Why the Shock and Awe?

 Financial FAQs

“White House aide Peter Navarro said Sunday that he expects President Donald Trump’s tariffs to bring in $6 trillion in revenue in the next decade, which could amount to the largest tax hike in US history. CNN

The financial markets are close to panic selling as Donald Trump’s tariff announcements were far more draconian than expected. The Washington Post described Trump’s tariff policies as ‘shock and awe’ tactics to inflict as much pain as possible on the countries Trump and MAGA Republicans consider to be taking economic advantage of the U.S.

But history has shown that such strong-arm tactics don’t work. They create more enemies than friends and more wars.

The most recent example is GW Bush’s ‘shock and awe’ invasion of Iraq on false pretenses (Saddam Hussain had weapons of mass destruction) that brought Iraq closer to Iran, created ISIS, the Sunni rebellion, and ate up the prior Clinton administration’s four years of budget surpluses, costing more than $1 trillion.

Trump maintains his decision to do battle with the whole world will make Americans more prosperous on the presumption that it will reduce our budget deficit lower taxes. Instead, the tariffs will amount to the largest tax increase in history.

Why? “That is a tax,” said Sen. Mark Warner in an interview on Fox immediately after Navarro’s appearance. “That money doesn’t come falling out of the sky. That money comes because (the price of) these products will go up, Americans will pay more. We’re talking a $700 billion tax.”

And small businesses, who thought Trump would bring some relief from regulations as well as lower prices, do not like what they are seeing. The National Federation of Independent Business on Tuesday said its Small Business Optimism Index dropped 3.3 points in March to 97.4, falling just below its 51-year average of 98.

Economist David Rosenberg of Rosenberg Research, cited by MarketWatch’s William Watts, said the three-month drop of 7.7 points in the index is the steepest in more than four years, with drops of that magnitude having occurred only in April 1980, December 2008, April 2020, May 2020, December 2020 and January 2021 in the 50-year history of the series.

NFIB

The NIFB graph illustrates that the biggest dip in optimism occurred during the 2008 Great Recession (gray bar in graph), the worst worldwide recession since the Great Depression.

“The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months.” said NFIB Chief Economist Bill Dunkelberg.  “Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”

Why has Trump chosen to punish so many countries, many with no trade deficit at all, as well as islands with no people, just penguins?

David Brooks in Atlantic Magazine has quoted George Orwell’s 1984 novel as an example of what a future government dominated by an autocrat and political party interesting in holding on to power at any cost would look like. It rules by inflicting pain and suffering.

“Obedience is not enough. Unless he is suffering, how can you be sure that he is obeying your will and not his own. Power is in inflicting paid and humiliations.”

Trump acts like a thug who only knows how to inflict pain to get what he wants, which is more power. He extorts rather than negotiates when he believes he has the upper hand. It is becoming obvious that he believes that by inflicting maximum economic pain on ally and enemy alike, countries will submit rather than retaliate out of fear that it will sink their own economies.

But why would they when they can negotiate with each other rather than Trump?

Trump’s problem is that he is already breaking his “Day One” promise to lower prices and taxes, and it will take years to repatriate manufacturing jobs and businesses to find alternate supply chains to avoid the tariffs.

We will soon see the reactions of most of the 180 countries he has targeted as they retaliate with their own tariffs on American exports. Shock and Awe tactics have been shown to create enemies rather than allies, poverty instead of prosperity, war instead of peace.

Most of all, it doesn’t work economically. President McKinley’s Gilded Age that Trump cites as his model economy was golden for the Robber Barons and wholesale corruption, not ordinary Americans.

President Bush created the first $Trillion-dollar federal debt on the lie that cutting taxes while fighting wars created jobs and greater prosperity, when it instead created the Great Recession.

By promising what he cannot possibly deliver, “Starting on day one, we will end inflation and make America affordable again, to bring down the prices of all goods,” Trump risks even more, a greater recession, and maybe another war.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Stagflation Vs. Recession?

 Popular Economics Weekly

Total nonfarm payroll employment rose by 228,000 in March, and the unemployment rate changed little at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in social assistance, and in transportation and warehousing. BLS.gov

FREDunemployment

Is the good March unemployment report a sign of stagflation or recession? The 228,000 jobs created and unemployment rate just up to 4.2 percent may not mean much with Trump’s declared trade war on the rest of the world. It could be the calm before the storm.

President Trump’s completely insane “Liberation Day” announcement of tariffs on 180 countries including uninhabited islands could be creating a worldwide depression as countries decide whether to do business with US or go elsewhere.s It could slow down foreign trade to a trickle with the product shortages that will ensue, as happened with the COVID-19 induced supply shortages.

Looking at past history in the FRED graph of the unemployment rate to predict what will happen next, with the six gray bars indicating recessions since 1980, won’t help much. The unemployment rate rose sharply after the last recessions began.

Only someone as crazy as Trump believes he can take on the whole world and they won’t retaliate. It also makes no economic sense to base the tariffs on the budget imbalances of goods but not services. We export more services, such as software, than we receive from the EU, for instance, says Nobel laureate Paul Krugman, which brings the actual trade deficit with the EU close to zero. Was this dreamt up by Musk’s DOGE teenagers, I wonder?

There are many other factors that determine the start of a recession, such as economic growth. We already have predictions that Q1 GDP could shrink for the first time since the COVID-19 recession.

Chief economist Torsten Slok of Apollo Global says a recession can happen if the tariff hikes are not negotiated down in the next couple of months.

Fed Chair Powell believes a stagflationary period is more likely in his latest remarks. “While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” he said at a business journalism conference in Virginia. “The same is likely to be true of the economic effects which will include higher inflation and slower growth (which is the definition of stagflation).”

The 228,000 new jobs created in March didn’t prevent the continuing financial market meltdown, as investors are waiting to hear who will retaliate against Trump’s “Liberation Day” tariff hikes. The DOW Jones lost more than -$2200 points on Friday.

China was the first to respond with retaliatory tariffs, announcing that 34 percent. Trump’s 34 percent levy means the total of all tariffs on Chinese imports now totals 54 percent.

“China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner,” the ministry said, according to a Google translation.

Vietnam is also offering to negotiate, but it wants zero reciprocal tariffs, whereas Trump is saying that a bottom-line 10 percent tariff rate will remain on all imports.

I also see a period of stagflation with the strong employment data. The 228,000 nonfarm payroll increase was slightly higher than the average monthly gain of 158,000 over the prior 12 months, which is why I see slower growth rather than a recession this year. But all bets are off if the tariffs aren’t negotiated down.

Interest rates are plunging as fears of a recession mount and Realtors are already reacting. Lawrence Yun, the NAR’s chief economist says, “The future direction of the economy remains uncertain due to tariff wars and potential negotiations. In the meantime, interest rates on FHA and VA loans could soon drop below 6% in a matter of days. Rates on conventional and jumbo loans are also declining as money shifts from stocks to bonds. The current job additions and decreasing rates are likely to lead to more home sales…Be prepared.

$Trillions have already been lost because of Trump choosing to be the bully and fight with congress and the courts rather than negotiate the tariff hikes and DOGE job cuts up front. And Americans, as well as much of the world, will be paying for it.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

"Liberation Day" Has Come!

 Financial FAQs

Dow opens 1,200 points lower, S&P 500 and Nasdaq plunge as Trump tariffs roil markets; Apple, Nvidia and Nike slump; dollar and gold dive. U.S. stocks are plunging a day after U.S. President Trump outlined new tariffs aimed at reordering global trade. MarketWatch

AtlantaFedGDPNow

This above graph best portrays what is both sad and terrifying about the result of President Trump’s “liberation day” tariff announcements. The Atlanta Federal Reserve’s GDPNow estimate of first quarter economic growth shows an economy being driven over a cliff.

The MarketWatch headline of the DOW’s 1200 point drop announcing the reaction of US financial markets the next day was just as terrifying.

Trump is so steeped in his delusions of grandeur that he believes bringing back President William McKinley’s tariff policies that were instituted just before the turn of the last century (1890) will make America great again.

But in fact, McKinley’s policies created the Robber Barons and monopolies that led to so much corruption and concentration of power that it ultimately caused the Great Depression and ultimately World War II.

It is a sad time because it confirms one political party is ignorant of not just economic facts but is willfully ignorant of the damage higher tariffs will do to other economies, not just ours.

The US economy was the “envy of the world”, said The Economist when President Biden handed off of the fastest growing economy in the developed world to the Trump administration that had brought the US out of the COVID-19 pandemic.

McKinley era economists were largely ignorant of the economic knowledge learned since then. But Trump and his Republicans’ ignorance of basic economic facts today isn’t excusable. Tariffs are a tax levied on imports, which raises the price of those imports.

There is another effect of increased tariffs that will add to the pain. The trade barriers it sets up will reduce the flow of foreign trade that will create supply shortages as happened during the COVID-19 pandemic. This was the root cause of the inflation surge in 2021 that induced the Federal Reserve to raise interest rates and borrowing costs for consumers, hurting lower-income folks the most.

Last Wednesday President Trump had already announced 10% universal tariffs on all imports to the U.S., which totaled more than $4 trillion last year, according to the Bureau of Economic Analysis, or almost 14% of total economic output.

“He announced more on Chinese goods, adding to the double-digit levies already in affect, plus additional ones for countries that he deems to have excessive barriers to imports from the U.S.,” said MarketWatch.

We will soon have concrete evidence of the inevitable result—actual stagflation. It will firstly appear in higher prices, the (-flation) result that will cause consumers to buy less. This in turn will begin to slow economic growth, the (stag-) component of stagflation.

We shouldn’t forget what happened during William McKinley’s era. It was the first Gilded Age that created the Robber Barons of that day, just as the Oligarchs seated in rows behind Trump during his inauguration, will benefit the most from Trump’s ‘liberation day”.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Republicans Don't Pay Their Bills

 Financial FAQs

“The new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent spending cuts or other tax increases, TCJA (Tax Cuts and Jobs Act) will raise federal debt and impose burdens on future generations. If it is financed with spending cuts or other tax increases, TCJA will, under the most plausible scenarios, end up making most households worse off than if it had not been enacted.” Brookings

How times have changed! Republicans during the Eisenhower era paid for the deficits their tax cuts caused. The Brookings Institution analysis of Donald Trump’s 2018 Tax Cut and Jobs Act has US households paying for it because it added some $4 trillion to our federal debt even “if it is financed with spending cuts or other tax increases.”

The 90 percent corporate tax rate and 92 percent maximum personal tax rate of the Eisenhower era paid for the “new hires, new equipment, and product research which are deductible from taxable earnings.”

In other words, the higher tax rates made corporations use their profits to finance their own growth, rather than pay Uncle Sam. Whereas today the TCJA tax cuts will mostly finance corporate stock buybacks.

And Trump wants to renew the TCJA when it expires this year, which the Congressional Budget Office says will add at least another $4 trillion to our national debt.

It doesn’t have to be this way. The Clinton/Gore government downsizing of the 1990s created four years of budget surpluses, because they negotiated with congress to make the cuts, because they were congressionally mandated programs.

“Unlike the current effort, the cutting didn't start until they had gone through a six-month study process and developed a blueprint of how to best reinvent the federal government,” said a recent Newsweek article on the subject. “Government agencies were brought into the process to determine the best ways that efficiencies could be realized. In fact, the effort was led by some 250 federal employees that remained on their agency payrolls.”

The federal workforce was reduced by close to 400,000 employees between 1993 and 2000, or about 17 percent of the total. The cuts made the government the smallest it had been since the Eisenhower administration, according to the Newsweek report.

Who do the Trump tax cuts benefit? Corporations and households in the top 5% — who earn more than $450,000 a year, roughly — are the “biggest winners.” They’d get over 45% of the benefits of extending the Tax Cuts and Jobs Act, according to a July 2024 analysis by the Urban-Brookings Tax Policy Center and would reduce federal tax revenues by $4.4 trillion by 2035.

So why would Republicans want to reduce federal revenues when we have a $36 trillion national budget deficit that is 120 percent of GDP?

It’s because Republicans don’t want to pay their bills rather than provide social services and environmental protection that would benefit all Americans. That’s their history from at least 1980 when President Reagan declared that “government was the problem” and immediately fired the federal air traffic controllers who were striking for higher pay and better working conditions.

We know how that turned out with the latest brouhaha over Musk’s slashing of the already understaffed FAA workforce that regulates airline travel.

President Eisenhower would have turned over in his grave, if he knew this would happen to the Republican Party.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen