It is clear that our trading partners aren't the only ones scrambling however. Business owners in the US are treated to almost daily headlines that create panic for any owners who rely on trade with China, Canada, Mexico, etc only to have those announcements rescinded as soon as the target countries capitulate to the threat. Some supporters of this erratic use of the tariff cudgel will say it's working since many trading partners have already caved however, those were easy targets.
Once the tariff trigger is actually pulled however, retaliation becomes problematic.
Change is hard in general but, correcting long-standing trade imbalances is a desirable outcome if that's what the new policy produces. But, does it? Will it?
"During his first term Trump negotiated the U.S.M.C.A. with Mexico and Canada, a free trade zone covering the U.S. and its neighbors. He is now attempting to change the rules of it. But the way he does so is inconsistent."
Business owners cannot adjust their entire operating model as quickly as Trump can sign pieces of paper though.
"A one-month exemption is a joke. It takes years to move parts production from one country to another. There are hundreds of companies in Mexico, Canada and the U.S. which make the myriad parts that go into a car. It is an completely integrated industry which took years to build.
U.S. car manufacturers had trusted that U.S.M.C.A. would hold. Should the tariffs apply anytime soon they will have to increase their prices by hefty margins or halt their production."
The fact is that any longer-term use of punitive tariff's will cause major disruption to our economy because the actions necessary to make adjustments is akin to turning around a supertanker on a dime. It simply doesn't work that way.
"Donald Trump is engaging in wider tariffs, which could bring the US economy back from the brink of debt disaster, but only if he is able to somehow accelerate domestic production at the same time. If he is unsuccessful, the US consumer will be left with mostly foreign-made goods and all those goods will be more expensive."
American consumers are already dealing with significant stagflation pressures and those are in turn affecting their spending as we can already see.
Target warned: "In light of ongoing consumer uncertainty and a small decline in February Net Sales, combined with tariff uncertainty and the expected timing of certain costs within the fiscal year, the Company expects to see meaningful year-over-year profit pressure in its first quarter relative to the remainder of the year."
Small business owners are optimistic on paper according to confidence statistics however they're also not hiring, they're firing.
"Oddly, as we noted above, job losses were concentrated in Small Businesses... (we say oddly because we have seen Small Business Optimism explode higher since Trump was elected...)?"
"So, to sum things up:
Small biz optimism is thru the roof... but small biz see the most layoffs.
...and policy uncertainty is cited as the reason for weakness BUT manufacturers (which is where all the uncertainty is) added the most jobs since Oct 2022..."
"In January, the Bidenomics hangover weighed on consumers. New data showed that car owners defaulted on their monthly payments at the highest rate in over three decades.
Bloomberg reports that the share of subprime auto borrowers at least 60 days past due hit 6.56%, the highest percentage since Fitch Ratings began collecting data in 1994."
Some officials at Treasury are already saying the quiet part out loud: Things will get better...after the recession!!
"... US consumers had no choice but to max out their credit cards in order to "extend and pretend" their moment of purchasing greatness, or as we called it three months ago, their last hurrah (see In "Last Hurrah", Credit Card Debt Explodes Higher Despite Record High APRs As Savings Rate Craters), a hurrah that would last very briefly as it was only a matter of months if not weeks before said cards were denied.
One month later, that's exactly what happened, when to our surprise, revolving credit cratered at the fastest pace since the covid crash, contracting a whopping $13 billion, an event which for a country that lives on debt - literally - is unheard of outside of a recession."
Business owners are now facing economic conditions that require them to adjust their models quickly and that's not always possible. Even when it is, there's no assurances that the conditions the adjustments were intended to address won't change suddenly once again rendering them useless. There are no easy, one-size-fits-all solutions to the conditions we're in now or especially those that will be coming soon as this clusterf**k of foreign policy decisions collides like a supernova with the death star of big government and their decades of legislative overreach and abuse. There are signs that some things are headed in the right direction however timing is unknown and probably will take a lot longer that most of us prefer.
Here are some of the interesting links I saw last week:
"The U.S. Small Business Administration (SBA) will relocate six regional offices, including Seattle, Atlanta, Boston, Chicago, Denver, and New York City, from "sanctuary cities" that do not cooperate with federal immigration enforcement, according to MyNorthwest."
"The carbon price in EU ETS2 could hike costs for road transportation by 27%, while bills for home heating could spike by as much as 41%, BNEF’s analysis has found. “Ambitious targets and high costs risk making households and small businesses the losers,” the report reads."
"The SBA is also relocating offices in six sanctuary cities, per the press release, including locations in Atlanta, Boston, Chicago, Denver, New York City, and Seattle. The new locations will be less costly, more accessible, and located in areas that "better serve the small business community and that comply with federal immigration law,"
