Since President Trump’s inauguration — is it really still less than the first 100 days — there has been much talk of tariffs. Trump has threatened them, imposed them, modified them, and removed them. New concepts — such as “reciprocal” tariffs — have flooded the space.
Tariffs are in play, baby.
Here’s a link to the Federal Register where you can look up all of President Trump 2.0’s Executive Orders. Federal Register
Trump 2.0 has made tariffs into a sharp-edged weapon. And, yet, we are still only in the early innings.
But, but, but, Big Red Car, what’s really happening?
What is really happening? Some context first, shall we.
1. Tariffs — customs duties paid on foreign goods entering the United States — are imposed solely on goods we import into the United States from foreign countries.
2. Tariffs can be country or commodity specific — all goods from Mexico v all aluminum imported into the US from anywhere. Certain things can be excluded.
3. The US economy — as measured by Gross Domestic Product, the total value of all finished goods and services produced in the United States — is approximately $29.37T based on annualizing Q3-2024 results. I like empirical data more than projected data.
4. Of that $29.37T:
$3,191.6B or 10.87% is exports from the US to foreign countries <<< outbound
$4,110.0B or 14% is imports from foreign countries to the US <<< inbound and potentially tariffed
$5,200.0B or 17.7% is US government spending <<< this is the ignored elephant in the room in these discussions
$159.6B or 0.5% of GDP is US government spending exports <<< outbound
$728B or 2.5% of GDP is US government spending imports <<< inbound and potentially tariffed
What you can conclude from the above is that we have an imbalance in exports v imports. We import more than we export and that “trade imbalance” totals $918.4B or 3.1% of GDP.
Also, government spending dwarfs imports or exports.
Come on, Big Red Car, tell me what I need to know already, sheesh!
OK, dear reader, here it is:
1. US imports subject to tariffs (including retalitory tariffs) are a very small number at 14% of GDP.
2. Government spending at 17.7% of GDP is substantially larger than imports. And nobody ever talks about this.
Keep going, Big Red Car, I think I undersand that
OK, here’s a little more.
1. One of the reasons why tariffs will have a negligible impact on inflation is imports are a small percentage of overall economic rigor at 14%.
2. Even with this fairly small 14%, re-shoring (moving manufacturing back to the US from foreign locations), friendshoring (moving manufacturing from enemy territory to friendly territory and thus not subject to tariffs), and alternative suppliers (domestic suppliers or Vietnam v China) not subject to tariffs will further blunt the impact of tariffs and thereby dampen inflation.
A strong USD and weaker foreign currencies will also blunt any impact.
3. Government spending is the ignored elephant in the room — Trump/Musk are going to cut the Holy Hell out of government spending. There is talk of a balanced budget during the term of Trump 2.0.
Read that again, amigos: There is talk of a balanced budget during the term of Trump 2.0.
This talk of actually cutting government spending such that the “print” of the US budget is a lower number than last year — not just a decline in the rate of the growth of spending — is completely uncharted territory for our political leadership and the economy. This is a bloody moonshot. There is nobody on the planet who has any experience with this.
OK, Big Red Car, bottom line it, this is exhausting
OK, dear reader, here it is:
1. US tariffs on foreign goods are not going to result in meaningful levels of new inflation. Nope.
2. Government spending — which should not be counted as part of GDP anyway — is the elephant in the room and it is going to come down under Trump/Musk. [Is this embarassing to VP JD Vance to say, “Trump/Musk?” Who cares? The guy is a bloody US Marine. Buckle up, buttercup.]
I am feeling very good about our near term economic prospects. It will take 6-9 months, but that substance dripping off your chin? Gravy, baby. The gravy train is coming.
But, hey, what the Hell do I really know anyway? I’m just a gravy train Big Red Car. Watch some damn hoop today. You’ve earned it.