Cromwell

There are two semi-plausible arguments for universal tariffs. The first is that the reconstruction of America’s industrial base is the cornerstone of the Godly Society and will make America more powerful and self-sufficient again; in other words, it is an effort at an economy based on import substitution. The second, less broad argument is that a universal tariff is required to keep China from circumventing levies imposed solely on its products by moving the final stages of product assembly to other countries. In this argument, the universal tariff is a regrettable necessity, not a positive good. Does either hold water?

As I’ve explained before, attempts at autarky inevitably lead to inflation, inefficiency, and uncompetitive businesses. The second argument basically suggests that it is OK to increase the costs of a vast number of imports that have no connection with China in order to hit the ones that do. That is using a sledgehammer to crack a walnut.

Trump 1.0 inherited a sound economy from Obama, juiced it slightly with a tax cut that was supposed to (but didn’t) create an investment boom, and took the credit for everything, at least until the pandemic intervened. Trump 2.0 will also have the benefit of an economy that is the envy of the world, and he will certainly take the credit again. But in one respect, conditions will be different this time.

The bulk of the Trump 2.0 tax cut will just avoid a tax increase baked into the initial legislation. When it has been approved–and it will be–Americans won’t feel anything. Trump’s boasts about the largest tax cut in history will fall on deaf ears.

If he goes for the universal tariff, however, or if he starts imposing levies that jack up the price of vegetables imported from Mexico, the public will feel it immediately.

The handwriting was on the wall. The polls were terrible, and he wasn’t getting any younger. And so, Biden decided to withdraw in the summer of 2023, and to throw his support to Harris.

You might have thought that the result would be a genuinely competitive primary and an outsider nominee, but that did not happen; Harris won over the party very quickly, and her nomination became a formality before the end of the year. Why? Because the Democrats had been united behind Biden–the left was as invested in his record as the center–so it had no viable alternative. The only possible change candidate was someone from the left, but Warren and Sanders were too old, and in any event, proposals for additional spending would have been rejected by the electorate as unrealistic and inflationary.

The bottom line with the 2024 election is that the Democrats lost it when the public decided the economy was much worse than it was during the Trump years. That happened long before Biden’s capacity became a pressing campaign issue. It is of little consolation to the left that the public was wrong, particularly if you throw 2020 into the mix, as you logically should.

Imagine this as the plot for a new Bond movie–the richest man in the world, a ruthless eccentric with an obsession with the letter X and a hearty contempt for common people, uses his vast wealth and his ownership of satellites and a social media company to gain control of the world. His objective is to kill off everyone who doesn’t meet his high standards and to move the rest–the new master race–to Mars, where he will serve as the absolute ruler. Fortunately, 007 stops him just in time.

Sounds kind of plausible in today’s world, right? Except that Elon doesn’t even have complete control of America yet, he hasn’t expressed an interest in annihilating most of mankind, and there is no 007 to save us from him.

Netanyahu is in the middle of his criminal trial. Marine LePen’s is scheduled to start in, I believe, March. Bolsonaro will probably follow at some time this year. Trump’s legal problems have been well documented. Is it a coincidence that all of these people are prominent right-wing populists?

They would say no; they are all victims of a corrupt liberal establishment. How wildly different countries wind up with liberal establishments that behave in the same way is something of a mystery to me. The left would also say no, but ground that opinion in the right’s belief that power, ideology, and the cult of personality override respect for the law. That hypothesis is more plausible.

Trump insisted during the campaign that his tariffs would not result in higher prices because foreigners paid them. As a result, he has done nothing to prepare his supporters for the inflation that is bound to come.

What will he do when prices increase? Will he simply deny that it is happening? Will he threaten businesses for doing what comes naturally? Or will he just order his critics to shut up?

Trump’s cabinet appointments and public statements since the election have given me little new information about his plans for Iran and Ukraine. His comments about tariffs have been all over the place. His “deportation czar” has been forceful, but he hasn’t said anything about building huge camps, using the military for unlawful purposes, denying deportees due process, or violating court orders. But what do Trump’s actions tell us about the likelihood that the state will be mobilized to attack his enemies?

Patel, Gaetz (before he gave up), and Hegseth are exactly the people you would hire if you wanted to unleash the military, the FBI, and the DOJ against the left. All of the warning lights are flashing on that issue. It would be a mistake to assume that liberal democracy is out of danger just because Trump’s appointments to some other cabinet positions are relatively normal.

Roberts sent Trump a clear message that he had better not violate court orders in his year-end report yesterday. This presumably was a response to comments made by Vance over the years to the effect that conservative reverence for the law would have to be selective. Should we be reassured by this?

Two observations are pertinent here. First of all, given Trump’s experience with the law over the last year, including the immunity decision, it is unlikely he will be intimidated by a mere shot across his bow. Second, Roberts, as I’ve said many times, resembles Mitch McConnell, whose barking at Trump has always been much more menacing than his bite. Don’t be surprised if the Chief Justice uses empty rhetorical flourishes to uphold the majesty of the rule of law but gives Trump most of what he wants, regardless of how extreme his agenda is, in order to avoid conflict with MAGA.

I had a strong sense of foreboding at this time last year. The election was bound to be close; anything–a strike, a hurricane, an increase in the cost of eggs or gas, a new Israeli war–could tip the outcome the wrong way. I was walking on eggshells. It was nervewracking.

With Trump in office, on the other hand, 2025 will be the year of known unknowns. Will we go to war with Iran? Will we have universal tariffs and increased inflation? Will we attack Mexico? Will Trump send federal troops to run California? Will we have vast deportation camps in Texas? Will the Russians march into Kyiv? The issues are obvious; the answers are all subject to the whims of the man on golf cart.

One thing is for sure–Trump doesn’t care what I think, so I’m not responsible for it if he runs the country into the ground. That’s liberating, in a way.

Happy New Year!

So the Donald and Elon are bros.

But which one is in charge? Heaven knows!

Their egos will clash.

Elon’s hopes will be dashed

When he sees from which way the wind blows.

Given the tiny Republican majority in the House, the diverging priorities of the GOP factions, and Trump’s capriciousness, it is easy to predict the flash points of 2025, but harder to guess how they will be resolved. With some hesitations, here goes:

1. TAX CUTS: The 2017 Trump tax cuts will be extended in full. Few of Trump’s other promises on the campaign trail will get serious consideration in Congress. More on them in future posts.
2. SPENDING CUTS: CLs in the House will propose drastic cuts to domestic programs, including entitlements, to the dismay of Trump and more mainstream members. In the end, Social Security and Medicare remain untouched, but IRA spending, Medicaid, Obamacare subsidies, and a variety of discretionary programs are cut significantly, albeit not to the extent that the Freedom Caucus would like. The Senate goes along, and Trump signs the bill. Due to the cost of the tax cuts, however, the deficit continues to increase.
3. TARIFFS: Trump throws out proposals for new tariffs virtually every day. No serious attempt is made to enshrine them in statute law. The proposal for universal tariffs is put on hold in order to avoid inflation, but Trump hits Chinese products very hard. Mexico and Canada have no idea what will happen next. Growth suffers as a result of the uncertainty.
4. DEPORTATIONS: Trump continues with his anti-immigrant rhetoric but quietly tamps down the scale of his deportation efforts. Fearing inflation and negative reactions from key supporters, he tells ICE not to deport agricultural and construction workers and only to focus on serious criminals. Family separation and the wall return, however, and Stephen Miller starts working in earnest on vast deportation camps. Trump chooses to ignore court orders enjoining some of his initiatives. A constitutional crisis ensues; it will not be resolved until 2026.
5. POLITICAL PROSECUTIONS: Trump orders the DOJ and the IRS to harass his opponents, but in a way that will not result in much negative press coverage. They comply; the pain is felt primarily by small fry.
6. END OF THE BROMANCE: Due to clashing egos, divisions within the GOP, and the demands of Musk’s other jobs, the Trump/Musk relationship peters out fairly quickly.

It would be absolutely ludicrous to have a debt ceiling crisis with a Congress controlled by the GOP a week or so before Trump takes office. Biden should tell the GOP leadership that he will sign one of two bills: either a clean short-term extension (say, six months or so) that permits the new administration to put its fiscal plans in order before the issue comes up again; or a complete repeal of the debt ceiling. Writing a blank check for Trump after his first few months in office should be off the table.

The GOP has used Carter as the archetype for the well-meaning but weak and ineffectual Democrat since 1980. In reality, he was more unlucky than anything else. Do you really think that George W. Bush or Trump would have handled the Iran hostage situation or rampant inflation better than he did?

The GOP has also portrayed him as a feckless liberal, as opposed to Ronald Reagan, who was determined to cut the cost of government. In reality, Carter was Reagan’s predecessor as a deregulator and added little to the welfare state. You could reasonably argue that, for better or worse, he was actually our first neoliberal president.

That said, Carter had limited political skills and lacked the incisive ruthlessness that the job demanded, which is why the country appeared to be spinning out of control during his single term. He made up for it by being our best ex-president. In that role, he will definitely be missed.

Due to Trump’s affinity for being unpredictable, my level of confidence in my predictions is lower than usual. Nevertheless, here goes:

1. NO IRAN WAR: Trump applies maximum pressure on Iran practically from the day he takes office. The Iranians stall for time; they pretend to negotiate in good faith, while working frantically on a bomb. Bibi pushes for war, but Trump ignores him, insisting that the negotiations will ultimately succeed. The Iranian gambit succeeds; they finish work on the bomb under Trump’s nose, and the landscape in the Middle East changes.
2. GAZA WINDS DOWN: Military action in Gaza diminishes, as there are few obvious targets left for the Israelis. Most of the troops go home. The rest, however, remain as an occupying force. The Israelis demand financial support for the reconstruction of Gaza from America, Europe, and the Arabs, all of whom snort derisively at the thought of indemnifying Israel from the logical consequences of its actions.
3. THE UKRAINE WAR ENDS: Trump cuts off aid to Ukraine but threatens Putin with escalation if the latter doesn’t accept his terms. Putin quite understandably blows off these threats but says he is willing to talk, given the economic strains within his country. The key issue in the negotiations is the nature of the security guarantee given to what is left of Ukraine. Trump refuses to participate in any guarantees, so the Ukrainians have to settle for promises from some, but not all, of the EU countries. Nobody believes the agreement that follows will last long.
4. CHINA RECOVERS: Faced with severe protectionist measures from both the US and the EU, Xi finally agrees to a massive stimulus program, which works. Domestic consumption recovers, and so does the Chinese economy.
5. MACRON RESIGNS: When polls finally indicate that the majority of French voters blame the far right for the prevailing instability, Macron picks his moment and leaves office.
6. AMERICAN IMPERIALISM: Trump takes military action against a country that he considers to be within America’s sphere of influence. Will it be Venezuela, Cuba, Mexico, Canada, Panama, or Greenland? TBD.

There were two–the American election and the Middle East. The first ended with a Trump victory; the second is still up in the air, but as a result of Israeli technical prowess in Lebanon and some unexpected developments in Syria, Trump and Bibi will have an opportunity to redefine the conflict with Iran during the first few months of 2025.

What will they do? Will it be war or peace? Will we have successful negotiations, failed talks followed by an Iranian bomb, regime change, or something else? For my prediction on that issue, see my next post.