Donald Trump absolutely loves tariffs, and you can see why. Part of it, obviously, is mercantilism, but mostly it is because they give him arbitrary power over the entire world. Simply by saying the magic words “national security,” he can force domestic businessmen and foreign leaders alike to come to him and beg for favorable treatment, which he can bestow or not, depending on his whim. What better way exists to make himself the center of attention and to boost his ego, short of a successful nuclear war?
None of that is surprising. What is surprising is the reaction of the markets, which have reacted to the violation of every traditional red line by doing . . . nothing. One has to assume that they have no idea to price Trump’s threats to the international system, so they have just decided to ignore them and focus on the joys of tax cuts and deregulation. How long will that last? Until there is a genuine geopolitical or financial crisis, and then, watch out–his credibility with the investing public, for a variety of reasons, will be zero.