason to make Americans pay more for their pants?
by Bill Bonner
Youghal, Ireland - "The weekend brought a steady flow of tariff news…marked by outrage, indignation… and humor. Politicians often do stupid things…but there is usually some ambiguity about it. On this hand…but on that hand…maybe it will work, maybe it won’t… Rarely do we get to see a policy that is such undiluted claptrap that it brings liberals and conservatives together to have a good laugh.
We got off the ship yesterday in Southampton and made our way over to Ireland. Southampton is a huge port…with thousands of trucks, cars, containers, and cranes lining the harbor. It is a shipping center…with millions of tons of goods passing through. When you go to buy something in England, it’s a good bet that it came via Southampton’s docks. Now, with Trump’s new taxes on trade…spiders are preparing to spin their webs on the giant cranes…and builders will turn empty containers into Airbnb rentals.
But let us first reminisce about our eights days at sea. What did we learn? Well…the Queen Mary II is more of a leisure activity than a way to get somewhere. Most of the people on board were cruise ship veterans. One couple was continuing on the Queen Mary for another week, exploring the coast of Norway. Another had signed on to a 100-day cruise around South America. One couple from Toronto had been all around the world. “Hello, we’re Canadians,” they announced as they sat down. “That’s okay,” we replied. “We forgive you for ripping us off for so many years.” A look of bewilderment crossed the man’s face…but only for a second. “We won’t talk about your president; we promise,” he said.
Everyone we met was friendly…and interesting. A man from Oregon operated canal locks. A man from Ireland had been a circus clown. A professor from George Mason University explained the evolution of early Christianity. Had we been on our own, we would have spent more time alone…reading. But Elizabeth is an improver…so we took dance lessons…went to the theater…listened to lectures…and talked to our neighbors.
Shipboard life is convenient…with everything in easy reach and designed to be pleasant and entertaining. There are always things going on…and always people you might want to do them with. In our ordinary lives, we seldom go to theaters or jazz clubs. But on the Queen Mary II, that is what people do…so we did it too. We took a class on ‘jive’ dancing, for example, with about thirty other over-60 couples. A sight to see!
But now we are back at home…back in the real world…and watching the reaction to Trump’s tariffs. Trump is a ‘Big Man,’ Barnum and Bailey, Smoot and Hawley all in one. And like Big Men everywhere, he is prone to big mistakes. USA Today: "Donald Trump on Sunday night… ‘Sometimes you have to take medicine to fix something.’ Trump's remarks came as U.S. stock futures tumbled Sunday evening, led by the Dow Jones Industrial Average futures dropping about 1,000 points, pointing to another bruising day ahead on Wall Street Monday."
As near as we can figure, Donald Trump has just stumbled into the second big blunder of his career. His ‘medicine’ is more like trepanation than penicillin. Fortune: "Former Treasury Secretary Larry Summers…" “Never before has an hour of Presidential rhetoric cost so many people so much. Markets continue to move after my previous tweet. The best estimate of the loss from tariff policy is now closer to $30 trillion or $300,000 per family of four,” he wrote in a post on X.
“This action has taken $3 trillion [$6 trillion at the close on Friday] off the stock market as a consequence of an hour of rhetoric. The stock market reflects only part of the economy. So if you took the cumulative loss, extrapolated from the stock market, it's closer to $30 trillion. That's more damage than any economic policy pursued by any president in the last—probably in American history,” he said."
Stephen Miller was on TV on Friday, trying to deflect attention from the big sell-off on Wall Street. “These countries have been ripping us off for years…decades,” came the now-familiar war cry.
When a Bangladeshi works in a sweatshop and makes a pair of pants, the price in the US might be $50. A similar American-made pants may be $100. Is the Bangladeshi ripping us off…by working for less…and saving the US consumer $50? Is the Bangladesh government ripping us off by letting him do it? And if Bangladesh foolishly tries to protect its auto industry with a 50% tariff on Cadillacs…is that a reason to make Americans pay more for their pants? And cut the poor Bangladeshi tailor off from his income?
Foreigners do not buy many US-made Escalades. But it is not because of tariffs. It’s because they are designed for America’s wide-open spaces and low fuel prices…not for the narrow streets of Italy or the teeming neighborhoods of Bangladesh. And how many Americans want to stitch shirts for a dollar fifty an hour?
All over the world goods trade hands - an amount over $33 trillion in 2024 - with an average tariff rate of about 2%. Paper cups, T-shirts, luxury autos, oil, cement - all the things you see on Southampton’s docks. Then along comes Donald Trump, with another emergency, imposing tariffs of 10% to as much as 49%. What sort of deep, careful research is the White House doing to discover these numbers? Their origin was one of the most remarkable things to emerge over the weekend.
Our friend David Stockman put AI on the case. And it turns out that the Trump administration has just upended generations of US ‘free trade’ policy…and trillions of dollars’ worth of trade…on the basis of comically silly ‘third grade arithmetic.’
The feds take the difference between exports and imports as proof of unfair trade. Then, to right the wrong, they look at the gross percentage imbalance (a deficit for the US). Bangladesh, for example, may sell its cheap clothing to the US…but prefer to buy its cars from Germany and its hand wipes from China. This leaves it with a big trade surplus with the US, equal to approximately 50% of total trade volume. Then - for some reason unknown to economists or ethicists, ithe Trump team aims to right only half the wrong - they give Bangladesh a tariff of 24%.
So, it turns out that tariffs may have nothing to do with drugs…and nothing to do with ‘unfair’ trade, either. They are based on trade volumes. If a country successfully exports to the US, giving Americans cheaper, better products, Trump punishes them with tariffs… which American consumers have to pay. Foreign Affairs gives us the bottom line: "It is possible that the White House will lower some of its rates, especially as countries lobby for exemptions. But the reality is that the age of free trade is unlikely to come back. Instead, any haggling between Trump and other states will shape an emerging economic system defined by protectionism, tensions, and transactions. The result will not be more jobs, as Trump has pledged. It will be turbulence for all, and for years to come."
Yes, free trade is over. Now we have Swamp Trade – where politicians, lobbyists, and rich campaign donors manipulate prices. Get ready for it."
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