Our Inflation Nation

 Financial FAQs

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent on a seasonally adjusted basis in March, after rising 0.3 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.3 percent before seasonal adjustment. BLS.gov

FREDcpi

We knew it was coming. Not just when. The Iran war is in its second month and has already produced the largest supply shock to the global oil market in history, the IEA said last month.

On Tuesday, the head of the group, Fatih Birol, told French newspaper Le Figaro as reported by several news agencies that the current crisis is more severe than the oil shocks of 1973 and 1979, and the 2022 Ukraine-war shock, combined.

And there’s no end in sight as the world’s largest economy is making the supply shortages worse. It’s an incredible reversal of our standing in the world.

The high spike in the CPI inflation graph above is a disheartening picture of what happens when mad kings attempt to control economies and countries that have a chokehold on supply chains needed by the world economies.

This is just the latest mismanagement by the Trump administration—and Republican Party also has allowed, let’s not forget—of the American economy. President Trump wanting to pay for his tax cuts with higher tariffs had already snarled supply chains and caused a second post-COVID inflation round.

The Biden administration had wrestled annual CPI inflation below 3 percent in 2024 from the earlier COVID-19 pandemic spike, where it stood until now.

And Trump apparently thought attacking a country that bordered a waterway through which 20 percent of petroleum supplies and products flowed would not do further damage to the world’s economies.

So what was he thinking? The problem is he doesn’t bother to think things through at all. This is the second spike that has raised the cost of living since the tariff induced inflation. So why would polls show a majority of voters believe Republicans are better at economic growth?

Is it because Trump runs the federal government from Mar-a-Lago, or one of his golf courses (That’s a joke.)?

The all-items consumer index rose the most—3.3 percent for the 12 months ending March, after rising 2.4 percent for the 12 months ending February. It rose 2.6 percent less food and energy over the year. The energy index increased 12.5 percent for the 12 months ending March, as a result of the Iran war.

And American consumers are already feeling it. The University of Michigan survey of consumer sentiment fell to a record low of 47.6 in April from 53.3 in the prior month.

“Consumer sentiment sank about 11% this month, extending a decline that began with the start of the Iran conflict, and is currently about 9% below a year ago. Demographic groups across age, income, and political party all posted setbacks in sentiment, as did every component of the index, reflecting the widespread nature of this month’s fall,” said Survey Director Joanne Hsu

It doesn’t mean consumers will shop more once they receive their Trump tax refunds. But inflation is a growth killer, and countries such as Russia or even Turkey that are experiencing one-man rule have had nothing but double-digit inflation for decades, because their leaders thought they knew better than anyone else how to run their country.

Harlan Green © 2026

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

Inflation Is Contagious

 Popular Economics Weekly

“From the preceding month, the PCE price index for December increased 0.4 percent. Excluding food and energy, the PCE price index also increased 0.4 percent.

From the same month one year ago, the PCE price index for December increased 2.9 percent. Excluding food and energy, the PCE price index increased 3.0 percent from one year ago.” BEA.gov

FREDpceindex

The inflation contagion is preceding unabated, per the FRED graph of the Personal Consumption Expenditure Index, the favored Federal Reserve inflation indicator.

Why? Because little to nothing has been done about inflation, although that may change with the Supreme Court’s decision to outlaw Trump’s executive orders allowing retaliatory tariffs. The evidence is that tariffs have raised prices and done nothing to lower the trade deficit that Trump has railed about, per Paul Krugman’s Substack blog.

Paul Krugman

The Fed uses the PCE index because it most broadly measures the change in goods and services prices of goods consumed “by all households, and nonprofit institutions serving households”, says the Bureau of Labor Statistics (BLS).

It is a virus-like contagion indicator because consumers can’t do much about it over the short term other than shop for more bargains. It’s caused by product shortages and Trump’s tariffs, disruptions due to Trump’s continuous changes to tariffs that percolate through the general economy.

The FRED above graph also shows that President Biden had already brought PCE inflation down to 3% in October 2023. It has remained there ever since, only beginning to creep up after Trump’s April 2025 Liberation Day tariff announcements.

And it continues its creep, which will make the Fed’s decision about when to lower interest rates more difficult. Consumers are also becoming increasingly anxious about inflation.

And minutes of the Federal Reserve’s first meeting of the new year showed that several officials wanted the central bank to report there was a chance its next move might be to raise interest rates because of the stubborn inflation data.

The Conference Board’s Confidence Index also measures such attitudes: “Consumers’ write-in responses on factors affecting the economy continued to skew towards pessimism. Comments about prices, inflation, and the cost of goods remained at the top of consumer’s minds.”

Why is inflation so contagious, to use the virus analogy? Because price changes are connected, they ‘infect’ each other as every consumer and business knows. For instance a rise in import prices raises the price of the final product, whatever it is.

Economists call the phenomenon inflation expectations. Research has shown if businesses expect high inflation, they may raise prices immediately; if workers expect it, they will demand higher wages, creating a self-fulfilling prophecy.

It’s all about attempting to predict future behavior, in other words. Consumer confidence surveys, such as the Conference Board’s Consumer Confidence Index attempt to measure inflation expectations, for instance:

“Consumers’ average and median 12-month inflation expectations were little changed but remained elevated. Consumers also believed that interest rates will persist at higher levels over the next 12 months.

The good news is that even Independent voters are seeing through the propaganda and blatant lies that lay behind President Trump’s “Day One” promises.

Harlan Green © 2026

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

Is U.S. Growth Slowing?

 Financial FAQs

“Real gross domestic product (GDP) increased at an annual rate of 1.4 percent in the fourth quarter of 2025 (October, November, and December), according to the advance estimate released today by the U.S. Bureau of Economic Analysis. In the third quarter, real GDP increased 4.4 percent.” BEA.gov

 

BEAgdp

The economic chaos that President Trump has sown by using the tariffs as a tool to coerce trading partners is a major cause of the sudden drop in fourth quarter (Q4) GDP growth from Q2 and Q3 growth (see graph).

So it’s great news the Supreme Court ruling that most of President Trump’s tariffs by executive order are illegal. It will create more certainty over the instability that has bedeviled consumers and businesses alike, which encourages future economic growth.

It’s also a huge victory for the rule of law over a president who routinely disobeys the law since only congress has the power to tax.

Businesses had rushed to counter the chaos created by the tariffs by stockpiling imports before Trump announced more tariffs. And import costs are subtracted from export prices to calculate GDP (Because imported goods aren’t produced domestically.), So higher imports, when all else is equal, tends to slow GDP growth, which measures what is produced domestically.

The furlough of hundreds of thousands of workers without pay during the 43-day government shutdown also slowed consumer spending that had already been affected by the tariff uncertainty.

So we are now beginning to see the damage Trump’s imagined cure for our trade deficits has done. He said other countries should have to eat the higher import costs from the tariffs but they passed on most of the higher costs.

Rump’s tariffs didn’t correct the trade imbalance between imports and exports either because importers then found ways to time their purchases between price swings and/or transfer their business to other countries that had lower tariffs.

In fact, the trade deficit—created by the amount imports exceeded exports— barely changed after all Trump’s planned chaos. It was $901 billion in 2025 vs. $903 billion in 2024.

“Had Congress intended to convey the distinct and extraordinary power to impose tariffs, it would have done so expressly, as it consistently has in other tariff statutes,” said the Supreme Court opinion, which was supported by a 6-3 majority of the court. Justices Samuel Alito, Brett Kavanaugh and Clarence Thomas dissented.

In other words, President Trump can no longer govern by creating the chaos and uncertainty that has enabled him to accumulate so much power and wealth. So maybe “The times they are a changin?”

And sowing economic chaos by being unpredictable doesn’t work as a negotiating tactic either. Companies usually waited until Trump’s TACO bluster caused him to back down before agreeing to a rate. And SCOTUS ruled he now must do the research required by other laws to justify the tariffs.

Trump’s tariffs did not decrease the flow of imports or boost domestic manufacturing, as intended. Domestic manufacturing lost another 80,000 jobs last year, in large part because of the higher steel and aluminum prices that go into so much manufacturing output.

And the mostly illegal tariffs worsened inflation as well. A New York Fed bank study found U.S. businesses and consumers have paid most of the costs of the price increases on imported goods.

“Over the course of 2025, the average tariff rate on U.S. imports increased from 2.6 to 13 percent. In this blog post, we ask how much of the tariffs were paid by the U.S., using import data through November 2025. We find that nearly 90 percent of the tariffs’ economic burden fell on U.S. firms and consumers” per the NY Federal Reserve.

The harm done by Trump’s tariffs by fiat makes a long list. China had stopped buying agricultural products as in Trump’s first term and higher tariffs have cost Ford and GM $billions in lost profits.

The Supreme Court ruling exposed the harm ignoring laws and our constitution has done to economic growth. Trump’s Republicans are no longer the party that stands for lower taxes, except among their wealthiest supporters. So much for increasing affordability!

Harlan Green © 2026

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

The Japan Tariffs

 Financial FAQs

“It has been clear for a while that Trump and co. don’t understand or believe in balance of payments accounting, that they want both a smaller trade deficit and more foreign investment in America. Now their basic lack of understanding is embodied in a specific deal.” Paul Krugman

FREDtradedeficit

Why not quote Paul Krugman, who won a Nobel Prize for his research on foreign trade? The just announced trade deal with Japan is another illustration of the Trump administration’s ignorance of basic economic principles that will make both countries poorer.

It’s necessary to get into the ‘weeds’ of economic principles for those that want to understand just what the Trump administration is really up to; enriching the few with tax cuts that are paid for by all Americans in the higher prices that will result.

Although Japan will be building more factories in the U.S. with its $550 billion in announced investments and be able to export more Japanese vehicles to Americans, U.S. autoworkers will be hurt because Japanese autos will be cheaper than vehicles manufactured in the U.S, even with the 15 percent tariffs levied on them.

Why so? Because the parts imported and used in U.S. manufactured autos have higher tariffs, such as the 50 percent tariff on imported steel and aluminum products that go into American-made autos. That’s why the U.S, Autoworkers Union will have something to say about such a tariff agreement that will endanger the livelihoods of Ford, Stellantis, and GM’s unionized autoworkers.

GM President Mary Ybarra just announced that $1.1 billion of its $2 billion net income from second quarter earnings will be ‘eaten’ by the higher tariff costs that GM didn’t want to pass on to consumers.

The FRED graph illustrates the ups and downs of the historical trade imbalance of goods and services. The downward trending red line basically tracks the negative gap between imports and exports. It has been trending down because we are a consumer-driven economy that has imported much more than American businesses export.

The deepest trade deficit (steep drop in red line) occurred with a surge in imports January-March 2025 to get ahead of Trump’s threatened reciprocal tariffs on April 2. But when he announced the reciprocal tariffs—China’s was 145%, for instance—imports dried up and the difference narrowed so that the graph line rose quickly to the $60 to $70 billion historical trade deficit.

It's an illustration of the incredible gyrations that such chaos injects into foreign trade with Trump’s negotiating tactics, and which hurts small businesses most that depend on imports for consumer products, as well as retail giants like Walmart and Target.

The earliest effect on tariff-induced inflation apppeared in the Consumer Price Index (CPI) I reported last week. The prices of retail goods and services rose to 2.7 percent in June from a four-year low of 2.4 percent, which is why the Fed is still on hold with further rate cuts. It fears that lowering their Fed funds short-term rate could trigger an inflation panic, since it would speed up economic activity.

This would in turn panic bond holders who fear higher inflation and demand higher rates that control mortgages and yields on Treasury securities that fund the national debt, when the annual debt payments are $1 trillion.

Consumers can tolerate some higher inflation and maintain spending if the job market is good. Retail sales just rebounded in June and initial jobless claims for unemployment benefits are down again. Should the unemployment report remain in the low 4.2-4.3 percent range, consumers can keep spending despite uncertainty. But confidence polls are showing consumers are beginning to see the ultimate cost of higher tariffs—reduced social services and a worsening climate.

And this is before the appeal by the Trump administration of the Foreign Trade Court ruling that all reciprocal tariffs must be approved by the congress is decided! How is anyone to know what the final tariffs will be, in that case?

And how can he keep his promise to lower inflation while he keeps hounding the Fed to lower interest rates sooner (that would boost inflation)? He can’t keep his promise, in a word, because of his need to cut taxes. So he will raise everyone’s cost of living to pay for tax cuts that will benefit the few.

Harlan Green © 2025

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

Republicans Have Never Paid 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

President Trump is justifying his trade war that could wreck the U.S. and maybe world economies because he wants to renew his 2018 Tax Cuts and Jobs Act (TCJA) that could raise the federal debt $2.8 trillion over the next 10 years.

If Republicans would ever pay their bills, rather than continue to lobby for tax cuts, we wouldn’t be in this situation. But they haven’t since Ronald Reagan and now are led by a complete phony who sues those that expose his lies making complete fools of those who support him.

Why are we in a huge financial mess today with a record federal budget deficit and falling value of the dollar President Trump is using to justify an illegal tariff war that is tearing apart the world’s financial order and alienating our closest allies?

Trump’s Republicans are twisting themselves into pretzels to justify the tariff wars Trump is waging on the whole world—all 180 countries—that could lead to product shortages last experienced during the COVID-19 pandemic.

Yet rather than destroy the U.S. and other world economies with unjustified DOGE job cuts and tariffs, if Trump Republicans were serious about reducing the federal debt, they should raise taxes on those that have benefited most from decades of tax cuts enacted by Republican administrations

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 that were in 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 440,000 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.

FREDdebtpercentageGDP

The St, Louis Fed (FRED) graph of federal debt as a percentage of GDP shows precisely when Republicans began to drastically cut taxes in 1980 under President Reagan—from a 75 percent maximum personal tax rate to below 40 percent, whereas 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 U.S. growth. Whereas today the tax cuts have mostly financed corporate stock buybacks.

How times have changed! President Eisenhower asked wouldn’t it be better to spend a majority of earnings on expanding the U.S. economy rather than to horde it?

Not any more, 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 since 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.

Will Americans realize and restore Republicans’ theft from American taxpayers via the tax cuts since 1980? It’s estimated some $1 trillion in wealth has been transferred from American workers to the owners of wealth since then that is causing the record income inequality we have today.

Make no mistake, if enough Americans don’t realize what fools they’ve been to support a President who says we’ve just won World War I, and appointed a Navy Secretary who held a ceremony honoring the 1941 Japanese attack on Pearl Harbor on June 6 instead of December 6, it will result in the wholesale destruction of our democracy and loss of the “good faith and credit” of the U.S. Government.

Harlan Green © 2025

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

More Signs of Slow Growth

 Financial FAQs

“The manufacturing economy continues to struggle,” Susan Spence of ISM said. “It will continue to struggle” due to all the trade uncertainty.

“The administration’s tariffs alone have created supply chain disruptions rivaling that of Covid-19,” an executive at an electronics company told ISM.

FREDmanufacturingemployment

The only number in the Institute of Supply Management’s (ISM) manufacturing survey that rose were prices due to a shortage of commodities—i.e., supply. Every other component of the supply managers’ survey was contracting—such as new orders, production, and employment.

Manufacturing employment had been declining since 1980; from 19,000,000 jobs to 12,765,000 jobs in April per the FRED graph out of a total 159 million jobs.

It’s the first sector of the U.S. economy that is showing stagflation—prices are up while production is stagnating. Hence the above remarks from supply managers and Susan Spence, Chair of the ISM Survey.

The services index of the Institute for Supply Management also contracted for the first time in a year. It fell to 49.9% in May from 51.6% in April, the ISM said Wednesday. Any number below 50% signals contraction.

Economic activity in the services sector contracted in May, the first time since June 2024, say the nation's purchasing and supply executives in the latest Services ISM^® Report On Business^®. The Services PMI^® indicated slight contraction at 49.9 percent, below the 50-percent breakeven point for only the fourth time in 60 months since recovery from the coronavirus pandemic-induced recession began in June 2020.

The Labor Department’s JOLTS report shows that the service sector is still adding jobs. Job openings rose in April for white-collar, retail, healthcare, and entertainment and recreation roles. But job listings fell at hotels and restaurants, whose business has been hurt by a decline in tourism. Some foreign visitors have put off trips to the U.S. because of the trade wars and other White House policies.

Another disheartening jobs report came out today. ADP, a private payroll processor, reported that privately run businesses created just 37,000 new jobs in May — the smallest increase in more than two years — as the most damaging global trade wars since the Great Depression spurred many firms to put a pause on hiring.

The real problem is that employers won’t begin to hire again until the trade wars are resolved, and President Trump says he isn’t letting up on the tariff wars because it will create more manufacturing jobs. But that will take years, and automation has replaced most of the manufacturing jobs (which no longer pay as well) before we see any signs of a manufacturing resurgence.

Economists such as Paul Krugman, who won a Nobel Prize for his pioneering research in foreign trade, remarking on the sudden 50 percent increase in steel tariffs, believes the damage  to the U.S. Economy from such draconian tariff rates (i.e., import taxes) is already done.

So steel tariffs don’t make any policy sense. But then neither does anything else in Trump’s trade war — and the nonsensical nature of the whole enterprise is why I don’t think he’ll find an off-ramp. After all, it’s obvious that the increased steel tariff wasn’t a considered policy, it was a temper tantrum after the Court of International Trade ruled against his other tariffs.

Is the contraction of both the service and manufacturing sectors the first sign that the U.S. economy is already in recession? This Friday’s ‘official’ U.S. Labor Department unemployment report will tell us more.

Harlan Green © 2025

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

What's the Fed Saying?

 The Mortgage Corner

“In considering the outlook for monetary policy, participants agreed that with economic growth and the labor market still solid and current monetary policy moderately restrictive, the committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity.” FOMC

Photo: Andrew Harnik/Getty Images MarketWatch

The Federal Reserve’s release of its minutes from the last FOMC meeting didn’t have much to say about the continuing tariff wars, because nothing has yet been negotiated—just some retaliatory pauses and a written understanding with the UK.

And it may take a while—could be months and years before actual trade agreements are agreed upon as they must pass congressional approval as well. The NAFTA North American Free Trade Agreement wasn’t agreed upon until 1992, though negotiations began in the late 1980s.

That puts the Fed in a very difficult position. We now know why President Trump has attempted to disguise the fact that it is an import tax. The Court of International Trade has ruled that Trump’s retaliatory tariffs are illegal.

The trade court ruled for a group of small businesses and Democratic-led states in finding that Trump tried to get around congressional approval by invoking a 1977 law that doesn’t mention tariffs.

It’s a separation of powers issue that will be fought in the courts, and may take some time, in other words.

Hence Chairman Powell’s concern that a recession may be on the horizon. “The staff viewed the possibility that the economy would enter a recession to be almost as likely as the baseline forecast.”

Why? Because higher taxes generally cause higher inflation, which trump denies will happen (it was a campaign promise), and Powell, et.al., have worked hard to get inflation down to its current level.

BEA.gov

So it was good news that the just released Employment Cost Index rose just 2.1 percent in April; the core rate up 2.6 percent without auto and gas prices figured in. But the personal savings rate (black line in BEA graph) has been rising steadily, is up to 4.9 percent from its December low of 3.8 percent, which is a sign that consumers are becoming more cautious.

We already have a decline in two of the four major components that have determined past recessions: declining employment and flat industrial production because the tariff wars are slowing supply chains. The unemployment rate has risen from 3.6 percent in 2022 to 4.2 percent in April and long-term jobless compensation claims have been steadily rising.

The two other main indicators of a recession are consumer spending that has slowed to 1.2 percent from its usual 3-4 percent annual growth, and GDP growth that went negative -0.2 percent in Q1 for the first time since the COVID-19 pandemic.

So we could already be in a recession, and the tariff wars will certainly cause even more uncertainty.

The real problem is that Trump is trying to get around the legal process with what he asserts are emergency powers to stem the flow of fentanyl and lower the trade imbalances. Only Congress has the power to tax, not the Executive Branch, unless there’s a real emergency. Historical trade imbalances and fentanyl imports aren’t considered national emergencies that require making enemies of our closest allies.

Harlan Green © 2025

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

Trump 2.0 vs. First 100 Days

 Popular Economics Weekly

“With President Donald Trump’s second term approaching its 100-day mark, 40% of Americans approve of how he’s handling the job – a decline of 7 percentage points from February,” PEW Research.

PEW

The big mystery is why Donald Trump is repeating the same mistakes he made in his first 100 days in office—chaotic tariff wars, illegal downsizing of congress-mandated agencies, threats of cuts to social security, Medicare and Medicaid services— that have hurt his ratings, as happened in Trump 1.0.

The answer is the continued support of his base; MAGA Republicans vs. that of all Americans, says PEW Research.

Seven-in-ten or more Republicans and Republican-leaning independents approve of:

• · Trump’s job performance (75%)
• · The administration’s cuts to government (78%)
• · Increased tariffs (70%)
• · Ending diversity, equity and inclusion (DEI) policies in the federal government (78%)

Among Trump’s predecessors dating back to Ronald Reagan, the only other leader who did not enjoy majority approval at his 100-day mark was Bill Clinton (49% approval in April 1993), according to PEW.

Why? For starters, Trump’s supporters seem to believe that executive orders can replace laws and tariff negotiations, though such tactics don’t work well in a democracy based on laws enforced by an independent judiciary.

Whose tariff policies that are based on mostly false premises has Trump followed —e.g., calculating trade imbalances solely on goods but not service sector trades? Some blame Peter Navarro, his chief tariff advisor, while Trump has admired President William Mckinley’s use of tariffs in 1890 that enriched Robber Barons in the first Gilded Age.

But Hitler also raised import tariffs in the 1930s to shield and build Germany’s domestic manufacturing base that fueled his war machine, all in the quest for more ‘Lebensraum.’ Trump scares me when he maintains his lie that tariffs don’t cause inflation, while he talks about creating more Lebensraum by wanting to acquire Greenland, the Panama Canal, and even Canada.

There is a darker vein as well, the racial purity efforts (e.g., white supremacy) that was a mainstay of Hitler’s Nazi Party that is reflected in Trump’s attempts to purge all mention of DEI programs in both government and private (e.g., educational) institutions.

I like a Fortune Magazine report from 2017 on candidate Trump’s past negotiating tactics: “The legal actions provide clues to the leadership style the billionaire businessman would bring to bear as commander in chief. He sometimes responds to even small disputes with overwhelming legal force. He doesn’t hesitate to deploy his wealth and legal firepower against adversaries with limited resources, such as homeowners. He sometimes refuses to pay real estate brokers, lawyers and other vendors.”

Trump’s attempts to act like a strong man aren’t panning out, in other words, mainly because autocratic regimes are antithetical to strong economies, which require a citizenry that has the freedom to innovate. It’s the same reason Americans don’t like Putin, China’s Xi, or dictators in general.

Polls show there are still Americans that would rather have an autocrat such as Trump to make decisions for them. But the price they pay is living in mostly Republican-controlled red states where living standards are much lower.

It’s a lesson Americans have had to learn more than once—that knowing truth from fiction, making one’s own decisions rather than following opinions of the herd, or cult figures, is the world most Americans prefer to live and prosper in.

Harlan Green © 2025

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

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

Why So Much Inflation?

 Popular Economics Weekly

“For far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS). Through soft and pathetically weak Trade agreements, the American Economy has delivered growth and prosperity to the World, while taxing ourselves. It is time for that to change. I am today announcing that I will create the EXTERNAL REVENUE SERVICE to collect our Tariffs, Duties, and all Revenue that come from Foreign sources.” @realDonaldTrump (cited by Paul Krugman)

This is just another insane fantasy Trump seems to believe—or is practicing his politics of diversion—to mask the fact that tariffs are a tax that we pay on what is imported, just as foreign citizens pay taxes on what enters their countries, which boosts the prices of those products.

Trump collected more than $400 billion in tariffs during his first term, some of which he had to pay out to subsidize American farmers who had lost their soybean and wheat exports when China retaliated in kind.

But such a fantasy can reassure his loyal supporters that there is a way to escape their overriding fear of inflation. And the latest inflation news was good news for the financial markets as well.

FREDcpi

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis in December, after rising 0.3 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.

Stock and bond investors were so hungry for good inflation news when the Consumer Price Index surprised on the downside that financial markets rallied. Core inflation without food and energy prices factored in rose just 0.2 percent, which was below expectations.

The DOW immediately rallied +744 points, the S&P Index +140 pts., in the first 10 minutes of trading. They are now betting that the Fed will continue to ease credit by lowering interest rates further this year.

It’s a relief rally because Consumer Price Index (CPI) inflation of retail goods and services has been increasing since it went slightly negative in June of last year (see graph). This raised fears that the Fed might not cut interest rates further this year at all.

The next day’s wholesale Producer Price Index report was also good news. U.S. producer prices (PPI) that are the major part of retail costs rose less than expected in December, as the higher costs for goods were partially offset by stable services prices, suggesting inflation remained on a downward course.

Trump, of course, would like to abolish income taxes as do most Oligarchs. Wouldn’t it be nice to return America to the pre-income tax, Gilded Age of President William McKinley and the Robber Barons! Americans didn’t tolerate the Robber Barons taking so much of their wealth for long, however, which was the reason for creating the personal income tax with the 16th Amendment.

Trump’s misinformation is just one propaganda diversion that Trump will use to hide the fact that tariffs on imports, like all taxes, will be inflationary. As every successful investor knows, it’s better to focus on facts instead of the fiction that we can avoid paying taxes on what we buy, if we want a government that works for the many rather than the few.

Harlan Green © 2025

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

Why the Inflation Worries?

Financial FAQs

Reuters.com

There has been too much talk of inflation, as so-called ‘bond vigilantes’ seek to take advantage of the fear that too much pandemic recovery aid will saturate the financial markets with dollars, creating runaway inflation and boosting interest rates.

That makes sense when so many dollars are in play, right? Not really.

Who are the so-called bond vigilantes that worry about inflation and bond prices? They are usually the most highly leveraged funds that have been buying assets with borrowed money at the record low interest rates that have prevailed since the pandemic and have pushed up some stock prices to stratospheric levels.

A great example is what happened on Monday to a highly leveraged hedge fund investor, reports MarketWatch:

“U.S. stocks pared losses Monday afternoon despite jitters tied to reports that a large investment fund recently was forced to sell massive holdings ($30B) in stocks, causing prices to tumble. Investors were monitoring news reports that former Tiger Asia manager Bill Hwang’s Archegos Capital Management had unwound big bets late last week after facing margin calls.”

We know that margin calls are because banks require investors to sell the underlying assets that were bought on margin when said asset prices have fallen significantly.

So where is the runaway inflation they speak of? The Fed says they want moderate inflation but have the tools to prevent runaway inflation, and will keep a close-to-zero percent short term rate policy through at least 2002.

There is lots of precedence for the Fed holding real interest rates below inflation rates. It helped to finance World War Two, and GW Bush’s invasions of Iraq and Afghanistan. This is when the real cost of money is close to zero and borrowing needs high during such exigencies.

And we are fighting a world war against COVID-19 that is disrupting economies and killing more people than all the other wars.

Another problem with bond vigilantes’ thesis is the root cause of most inflation—higher demand than existing supply. But the demand for products and services has not exceeded supply for decades—since globalization and lower trade tariffs have made goods in particular cheaper to produce and more plentiful.

There has been little problem with the supply-side of the equation in recent decades, in other words, unless we have major disruptions such as this pandemic that creates temporary bottlenecks in the delivery of said products.

There hasn't been a problem with inflation since the 1980s, either.

“Even before the coronavirus crisis, central banks globally were struggling with sluggish inflation, and the pandemic-induced downturn has only made the challenge worse,” said Reuter’s Ann Saphir.

“Too-low inflation is typically a sign of a weak economy. It also tends to drag on interest rates and makes it difficult for central banks to fight recessions with their usual tools that focus on the cost of money.”

That is why several European countries are struggling with what amounts to negative interest rates, such as Denmark where even mortgage interest rates are less than zero.

The above Reuters graph shows that inflation has barely budged (light blue and red lines), even as average hourly earnings are rising at a 5.3 percent clip. One can call this another goldilocks economy with neither too hot nor too cold growth at the moment.

So those most fearful of soaring inflation and borrowing costs are those that are highly leveraged. And we will see that leveraging disappear soon enough as business activity returns to a new normal the Fed is wanting—holding interest rates at or below inflation; thus stimulating a higher demand for goods and services that stimulates a robust recovery.

Harlan Green © 2021

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

Consumer at Center of Any Recovery

Financial FAQs

FRED retail sales

The American economy has depended on consumers’ health, and consumer spending since the 1950s, really. Consumers generate some 70 percent of economic activity from their purchases, with government spending and capital expenditures in the private sector generating the rest of the activity.

Yet there is much doubt that American consumers will be in any position to return to their spending ways once COVID-19 is sufficiently tamed (meaning testing, tracking and quarantining programs in all states are fully operational). Consumers will feel reassured when it is safe to return to work and consume again.

We save more and spend less in times of worry, which depresses the demand for goods and services. And any diminishment in demand caused by their insecurities diminishes the production of those goods and future investment that would expand economic growth.

There is now a tremendous worry that consumers may stay-in-home for a prolonged period because of the pandemic. The personal savings rate has jumped from 8 to 13 percent just in March, when it was as low as 3 percent during boom times leading up to the Great Recession. They weren’t saving during those heady times of the housing boom and bust when housing prices were rising in double digits.

But the lower-income earners haven’t recovered, and some 40 percent of households have almost no savings to weather this downturn.

The latest retail sales tell us what is happening with consumers. Retail sales plunged 16.4 percent in April, by far the biggest drop on record and another reflection of the severity of the coronavirus pandemic on the U.S. economy. They were nearly double March’s revised decline of 8.3 percent. Spending at restaurants and bars fell by about half from a year ago, while clothing store sales slumped 89 percent due to the work lockdown and stay-at-home rules.

That can be counteracted by programs that reassure consumers. For instance the CARES Act prolonged unemployment benefits to July or longer, but need to be extended for at least another six weeks..

But a far more active federal government that develops a real social safety net with far fewer holes is the real answer.

There are some basic elements that might keep consumers from saving too much for a rainy day, if it is being saved for them by effective government social programs, like some form of universal health care that insures as many Americans as possible from expensive medical bills.

Then a much expanded education system that insures a good education for all Americans through high school, and even two-year community colleges to increase their skills. (Community College’s would be tuition-free, in other words.}

What else would reassure ordinary citizens? A safer international environment is being threatened by nationalist and populist governments that have closed their borders to any kind of international cooperation. But COVID-19 is stopping that fragmentation of necessity, as countries must work across borders to share medical science that saves their own populations from higher death rates.

We therefore see a rebuilding of the international supply chain that produces most consumer products, as well. Those products will continue to be produced overseas because of cost factors, no matter how many tariffs Trump imposes on the countries that manufacture them.

Mohamed El-Erian, former CEO of PIMCO and Chairman of President Obama’s Global Development Council, has worried about the damage COVID-19 has done to global growth, and the supply chains that connect what has become a global economy.

“Having already been buffeted by two big shocks in the last ten years, the global economy’s highly interconnected wiring is suffering a third because of the COVID-19 pandemic,” he said in a recent Project-Syndicate article. “Globalization thus faces a three-strikes-and-out situation that could well result in a gradual but rather prolonged delinking of trade and investment, which would add to the secular headwinds already facing the global economy.”

Those “headwinds” include the possibility of greater geopolitical conflicts and increased poverty levels of poorer countries from a prolonged slump in foreign trade and investment. Keeping the international supply chain from breaking is an absolute necessity for maintaining worldwide peace and prosperity, in spite of the backlash against globalization by populist governments.

I have cited NYTimes’ commentator Peter Goodwin before, when he said, “For seven decades after World War II, the notion that global trade enhances security and prosperity prevailed across major economies. But in many countries—especially the United States—a stark failure by governments to equitably distribute the bounty has undermined faith in trade, giving way to a protectionist mentality in which goods and resources are viewed as zero-sum.”

We cannot allow the “protectionist mentality” to continue, in other words, if we are to recover from what Mother Nature has thrown at us.

Harlan Green © 2020

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

Disaster Preparation—Why Irrational Exuberance?

Popular Economics Weekly

WTI Crude Oil

Stock and bond prices are gyrating when the world economy doesn’t seem to know what to make of China’s coronavirus that has now spread to some 23 countries, according to latest reports.

And that is not a good time for irrational exuberance to appear in U.S. financial markets, since much of the financial gyrations are driven by excess liquidity—too abundant cash from the 2017 corporate tax cuts are pushing stock prices to record highs, and bond yields to record lows—both signs of price bubbles sure to burst on signals that world trade in particular could be affected by what economists call such an unpredictable, “exogenous” event.

The medical consensus to date is that the coronavirus doesn’t seem as virulent as the 2003 SARS outbreak, yet the number of deaths and infection rate to date has already exceeded that of the SARS virus.

The NYTimes reports this respiratory virus has infected more than 17,000 people, killing “at least” 360. “But the Wuhan coronavirus may be highly transmissible, as contagious as seasonal influenza that kills many more, and the death rate is still unknown.”

Why could this pandemic that the World Health Organization has now labeled a global public health emergency be dangerous to global growth?

Nobel economist Paul Krugman says it’s because China’s economy is many times larger than it was in 2003, so the effect of closing down major Chinese cities until more is known about the virus could be economically devastating to China and other economies that depend on Chinese goods and services. The EU is one such market that is worried because 20 percent of its exports now go to China.

Crude oil imports to China, the world’s largest consumer of oil, have also dropped 20 percent and oil prices are down approximately 10 percent, which has OPEC producers scrambling to cut production quotas.

Other economists are voicing similar warnings. Yale economist Dr. Stephen Roach, former Morgan Stanley chief economist and chairman of Morgan Stanley’s Asia Desk, is making good sense with his predictions of worse things to come.

He’s talking about world trade volumes, which have dropped precipitously. And worldwide growth depends even more today on world trade, which has already been harmed by the Trump trade wars.

Roach in recent Project Syndicate comments, said that from 1990 to 2008, annual growth in world trade was fully 82 percent faster than world GDP growth. And this cushion has shrunk dramatically, to just 13 percent over the 2010-19 period, “leaving the world economy more vulnerable to all-too-frequent shocks.”

“The IMF’s latest assessment put global trade growth at just 1% in 2019 – its seventh consecutive downward revision,” said Roach. “Indeed, last year was the weakest trade performance since the historic 10.4% plunge in 2009, which was the worst contraction since the early 1930s.”

Is Roach being an unnecessary alarmist? I don’t think so, when compared to the Great Depression. Now is not the time for irrational exuberance of any kind with world economies retreating in the face of so much geopolitical uncertainty (e.g., rising isolationism from rising nationalism).

Are we prepared? 

Harlan Green © 2019

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

Why Our Endless Tariff Wars?

Popular Economics Weekly

Wrightson-ICAP

POTUS and the Trump administration can’t end their trade wars, although House Speaker Nancy Pelosi just announced they had reached agreement with Republicans on a new NAFTA accord with Canada and Mexico—now called the USMCA, or U.S. Mexico Canada Agreement—because it gives more protections to U.S. workers. She said there’s nothing wrong with a win for President Trump “when it’s the right thing to do (sic).”

But there is no agreement with even a Phase I trade agreement with China, and Trump has basically neutered the World Trade Organization that settles trade disputes by blocking any new appointment to its arbitration panel, which will not only prolong trade disputes but create new ones, since there’s no longer a mechanism for resolving them.

The result has been declining labor productivity and manufacturing output, which puts future economic growth in jeopardy. Productivity declined in mid-2019 after several years of acceleration, in part because companies reduced investment in manufacturing and production in response to the U.S. trade fight with China and the EU. The dispute has also undermined exports and made it harder for businesses to plan ahead.

Labor Productivity, or output per hour worked, declined for the first time since 2015. It fell at a 0.2 percent annual rate from July to September, the government said Tuesday. This means that the hours worked increased faster than output, so that it is increasing just 1.5 percent annually, which means workers will have difficulty improving their standard of living within their working lifetime. They haven’t been able to increase their median income since the 1980s, and trickle-down economic theory prevailed.

This was the theory that lower taxes and less government services lifted all boats, when it fact it only lifted the most expensive yachts. The cutback in government investments in such as infrastructure, education, and R&D, which all serve to increase productivity and efficiency, was another reason for the productivity decline.

And, “Productivity is likely to continue to lag unless there’s a rebound in business investment,” said MarketWatch’s Jeffery Bartash, “but that probably won’t happen unless the trade dispute is largely resolved.”

Higher productivity is the key to a rising standard of living, resulting in higher pay, more profits and low inflation. Low productivity is a sign of an inefficient economy.Productivity in the U.S. has risen at an average rate of just 1.3 percent since 2007, compared with a 2.1 percent average since the end of World War II.

There are better ways to settle trade disputes, such as remaining in trade alliances like the Trans-Pacific Partnership that Trump withdrew from. The other 11 Asian trade partners then drew up their own agreement to better bargain with China, in particular; whereas the U.S. has been unable to reach any agreement by going it alone.

So we know another path to increased productivity is the ability to get along with our economic friends and find a way to work with our enemies.

Harlan Green © 2019

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

U.S. Growth is Slowing!

Financial FAQs

Late Monday, the U.S. blacklisted 28 Chinese companies because of their alleged role in human-rights violations against Muslim minorities ahead of the high-level discussions which will be led by China Vice Premier Liu He on Thursday.

Bloomberg also reported the Trump administration is moving ahead with discussions around possible restrictions on capital flows into China, with a particular focus on investments made by U.S. government pension funds.


These unilateral actions by the Trump administration will be enough to bring on a mild recession sometime next year. Why? Because attempting to isolate the 2^nd largest, or largest economy in the world—depending on which economic measure is used—can only harm international trade on which U.S. and world economic growth depends these days.

Manufacturing activity is already contracting, signaling that it is in a recession. The service sector will take longer to see the effects of the U.S. decoupling from China and international trade in general from the various trade wars because services are less dependent on foreign trade.

And last week Trump also said he would add a 10 percent tariff in September to the remaining $300 billion in Chinese imports that had previously been excluded from earlier U.S. duties. China retaliated by suspending purchases of American farm crops and letting the value of its currency fall, effectively making Chinese goods cheaper to buy and negating some of the damage from U.S. tariffs.

The Chinese imports being taxed are consumer goods, such as TVs, computers, wash machines that American consumers buy.

FRED

The result? Both the Producer Price Index for wholesale goods (red line in graph), and probably the upcoming Consumer Price Index (dark blue line) shows where we are heading.

Wholesale prices in the PPI index are falling because of declining demand for unfinished goods, which are the raw material for finished products. The increase in wholesale inflation over the past 12 months slid to 1.4 percent from 1.8 percent, marking the lowest level in almost three years.

“Similarly, a more closely followed measure that strips out volatile food, energy and trade-margin costs was flat in September. The increase in the so-called core PPI over the past year dropped to 1.7 percent from 1.9 percent,” according to MarketWatch.

Another sign of declining demand is the 10-year Treasury yield declining to 1.55 percent; also recession territory, as investors flee stocks to the safe haven of U.S. Treasury securities.

It means the Fed will probably continue to lower their interest rates in an attempt to boost spending, which could keep consumers in the game for a while longer, but at a lower level of consumption as they save more of their earnings. 

Hence there is the possibility of a mild recession next year when consumers begin to realize that current U.S. economic policies only interested in punishing China, rather than negotiating a beneficial outcome in good faith, will harm American consumers as well.

Harlan Green © 2019

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

Trade Protectionism = Recession?

Popular Economics Weekly

FRED

BEIJING (AP) — China’s government has threatened unspecified “necessary countermeasures” if Trump’s planned tariff hike goes ahead said the AP. And it followed up the threat by devaluing their Yuan by more than 7 percent against the dollar, say news reports.

President Trump Thursday had suddenly tweeted that he would levy a 10 percent tariff on $300 million of Chinese imports last week, after what he perceived to be Chinese backtracking on their good faith efforts to negotiate. It completely unsettled financial markets, causing the DOW to plunge more than 600 points Friday and almost 1,000 points today from a rally spurred by the Federal Reserve rate cut on Wednesday, and today’s counterpunch by the Chinese—though some commentators remarked that investors should have seen it coming.

The beefed-up tariffs on Chinese imports add to an existing 25 percent tax Trump has already placed on Chinese goods. As the New York Times notes, the United States is now “taxing nearly everything China sends to the United States, from iPhones to New Balance sneakers to children’s books.”

Republicans and Trump seem to have a bad case of historical amnesia. Historians generally agree it was the Smoot-Hawley Tariff Act of 1930 that helped to precipitate the Great Depression. The US lost some 50 percent of its foreign trade as a result. Other governments reciprocated with higher tariffs, just as the China is doing with Midwest farmers, and now devaluation that makes their exports cheaper. They are also threatening to ban the export of rare earth minerals used in high-tech manufacturing components, of which China is the world’s major supplier.

China’s Commerce Ministry said Trump’s announcement is a violation of his agreement with President Xi Jinping in June to revive negotiations aimed at ending their fight over Beijing’s trade surplus and technology ambitions. The ministry had earlier said if the U.S. measures took effect, “China will have to take necessary countermeasures to resolutely defend its core interests.”

What is really happening between the lines? One Chinese minister posited that China had slowed negotiations for any meaningful trade agreement to a crawl until after the 2020 election, when it will know with more certainty who to deal with over the longer term.

Whereas President Trump sudden announcement must mean he is trying to divert media attention away from his other problems. To name a few: Trump hadn’t vetted Republican Congressman Daniel Radcliffe, who had to withdraw from consideration for the CIA Chief after it was obvious he wasn’t’ qualified for the job; Senate Majority Leader “Moscow Mitch” McConnell is drawing fire from all sides for refusing to allow a Senate bill to come to the floor that protects upcoming elections from foreign interference; and lastly, all signs are pointing to a gradually slowing economy precisely because of the ongoing trade war.

It is not a pretty picture, but empty bluster and posturing rarely is. We now have the makings of a currency devaluation war, says former Fed Vice Chair Alan Blinder, when other countries may now want to also devaluate their currencies. Such a result could lead to plummeting commodity prices worldwide, and what else…?

The Chinese know the clock is ticking on the Trump administration and Republicans who continue to blindly support him, when congress is by law the real maker or breaker of trade agreements. Who will step up that actually knows the “Art of the Deal?”

Harlan Green © 2019

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

Manufacturing Slows as Trade Wars Quicken

Popular Economics Weekly

Trade wars are not really winnable anymore—at least the way some world leaders conduct them—or any wars for that matter. This is because we no longer live in a win-lose world where the strong are able to so easily prey on or even conquer the weak and vulnerable.

The world has become too populous, and thanks to modern technologies too interlinked for modern economic bullies—like a Trump, or Russia’s Putin, or even China’s Xi Jinping—to succeed for long in their win-lose negotiating tactics based on perceived grievances.

And that is the reason Trump’s trade wars are failing. NAFTA is still NAFTA, because the U.S. depends so heavily on trade with Canada and Mexico. And now there are predictions that his China trade war will fail as well, because his policies are causing so many losses among his Midwest electorate, and now the US manufacturing sector.

Why are we even having trade wars with our allies, as well as adversaries?

We can thank UC Irvine economic professor Peter Navarro, a protectionist, anti-free trade advocate, for convincing President Trump that multi-lateral trade agreements that link us more tightly to our allies are bad for the U.S., including the 12-nation TPP, Trans-Pacific Trade Partnership, that was designed to curb China’s economic expansionism.

So Trump cancelled the TPP and began his trade wars with our allies in Europe, as well as Canada and Mexico, where the U.S. does most of its trade. The result has been slower growth everywhere, as has been cited in many studies.

“Trade growth, a key artery in the global economy, has also slowed markedly, to around 4 percent in 2018 from 5¼ per cent in 2017, said a recent OECD economic outlook report, “with trade restrictions having adverse effects on confidence and investment plans around the world. In Europe, trade growth has stalled, reflecting a slowdown in both external and internal demand. Leading indicators suggest that near-term trade prospects are weak. Survey indicators of new export orders remain low in China and continue to decline in Europe and many Asian economies.”

Econoday

The U.S. has the Chicago ISM Business Barometer of business activity to measure such activity, a survey of more than 80 economic indicators that show a general national trend. It is giving similar results to the OECD outlook; slowing US growth as well.

The MNI Chicago Business Barometer decreased by 4.5 points to 49.7 in June from 54.2 in May, marking the first sub-50 reading since January 2017, said their press release. Business confidence dipped significantly in Q2, with the Barometer averaging 52.2, down 13 percent on the previous quarter and almost 16 percent lower than Q2 2018.

This month’s special question asked firms about the impact of government-imposed tariffs on their business. 80 percent of firms said that they were negatively impacted, with tariffs raising prices of their goods leading to a pullback in orders.

The June ISM manufacturing Index also fell to 51.7, the slowest pace in more than two years, hurt by trade tensions with China and Mexico. “Backlog orders continue to contract, inventories are coming down, delivery times are improving, import buying is flat -- all signs of weakness. Another disappointment is a 0.5 point decline in new export orders which are barely growing at 50.5,” said the report.

The LA Times has reported on other damage caused by the trade wars; the sharp decline in Chinese direct investments in US manufacturing that had been growing until last year’s start of the Chinese trade war. Investments shrank to $5 billion in 2018, after $29 billion in plant and equipment in 2017 and $46 billion in 2016, which had been responsible for thousands of new, higher-paying American jobs.

Such win-lose trade tactics are designed to fail, as skilled negotiators have been saying since the end of WWII, when allies and alliances have been necessary to keep the world peace (e.g., the Marshall Plan).

“…win-win negotiation involves working to get the best deal possible for yourself while also working to ensure that your counterpart is satisfied (see also, Win-Win Negotiations: How to Manage Your Counterpart’s Satisfaction), says an article in the Harvard Law School blog. “It means making offers that are good for them and great for you, according to Massachusetts Institute of Technology professor Lawrence Susskind. And it means thinking creatively about how you can get more of what you want by helping the other side get what she wants.”

An Eye-for-an-Eye Makes the Whole World Blind was Mahatma Gandhi's famous insight, patron saint of non-violence.

Most of the western world has progressed beyond that stage, at least, in this world of super abundance. We no longer suffer from starvation or famine in the developed world.  Only by helping those underdeveloped countries still suffering from overpopulation and droughts to enter the modern world will we be able to replace the belief in cut-throat competition of the win-lose crowd that sees conflict as the only solution, with the win-win world of cooperation, and a lasting world peace.

Harlan Green © 2019

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