- Aug 20, 2010
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I think people can be excused for thinking that the candidate who has declared bankruptcy 6 times is probably not going to be the one to stumble upon a novel way of handling the economy.1. The American market is lucrative. For context NVIDIA, an American tech company is bigger than the entire economies of Germany and Italy combined. California is marginally smaller than the Japanese economy and would be the fifth or sixth biggest economy in its own right. Many exporters will happily eat tariffs because the profit is still worth it.
2. Tariffs will allow some local suppliers to spin up and compete. This will mitigate some of the supply issues (the most relevant market for this would be EVs, Tesla will suffer significant market share loss to Chinese car makers without tariffs).
3. If the tariffs don't work, it'll be abandoned before taxes are hiked id think.
4. Inflation isn't just supply and demand of goods and services. Wittgenstein's Ruler applies. If the federal reserve elects to reduce interest rates and engage in quantitative easing, seignorage and expansion of the money supply will mean a general increase in cost of goods across the board regardless.
If the federal reserve adopts a hawkish monetary policy with rate hikes, theres generally a contraction of the money supply as it becomes too expensive to borrow and investors park their cash in bonds and tbills rather than goods/service based investments. Consumers also spend less as repayment on mortgages increase. Inflation falls like a rock under this scenario.
What Trump is proposing (both tariffs and tax hikes) has wide ranging ramifications for the economy affecting many of the indicators the federal reserve uses in its monetary policy decision making. It's difficult if not impossible to fathom where things will go. My point is that no one can predict this with any level of confidence.