The Reality of Trump’s Economy, Or, Why Americans Are About to Get a Lot Poorer

It’s criminal that I have to write this, but…I’ve rarely seen such levels of willful delusion. So let’s go through a few basics. About the economy, Trump, the “trade deals,” the tariffs, and what the effects will be. Because Americans, bombarded by propaganda, are badly deluded about it all.

Right about now, Trump’s effectively struck “trade deals” putting in place 15%+ tariffs on America’s largest trading partners. This is being spun as a good thing. I’ve heard this, amazingly enough, from people’s financial advisors, and if yours are telling you this, run. Or at least back away slowly.

Americans pay the tariffs. We should all know this by now. Tariffs aren’t revenues paid by, say Europe, Japan, or anyone else. They are owed to the US government, by importers, who usually just pass the costs on to consumers. So let me say it again, because this Delusion Number One: they pay the tariffs! Those dirty foreigners! No, dumbo, you pay the tariffs. But that’s just the beginning.

Let’s talk about tariffs as a “corporate tax,” the spin being that somehow, corporations will eat the cost of the tariffs. The tariff rate is 15%+. The average profit margin of the S&P 500 is about 12%. Does that give you an indication of why companies don’t eat tariffs? Because this is what we see historically: they’re passed down the line. Now you can see why.

If companies “ate” 15%+ tariffs, the average company in the S&P 500 would be bankrupt.

And those are the most powerful companies in the world. The everyday mom-and-pop business has far less ability to eat tariffs.

So. Delusion Number Two: companies are going to eat the tariffs! It’s a corporate tax! Wrong, dumbo, you’re going to pay the tariffs, because it’d bankrupt even the S&P 500.

Now, that little thought exercise matters, because it’s about to become reality.

See the S&P 500 soaring to new heights? That’s Delusion Number Three: Trump’s Winning the Trade War!! Quick, remortgage the house and buy some shares!! Dear Lord, please don’t do this. Just think about the above with me.

The tariff rates are so high that they’d bankrupt the S&P 500. Following along now. If that’s the case, then this stock market rally is about to collide headlong with reality. Because at some point, these companies, which’d go broke if they ate the tariffs, will pass them along. And then they’re going to see profit margins shrink. Because when prices go up, demand goes down. And when that happens, this market rally is going to be revealed for what it really is: a bubble, blown by Trump’s powers of seduction.

A lot of people are going to lose a lot of money. And they won’t know what hit them, which is why I just explained it to you with crystal clarity.

How much damage are we looking at? That brings me to delusion number four: the tariffs are a stimulus for the economy? This one may be the most bizarre of all.

American households are at the brink. 70% of people live paycheck to paycheck, can’t afford an emergency, etcetera—the litany of statistics is too long and well known for me to recite all over again here. Suffice it to say that living under chronic financial stress is the American Nightmare that replaced the dream.

Now imagine that prices go up by 10%. Because remember, Trump’s tariff rates are 15%+ on all major trading partners. And America imports most of what it consumes. So let’s say that corporations eat 5%, and even tank their own profit margins, which causes a stock market crash, and then “only” raise prices by 10%.

How much does that shrink demand? By more than 10%. Because of course when people are already stretched to the limit, they can’t afford it. This is known as the “elasticity of demand,” and in America’s case, it foretells an economy where people already on the brink can’t bear prices rising higher, and so demand shrinks disproportionately more. And what does that do? It causes corporate earnings to shrink even more, which makes stock prices sink further, and then we’re off to the races, because now it’s a vicious circle.

That brings up Delusion Number Five. If we win this trade war, we’ll rule the world! Make America Great Again!! Nobody wins trade wars. Nobody. All that the above will do is shrink the world economy. But America will be hurt the most. As I’ve shown you, Americans pay the tariffs, one way or another. But it goes deeper than that still.

Because as all the above comes to pass, what happens? The world stops trusting America. Even more so than now. America’s institutions aren’t seen as credible. Its leadership is a joke. Its hostility to the world doesn’t go unnoticed. And as that happens, investment dries up, the dollar continues sinking, American bonds lose their value, and so on. Finance in the end is just a reflection of trust, and what’s happening in America today is the opposite of trust: risk.

The world will be hurt, sure, by America suddenly raising all kinds of foolish trade barriers. But nobody will be hurt more than America. Because America isn’t just the world’s largest market, it’s also the world’s largest destination for investment. And if you think the world is going to want to invest in a country which deliberately tanks its own economy, shrivels up its own demand, sows chaos in its own stock and bond markets, and devalues its own currency, think again. Only a very, very foolhardy investor would make that choice.

So. Five delusions. What am I trying to teach you here, really? Not just finance. and economics, but also sociology, psychology, and history. America is delusional about all the above at the moment. It’s happened before. Even in recent history. Brexit was built on just such delusions. But economics has laws. They can’t be bent, no matter if your Fuhrer is the New Zarathustra. They obey no iron will. They just are.

When a President seduces a nation into buying stocks so much that the markets soar to dot-com level heights…on tariffs…high enough to bankrupt the S&P 500…something is very, very wrong. This is euphoria, mania, and psychosis, all in one. It is delusion at a social scale.

I recommend staying far away from it. Talk to your finance guys about it, and if they don’t have anything to say, except giving you a kind of dopey grin and telling you there’s nothing to worry about, and the hairs on the back of your neck stand up at that precise moment? Then, my friend, you are the only one in the room who’s thinking clearly.

As always, feel free to reach out if you need help or advice.

Lots of love,

Umair (and Snowy!)