Trump’s Tariff Whiplash: Strategy or Instability?

bank Nation welcome to the weekly rollup This week I have the pleasure of being joined one last time with Hib Keshi GP over at Dragonfly Hib once again happy Friday It's an honor to have you Thanks for having me man I know you're just waking up and uh processing what has happened in the world over the last 12 hours or so You're you're on the other side of the world at the moment in in Singapore So we we got the world surrounded Uh how are you feeling It was a long week dude Dude how are you how are you doing I am I am exhausted Not just from traveling here but just like

the the sheer volume of whipssawing happening in traditional markets It kind of feels like everything trades like crypto now It's just total total insanity in the traditional world Let me run through we'll just speedrun through the last seven days of events starting with liberation day tariffs that were announced last week on Wednesday evening This implemented a 10% baseline tariff on the whole planet and additionally 86 countries that had much higher reciprocal trade tariffs in the 30 to 80% range Staggering tariffs levels

never before seen before which immediately sent the stock market plummeting uh because the market really believed that Trump was serious about these tariffs So from liberation day peaked to trough the S&P 500 declined 16% setting a record for one of the fastest quickest stock market declines in history Meanwhile the next day on uh on Monday excuse me April 7th Scott Besson the uh Treasury Secretary uh said that 70 countries have rushed to the negotiation table with the United States showing that the world was indeed ready to negotiate with the United States on resetting their trade arrangements uh

all except for China After Trump imposed a 34% reciprocal tariff on China China announced its own 30% uh tariff on all United States imports that would go live in the coming days And this really kicked off the trade war Uh a few days later President Trump threatened an additional 50% tariff on Chinese goods unless China withdrew its retaliatory measures by April 8th April 9th came China did not back down and proceeded with its planned 34% tariff increase which actually stacked on top of previous tariffs So total net new

tariffs that China had placed on the United States came to 84% That 84% number came into effect on Wednesday uh April 9th Wednesday of this week Uh once it did President Trump immediately increased tariffs on China to 125% and at the same time simultaneously he announced a 90-day pause on all tariff hikes for the rest of the world going back to the general import tariff at 10% He posted on a So to clarify China is actually at 145% because it's stacked on top of the previous 20% So 145% for

China and then 10% for the rest of the world on it with a 90-day pause Uh this was posted on truth social which gave huge relief to the to the to the whole market The market immediately started rallying Uh he posted uh on truth based on the lack of respect that China had shown to the world's market I am hereby raising the tariff charged to China by the United States effective immediately Uh it was also later revealed that secretary Besson had actually written this post to be posted by Donald Trump And this is kind of the the art of the deal that people are crediting Donald

Trump with This strategy specifically left China in an escalating trade war with the United States while the rest of the world is currently at the negotiating table with the United States presumably ready to give favorable terms while China is alone stuck inside of a trade war with the United States So that's where we are left to with today Yesterday we had the biggest stock market increase in a one-day event It was like up 10% Uh we have today uh the day of recording the 10th uh let a lot of those gains go Uh so as we wrap all this up hibs netting everything together

summing it all up how do you think how successful do you think Donald Trump's maneuver has been Was he playing 3D chess or like 1D checkers So on that spectrum where do you think he is Um I I'm definitely more on the checker side than the chess side And I think you know if you just if you just go through the overview of like the series of events you you laid out you might have thought that like aha this was a very clever gambit to try to selectively enter into a trade war with China Um now if you actually unwind a little bit and you go look at the playbyplay of what he did

and how he did it it suddenly becomes very clear that a lot of the moves individually that Trump was making did not make sense Okay so let me let me let me elaborate because I think last time I was on the show I was also talking a lot of [ __ ] about Trump's trade policy and I I for the most part I think for the most part I think for the most part my views have been vindicated Okay so the first and foremost thing he repeatedly he described these tariffs as reciprocal tariffs and what the market assumed that meant was that if you have a tariff rate of 30% we give you a tariff rate of 30% except you know divided by two right that's not what the quote unquote

reciprocal tariffs were the reciprocal tariffs instead of being a measure of tariffs and trade barriers which is what he explicitly said is what he was doing that is not how the numbers were calculated okay so for example we have a we we were placing a 70% plus tariff rate on Vietnam Okay we do not have Vietnam does not have 70% tariffs on the US Like that that no that's absolutely incorrect Go look up the tariff rates in Vietnam Nobody could possibly come up with that number Now why is that number so high Where where is it Why is it

there For example Australia Um we have a trade surplus with Australia uh like the so what what ended up happening was that the the policy that Trump used was that he he looked at a measure of the trade deficit not tariffs Tariffs are a tax on trade right That's like okay when you want to give me something I'm going to artificially increase your price of you trading that thing with me That's what a tariff is Um what Trump was measuring was not tariffs but what was measuring is the imbalance of trade Basically they're buying fewer things from us than

we're buying from them that is what he based his tariff policy on Okay that does not make sense Why does that not make sense It doesn't make sense because first of all it's not an indication that they're doing anything bad to you They may have no agency at all Such as for example take Vietnam Vietnam is a very poor country There is no way that they could possibly buy more things from us than we could buy from them because they do not have a consumer economy They don't have a middle class with which to buy our stuff We we build high value items and services and that's what we export as a country Uh Vietnam is too

poor to be able to afford those things but we can buy cheap goods from Vietnam So what you ended up seeing was that very poor countries were overwhelmingly slapped with very high tariffs because of the way in which Trump calculated this thing He applied the tariffs to every single country regardless of whether or not they even had a trade deficit So for example uh Australia was was uh despite the fact that we are a net exporter to Australia Australia was was hit with uh the the tariffs and the the weirdest part was that Trump just started accusing countries of just doing

random things So for example he he said that Japan was a currency manipulator Um which if you know anything about the monetary policy of Japan makes absolutely no sense So Trump clearly just doesn't he he didn't really understand what he was saying Um he he didn't really have a strong grasp of who exactly do we even have tariff disputes with Um and so what ended up happening was that he obviously had these extremely high tariffs set across the entire globe And Trump was just not backing down The the the communication he was giving to the market was that this is pain we have to undergo This is

going to bring jobs back to America This is good for manufacturing It's good for investment And what you saw was that over the period of time between liberation day and when Trump backed off the tariffs you saw measures of investment in the US plummeting You saw all sorts of companies saying we are we we're going to pause all investment in the US Why were they saying that They were saying that because there they had no idea what was going to happen with these tariffs and they were correct to think that that they could not trust the word of the US government because the US government as we've seen backed off their word within a week So we went from

the biggest tax hike in history which is this massive imposition of tariffs on almost every country in the world that trades with the US with the exception of Russia and Barus which is like okay interesting um to then having those tariffs completely unwound within a week which tells you okay you cannot trust the word coming out of the Trump administration ultimately businesses need predictability it's okay to raise taxes a tax hike is is is manageable by by companies but what they cannot handle is just I I I'm going to

decide one thing tomorrow the it's another thing the next week uh and there's no clear communication going on from the administration you saw you know what Bessant was saying what Lutick was saying what uh Greer was saying all of them were diverging None of them were telling you the same story as what Trump is saying Trump was contradicting his own trade people within the same day All this stuff was sending markets into a tail spin Okay So then cut to a few days ago you had at at at a certain point you basically had a revolt within the financial class which largely had been staying quiet uh within uh Congress

which now suddenly you had Republicans going on the other side of the fence and saying these tariffs are bad These this is nonsensical policy and this is going to tank Republicans in the midterms right We like we just do not there's no popular support for these things If you look at the polling that's been done in the last week overwhelmingly negative on Trump's tariffs even among Republicans nobody thinks this is a good idea Okay So then you said you see Bill Aman who was a big supporter of Trump and a big donor to Trump's campaign Bill Aman came out and said "Mr Trump I think you've

made a great mistake I think I made a mistake in backing this administration and believing that they understood what they were doing on trade policy Clearly what's happening is a total you know own goal Um but here's how he could salvage it Trump could announce that he's walking everything back and taking a 90-day pause and he I think his his his words were you know markets would see the wisdom of Trump's strategy and it would all be great in the And and what ends up happening a couple days later boom Trump announces with the exact same terms that Bill Aman had advocated for a

90-day pause And what you see in the in the storytelling by the Wall Street Journal which reported very well on this is that apparently Bessant flew down to Mara Lago where Trump was and basically just locked him in a room and convinced him at basically like "Look if if you don't if you don't do this the country is going to fall apart and we're going to completely lose our economic mandate." Um and that was what led Trump to ultimately publicly backpedal And then again you see this this story that oh you know Trump was uh supposedly he

keeps saying he wasn't paying attention to markets He doesn't really care what's happening in markets And yet the reporting is that he absolutely was paying attention to markets He was he really cared what Jaime Diamond and what Bill Aman said Um and then yesterday he said "Oh yeah did you see what happened to the market You know our trade policy is amazing." And then today he said "Oh," he was asked by a reporter "Oh the market's down You know what do you think about it?" He said "Oh I haven't even looked I've been so busy today I don't know what the market's doing." Yeah exactly So what what you see is just they're clearly playing from behind This

looks 100% to me like you know Herbert Hoover just kind of you know vibes based economics Uh massive massive just just indigestion from everything that he's doing in the market And the problem is that look the market rewarded him so much yesterday for being able to claim "Aha I knew it all along This is all big grand strategy Of course we're not going to a world of massive tariffs on everybody in the world That would be so stupid You guys fell for it This was all just a ploy." Okay if that's what you're saying then why is it today that he's

saying "Well we know the tariffs might come back you know oh you know we still are going to do these massive tariffs Oh I'm still going to add tariffs on pharmaceuticals which the markets [ __ ] hate because they're like oh no you're not done You're not done you you you got your temporary win but you still have not backed off from the fact that the whole world is telling you this is an enormously stupid policy and you yourself don't even clearly articulate what your goals are They're still not saying is the goal to have zero tariffs and free trade agreements with other countries Is that the goal or is the goal to raise revenue and punish people

for being unfair to America Right And at different times they've said two different things which are to be clear opposite policy goals If the goal is we're abolishing the IRS and we're going to make all of our money from tariffs then these tariffs are going to be high forever If the other hand the goal is we are going to have free trade and zero trade policy or or zero tariffs with all these countries and have beautiful trade deals Okay then say that Say that clearly that that's the goal and then there's not going to be an ERS There's not going to be this long-term reliance on tariffs But the market doesn't know

It doesn't know what tra what Trump fundamentally wants And to be clear it's not clear that he knows There's already been plenty of signals from people around uh just executive leadership across countries uh companies in the United States about everyone saying like we cannot make plans in the United States We cannot make investment in the United States just because uh the this administration wants us to bring manufacturing home We have no long-term assurances that we can actually build these factories these manufacturing centers in the United States because we don't know what four years is going to be like because we don't even know what

what four days is going to be like with Donald Trump And I'm definitely partial to that It takes years to build a factory right This is not something like oh you know Trump raised tariffs so therefore let's go do like a six sevenyear investment uh plan on the basis of these tariffs right If the next administration I mean if Trump can create these tariffs then clearly the next administration can remove them right I mean that's goes without saying given that he's trying to do all this through executive order which by the way is also potentially uh you know legally dubious But if if that if that is the story then nobody's going to make a

4-year investment on the basis of that Well obviously we're now going to be able to move all of our factories from Mexico or from you know uh uh from Latin America or from uh Vietnam No no company's going to do that They're just going to sit it out and they're going to wait until they get clarity because it's such a massive decision and such a huge investment timeline to actually get your payback on a factory that might become totally worthless if tariff policy reverses in four years So I'm I'm hearing this from you and I'm I'm partial to your point of view At the

same time on Twitter there's a bit of a tale of two cities right now because there are plenty of people out there who are like "No man This was this was the art of the deal." Uh look look at what he did Like China's just misaligned versus the rest of the world This was all a part of the plan It was masterfully masterfully executed uh Mr Bessant uh why why is there such a gap between I I mean I guess it's just partisan lines so I'm not sure what I should expect but that there is just a huge difference in interpretation totally okay so the first thing is that we've seen how many mistakes they have made in this process right so how many

unforced errors there were with respect to diplomacy with respect to how they've spooked markets with respect to how they've failed to really rally excitement around investment right what what what companies need to see it could well be that and I think it's actually a very reasonable thing to do for the US to say Look we have we have let go of too much of our strategically important manufacturing capacity We need to bring some back home And to be clear that was also the justification for the chips act under the Biden administration was it was also industrial policy on the basis of hey we need to make sure that we can actually build semiconductors here in

case something happens to Taiwan and relations with China sour right that very very sensible very strategic I think that's absolutely the right thing to do to create more uh energy production domestically Absolutely the right thing to do Um now how you do it there are many different ways to get there One way to get there could be through tariff policy Another way to get there can be through stimulation and you know basically uh you know creating a lot of grants for companies to do this domestically in the US They're two sides of the same coin effectively U but the worst way to do it is to make your allies very angry and think that you're

an unreliable partner Okay What that's going to do is one it's going to push them into the arms of China because China can show them So you know we saw for the first time um this uh this this claim that there's going to be coordination now increasingly between China Japan and Korea Okay these are your history Yes Um if if you don't know your history these are three countries that [ __ ] hate each other's guts right This should not be happening that China and Japan are working together But the only one way that you could possibly make that happen and potentially

introduce the possibility that the US dollar might might further weaken in its global hegemony is by pushing people into the arms of the R&B and by China being able to take the position you know what we are the reliable free trade partner We're not going to freak out We're not going to have tantrums We're not going to claim everything is the the fault of you know foreigners and globalists taking advantage of us um and that kind of stability in a trading partner regardless of whether or not you agree with the policies of the of the of you know the the CCP other countries they need reliable trading partners

because of course they cannot manufacture everything themselves they have to import from somebody and if they're not going to import from the US they're going to import more from China and so you're already seeing that starting to happen um the other thing is that you know we've learned from Trump's commentary and there there's been a lot of reporting now on trying to understand why does Trump believe this so strongly um there was there was some uh a lot of people were posting this stuff from Gary Conn who was um you know leading trade in the first Trump administration and Gary Conn was trying to understand why does Trump believe so strongly that

we're getting ripped off by everybody in the world So he's said things like this basically since the 80s He's he's constantly said that he thinks that other countries are scamming the US They're ripping us off That trade is somehow intrinsically bad And what is specifically bad about trade In his answer the answer is trade deficits He thinks a trade deficit means that another country is ripping you off Right A trade deficit just just to reiterate what does that mean That means that you are buying more from another country than you are selling to them He thinks when you're doing that you are getting ripped off He thinks the person who is

selling more things is making more money Okay This is this is like this is like a a seventh grader's understanding of economics Yeah Do you think it's as simple as oh I'm giving them money I'm getting less money in return therefore that's bad And it's like that like left curve 70 IQ businessman understanding of oh money is leaving the United States and we're not getting any money in return And that's the complete calculus Look I'm I'm not reading his mind This is literally what he said He said "I want these trade deficits reversed." He

said "Look I'm only willing to drop the tariffs on China if they can get us a trade surplus." Wh why why do you want Why Why is it important to have trade surpluses with every country right Like the the what is the inverse of a of a of a trade deficit It's a capital surplus It means they're sending you money right You're you're getting in more investment into your country Uh that's good We like that That's a that's a big part of the reason why you know America takes the world savings in all the all the countries in the world they want to send money into

the US stock market into the US economy that's wonderful this was the institution since 2008 is like we would print money we we would buy goods from the world the goods would come into America it would subsidize our way of living the money would flow out to the countries and then they would buy our bonds totally totally now what you're seeing again as a result of Trump's brilliant trade policy So what many people were saying was that aha what he's really doing what he's really doing this is the best master plan is that they're pushing

down the tenure because they have all this debt to refinance They're pushing down the tenure and that's going to make it so that oh my god look at this brilliant move 10 years all the way down to below 4% It it crested or it peaked at uh uh 39 something 86 Yeah 3.86 Yeah Okay So they was like wow this is the master plan They're using this to refinance the debt Trump was even retweeting this Mhm He was retweeting this to make people believe that he's intentionally crashing the stock market in order to refinance the debt at a better rate Okay that was the that was the claim All right Well what happened

when they actually did the Treasury auctions you can see the second part of that chart right there is that everything legged way back up and so you had both stocks going down and yields on treasuries going up meaning that there's fewer demands fewer demand on uh treasuries This was in large part because apparently the basis trade was unwinding in a really really brutal way Um and so all of this ended up worse Yields are now higher yields are higher and the stock market is lower than liberation day So liberation day net I think we're down about 10% on the stock

market Um that's right And and yields and yields are worse So somehow we have the worst of both worlds Yeah this is a what this tweet says from Mike Bird The mis miserable trippy triple whammy begins again Stocks down 10-year bond yields up like you said also the dollar down And so what I'm seeing from this is the capital center of the world the United States Wall Street where again just like I said money flows out to the world because we get the world's goods and then the world reinvests in our stock market our businesses our bonds That is going out in two ways The stocks

are down so it's going out in that way Uh the 10-year yield is up means bonds are being sold And so the capital center which is United States strength is gone And then also and also the dollar is down And so I think like the big question that everyone ask is asking is like okay well even if we just look at the S&P 500 uh the the the stock price it we gave a lot of the gains that we got back yesterday uh we just gave it back away so we're down 4% from yesterday we're up about 10% off of the bottom but you know even before liberation day we are just like you said we are down eight or nine% And so

there's there's scar scarring There are wounds in the current American economy and the stock market and trust in America And I think that's what people are currently contending with like when the stock market opens up tomorrow and then next week This is the dust needs to settle And it's not this is a before and after moment I think for the United States economy and its center as a trust trustful place to do trade and commerce and invest And we're going to have to contend with that now Just as you said

like there's a new equilibrium of a capital center and I don't think it's as strongly ini the United States anymore because Donald Trump is just so goddamn chaotic Yeah completely agreed I mean this is this is the fiscal policy of a third world country right Of like in a single week whipssawing on oh we're going to do this we're going to do that we're going to make all of our money through tariffs never mind we're going back to normal Um and you know if if if liberation day like remember when initially in liberation day uh when Trump unveiled the tariffs there was

initial reporting by the Wall Street Journal that he was doing a 10% universal tariff and markets jumped markets jumped like 3 4% When this is this is uh in after hours trading so it's not necessarily going to show up here Um and that was the best case scenario that was like oh wow these are less than we thought it was going to be Trump is being reasonable like that's where we should be right now We should we like what you're seeing in this market of why we're down 10% and more than 10% relative to where we were the moment that the market thought that what Trump was doing was imposing

universal 10% tariffs is that this is the cost of instability This is the cost of being an unreliable partner This is the cost of people saying I can't trust what comes out of this government until things stabilize And who knows when they're going to stabilize Being a financial center means have having good rule of law being very predictable and being very stable That is the strength of the US government We we're one of the we're one of the longest continuously running governments in the world and we've been the financial superpower for coming on a hundred years now But the way that you lose that status is by

doing stuff like this Mhm It's it's it's hard to lose But this is if if you wanted to do it this is how you do it right like if what you really cared about was bringing manufacturing back to America and that's the thing that ultimately is most lamentable about this is that what Trump is doing clearly is not accomplishing that goal right so one if you want like you know Trump is saying oh you know foreigners are going to pay these taxes they're not guarantee you that they're not the reason why they are not is that the US doesn't have the manufacturing capacity to produce all the things that it imports right we we

just we just don't even with 10% tariffs across the board you will buy things foreign because the America just will not be able to get them uh produced in time to be able to out compete even foreign producers with a 10% 10% search charge So what that means is that the cost of everything is going to go up Now if you charge individual countries right let's say we only had um a trade war on particular goods right well then you can have some substitutability meaning that okay well you know margin is more expensive so we're going to buy butter or whatever you know this kind of thing

Um but if you tariff everything 10% universally then there's no substitutability Nothing can come in and say "Oh we're going to shift consumption from here to here and punish these bad trading partners." Right So like even if that's your goal if your goal is to punish people a 10% universal tariff does not do that It is simply a tax on trade And why do you want to tax trade Trade is what made the West rich Trade is why Western Europe ended up becoming the center of the world Like trade is what trade is the reason why our world

is so wealthy compared to where it was 50 years ago 100 years ago So taxing that and saying you know what instead of trade trade is terrible We should not do trade We should do other things Uh it's just like why where did you get this belief Mhm Well okay So see I feel like I'm at a loss for what to do as an investor in in crypto and in like the equities market I'm just like kind of holding on to my chair and just like kind of going along for the ride Just

like trying to be at peace with it But like so when we resume the markets tomorrow on Friday uh the day of the day that listeners are going to listen to this but then also next week like what are you doing Like how what are you looking for What signals are you looking at Like how how are you trying to like navigate this over the next like week weeks and months I mean so look as I've said before I'm not a trader Um certainly not a macro trader So for the most part like you know I'm I'm long I'm riding out this market Uh I obviously wish I wasn't because I I do think that

things are uh things are things are going to be rocky for a while Things will remain extremely volatile as long as Trump doesn't make up his mind about what he's doing And it's very clear the next 90 days uh the 90 days is the period of time through which these uh reciprocal tariffs have been paused in favor of the 10% tariffs that they've said is a floor meaning that they could be higher than 10% He's not signaled whether or not there's the opportunity to do 0 which is of course what markets really want Markets really want renegotiated trade that's going to be zero Now to be clear in the beginning this wasn't a problem Markets weren't

like "Oh my god you know tariffs are so high We got to fix that." Um but okay maybe some of these non-tariff trade barriers are significant There's some stuff around IP that I think can be renegotiated more effectively Um you know some of the digital market stuff in Europe in the EU I think that's real That's worth uh negotiating over Um so I'm I I certainly would not claim that there's no reason in coming to the negotiating table with some of these trading partners Um so I think that's what markets are going to be looking out for is are we going to see constructive deals actually being put together Now the reality is that if you remember how

long it took for example USMCA in Trump term one or TPP or all these like massive trade deals they're extremely complicated They take a really long time to create and to uh you know put into law and enforce So the idea that Trump's going to do that for like 50 plus countries in 90 days um is kind of beggars belief right That probably there's going to have to be some really janky kind of fast and loose form of of trade agreements um in lie of actually getting like the full fullyfledged uh

you know ideal idealized forms of these agreements But um long story short I think the next 90 days are going to be really volatile Um I do suspect that by the end of this year things will stabilize will know what the new regime is Markets will be able to calm down a little and probably the the better angels within the Republicans uh the Republican party are going to push Trump toward more sanity and more stability Right I think Trump realized that he had a small a short window in which to do this because of course he knows that

he's very uh uh vulnerable in the midterms and right now of course all the stuff that's happening I mean the the one thing that he had a mandate for was the economy If he triggers a recession right now poly market is is uh pricing in 50% probability of a recession Even after the Trump the tariffs getting walked back before that it was like 66% So right now it's still even money that a recession comes on in 2025 It looks like we're up to 60% now Um so yeah th this this means that things are still very likely to be bad right What causes

this recession companies getting scared people uh pausing investment and no longer wanting to hire new people because they don't know whether or not that this tariff environment is going to remain stable Um and this is again purely self-imposed Uh if if we see this the Republicans are going to get trounced in the midterms And so I think when you go into Q4 Q1 of next year Trump is out of rope He has to be stimulative He has to be good to the market in order to make sure that they don't lose the midterms I think it's I think it's kind of doomed at this point

but of course they want to hold on to as much as they can Otherwise you know Trump is just going to be basically um unable to get anything done in the second half of his administration There are are a couple optimistic uh spots in the blue sky that I see that I don't want to get your opinion on Um midterms is is one stimulation going into the midterms I totally see that I like that That's that's a possibility One another one is that well once this debt rolls over then we can forget about it And I think that that debt rolls over in six months or nine months which is

also leading up to approaching the zone of midterms being very topical And so once we can get this debt load that they are just super worried about Scott Treasury Secretary Scott Bessant is just trying to get the yields down on bonds so that when this debt rolls over we don't have to pay at that high of a rate And that that will be a in the rearview mirror in like six to nine months about that time frame Uh and then also maybe just like more loosely I hope Trump just gets bored and just moves on from and just is done with this subject uh and just wants to focus on something else So

like maybe maybe talk about any of those three that that comes to mind for you I mean look the the Treasury auctions that just took place which was the first instance of rolling over significant amounts of US government debt did not go well it went better than expected because we were basically in the throws of a of a you know what was bordering on a financial crisis Um so doing that within like you know the historic levels of volatility we had not seen that level of a three-day draw down since co um or sorry that day of a one day draw down since co and not that much of a

three-day draw down since I believe 2008 So this is like crazy amounts of volatility and in that we managed to clear treasury auctions with not too much slippage But this was at you know 4.3 4.4 um rates which are to be clear terrible That was not the goal that like we we failed If you wanted to roll over the debt at a lower rate that did not succeed Okay So we have this we have this uh debt now at a very high load very high debt load Um and that's going to continue So anybody who was like