MrKnoot @MrKnoot: "🌶️ 𝗜 𝗺𝗶𝗴𝗵𝘁 𝗿𝗲𝗴𝗿𝗲𝘁 𝘄𝗿𝗶𝘁𝗶𝗻𝗴..."

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🌶️ 𝗜 𝗺𝗶𝗴𝗵𝘁 𝗿𝗲𝗴𝗿𝗲𝘁 𝘄𝗿𝗶𝘁𝗶𝗻𝗴 𝘁𝗵𝗶𝘀, 𝗯𝘂𝘁 𝗜’𝗺 𝗴𝗼𝗻𝗻𝗮 𝘀𝗵𝗮𝗿𝗲 𝘀𝗼𝗺𝗲 𝗵𝗼𝘁 𝘀𝗽𝗶𝗰𝘆 𝗼𝗽𝗶𝗻𝗶𝗼𝗻𝘀. 🌶️ This is not just about Trump, but tariffs are a big mistake. I’m gonna start by playing devil’s advocate and understand the reasoning behind them. This move by the current american government is a rather extreme form of demand-side economic reform. They intend to develop local industry and manufacturing by creating large demand for locally produced goods by making overseas ones more expensive. By making overseas products more expensive, local manufacturers’ production will be more competitive and therefore their demand will increase. That should increase the demand for local workers, which should substantially increase employment and wages. This is the logic behind it. It's not absolutely irrational, and it could work out. If only it were implemented progressively, followed by some sort of investment in local industries and - most importantly - local manufacturers didn't have strong dependencies on overseas products. What do I mean by that? We tend to think of manufacturers in a rather simplistic light. You chop treeds, gather the wood and make a chair out of it. But the products we now rely on are extremely more complicated than that. You need minerals that can only be found in Africa. You need machines that only one company in the Netherlands knows how to make. You need a piece of glass whose highest quality is made in Germany, a software developed by Canadian companies, access to a trading route controlled by Egypt, your population is extremely reliant on consuming caffeinated beverages made of beans that only grow in South America in any decent quality. Etcetera, you get the point. Globalisation can’t be reversed just like that. The world is already too interconnected and developed to return to 1800s trading. Not only that, the whole plan entirely relies on the assumption that other countries will not resort to reciprocal tariffs. The american market is the biggest market on earth, but it’s not the only one. 300m spenders can’t compete with the remaining ~8b. I could have understood the bullying strategy of intimidating individual, smaller countries into asymmetric tariffs. But going against everyone at the same time is the best way to simply being left out of the party. Tons of emerging markets will offset the trade loss with US factories, and establishing tariffs only makes the country less competitive in the global market. Milton Friedman once said “What we do to our enemies during war time is what we do to ourselves during peace time with tariffs”. That isn’t to say tariffs are inherently always a mistake. They’re a tool to change WHO your country is trading WHAT with. If you tariff everyone simultaneously you’re just imposing a tax on your people. The next president will likely reverse all this anyway. So think this for a minute. If you were leading a private international manufacturing business, would you erase decades of work, building interdependent networks of suppliers and clients and trade routes and extremely complicated logistics in order to move all operations to the US? Or would you just wait 4 years for a new administration? Unless you believe Trump will bend the law to give himself a 3rd term, the rational option is to preserve the status quo, weather the storm as best you can and wait for calmer times. A lot of investment money is being moved from the United States to Europe, so they can weather that storm and so they can cover for “what if” scenarios. Consequently, the $SPX500 (SPX500 Index (Non Expiry)) is down, while the $VEU (Vanguard FTSE All-World ex-US) and $SCHF (Schwab International Equity ETF) are up! The Brits regretted voting for Brexit almost immediately after the results came out. The UK is now progressively repairing the damage by rebuilding agreements with the EU so they can get back in, in everything but name. I genuinely believe Americans will regret their decision on this. Before Trump, American voters trusted technocrats not to intentionally ruin their way of life. But now that trust is gone. But why is this happening? I’m no expert and I can’t provide a good answer. But this time I’ll state my opinion: A wave of technology is shaping how people think and react to news. We, as a society, are failing to face this new reality and adapt to the challenges that come with it. Constant dopamine bursts are making people’s brains lazier and less focused. The non-stop bombardment of overly exciting news is making everyone numb to actually important events while simultaneously making them more afraid of everything they don't understand. Content-spreading algorithms are providing unprecedented sustenance to conspiracy theories and blatant propaganda, to such a degree that uneducated voters now exist in a digital Skinner Box that reality hasn’t been able to break through. This is a problem that runs far deeper than just Trump. It’s a global, modern problem. Trump is the consequence of that problem, not the cause.

3 Mentioned

SPX500

VEU

Vanguard FTSE All-World ex-US

SCHF

Schwab International Equity ETF

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