Stock and Bond Holders Are Elated, but Your Piggy Bank is Tariffied by Inflation

Stocks today soared (Dow up 500) because Trump landed some “massive” tariff deals. The reason they soared, however, appeared to be because the deals were not nearly as massive as Trump had said he was seeking. Still, the idea of flying high over damages done is ludicrous; but so be it in a stock market that today’s headlines also say is almost totally run by AI these days, which is now driving and reprogramming the algorithms that have been largely running the market for the past few years.

The bond market must be trading on such algos, too, because the US Treasury just landed a stellar auction, never mind that Treasuries are doomed by tariffs, but just don’t seem to have fully figured that out yet. Maybe that is just because the AI algos are all told to game the markets and each other, not try to figure out where profits and interest will be going due to natural market forces and things like inflation, where the news looks far from promising for stocks, bonds … or piggy banks.

Things looked less tariffying today

I recommend this video rant: Gregory Mannarino gives the truth on tariffs, starting at 6:15, where Mannarino asks how are 15% reciprocal tariffs a Trumpian deal? These are the acts of a desperate man, he says, looking for optics on his tariff trades just so he can finally say deals are happening. “15% reciprocal tariffs” just means both nations agree to tax their citizens 15% on any merchandise from the other country. What does that get us other than we all pay more taxes, AND we all buy less from each other so all have smaller economies? The stock market was elated, though, because previous deals looked like things could have been a lot worse, which is why Mannarino says Trump must be getting desperate.

For example, on Trump’s big deal just struck with the Philippines, we pay an import tax of 19% while they pay no tariffs on our stuff. In Trumpian logic, that is a better deal. Our goods get no tariffs applied to them, and we supposedly make more tax revenue from the Philippines because we’re charging 19% on their goods, not just 15%. In Trump’s view, higher US tariffs also mean we’ll be buying a lot less stuff from the Philippines while they, with no tariffs on US goods, will be buying more stuff from us.

In the Trumpian view, they pay our tariffs and fill our tax coffers by adjusting their prices down to compensate for the charged tariff as a way of making it so we can collect taxes that none of us wind up having to pay for because we negotiated the tax payment back out of the cost of goods. That is total bunk, but we’ll get to that below.

Trump’s “massive deal,” as it was billed on Truth Social, with Japan, Mannarino says, shows president Trump is finally reaching the boiling point where he’ll take anything just to close deals and be done with it all. The deal with Japan was far from the kind of one-sided bargain that Trump has boasted he is pushing for. (Trump had previously threatened a 24% tariff on Japan beginning Aug. 1.) More importantly, in terms of Trump’s stated goal of rebalancing trade deficits with one of our primary trading partners, this deal doesn’t throttle down on our imports from Japan while keeping their imports from the US wide open. Because it throttles down on both nations equally, it does nothing to change the balance of trade.

Here is a snapshot of other tariff takes

• Bloomberg says: “GM Profit Falls as Trump Tariffs Add $1.1 Billion in Costs”

• Bloomberg also says: “US Companies, Consumers Are Paying for Trump's Tariffs, Not Foreign Firms.”

• Money Talks News says: “Study Projects Trump Tariffs Will Cost Families $2,400 Annually.”

In Trumpworld where chaos is king, Trump also just threatened to raise US tariff rates against Canadian products to 35% and to raise the ‘universal’ baseline rate for everyone from 10% to 15% or 20%.

Will the universal baseline be added to all of the tariffs? So far, that appears to be the way. Where I’ve seen that clarified, the negotiated tariffs are added to the baseline. That is what makes it a “baseline,” I guess, rather than just a starting point for negotiations: “Here’s the universal base for all trade; whatever we negotiate with individual nations gets added on top. Some may get zero added. Some may get 30% or more added. It depends on how much we love or hate you.”

Now let’s get to the nonsense about other nations paying for US tariffs because we finally have some pure facts about what is actually happening, instead of just opinions and logical deductions about how things work. Just the facts:

Now we KNOW who pays

The most helpful headlines to come out today were a couple of articles that evaluated who is actually paying for the tariffs now that some have been in place awhile. The articles broke down exactly what’s happening so far, and the news in a nutshell is that, wherever tariffs have been finalized, there is almost no evidence of exporters in other countries lowering their prices to offset the US tariffs (in that sense paying for the tariffs, themselves, via price adjustments they take on the chin).

Not happening!

If foreign exporters were absorbing the cost of tariffs, U.S. import prices would be declining in proportion to the rise in the tariff rate. Yet, nonfuel import prices, which exclude the cost of tariffs, rose 1.2% year-over-year in June. The dollar's slide has likely incentivized foreign suppliers to bump up or hold the line on their invoice prices. With little relief on import prices, domestic firms are stomaching the cost of higher tariffs and starting to pass it on to consumers.

Instead of foreign nations lowering the prices of their goods, they have slightly raised their own pre-tariff prices. Why? Because one of the other things I warned of with tariffs is that they will weaken the dollar by diminishing its needful utility for trade, which reduces the global demand for dollars. A weak dollar means it takes more dollars to buy the same foreign product, so where products are priced in dollars, the manufacturer is “incentivized” to raise its price because those dollars are no longer worth as much in his/her country. So, just as I warned, we are not only paying more for the imported goods because the tariff gets added to the price on our end, but we are also paying more because trade wars are devaluing the global trade currency—the US dollar.

The other article gives more detail:

There was a lot of news on the inflation front this week. The Consumer Price Index and the Producer Price Index both showed that inflation is accelerating in categories that are exposed to the Trump Administration’s tariffs including furniture and appliances….

The Import Price Index measures prices when imports arrive at the border.

“And so, it happens before there [are] any taxes and fees applied to it through customs,” said Meagan Schoenberger, senior economist with KPMG.

Schoenberger said that can show how tariff costs are shared. That’s because a foreign company that exports to the U.S. might decide to lower its prices if it’s worried that tariffs will make its products too expensive.

“The foreign exporter doesn’t want to lose their whole market, so maybe they start discounting,” said Schoenberger.

But that hasn’t really been happening recently. Import prices actually rose a little in April and May. [Although] the price of certain imports from China, for instance, have fallen some.

“But when you look, especially if we focus on items from China, the overall increase in tariffs has been far, far, far larger,” said Jason Miller, a professor at Michigan State University. [Yes, the increase in tariffs has been far, far, FAR larger than the decrease in foreign prices.]

Which means foreign exporters aren’t absorbing much of the tariffs at all. American importers are. That’s why the Import Price Index can be an early indicator.

“Because if we’re not seeing substantial declines in that [import prices], then we know ‘OK, if there’s a 10% tariff on these goods coming from Europe, that’s telling me U.S. importers are paying more,’” said Miller.

Which means businesses and consumers will too.

More chaos

Everyone has been having a hard time making sense of Trump’s all-over-the-board tariffs, which are turning out like Bill Bonner described:

POTUS can tariff individual countries — giving different rates to different nations. He can also target individual industries...regions...and like the bills of attainder that the US constitution tried to avoid...he can single out specific products and individual companies.

NakedCapitalism: Washington just imposed a 17% tariff on US imports of tomatoes, almost all of which come from Mexico. As Bloomberg notes, the move comes just days after Trump unveiled plans to impose a 30% tariff, beginning Aug. 1, on many Mexican products that don’t fall under the USMCA agreement he negotiated in his first term.

So, we have 15% tariff with Japan, which is a major trading partner, but are looking at twice that level with Mexico and 35% with Canada with whom we already supposedly have something we supposedly call a “free-trade agreement.” Yet …

• U.S. exports to Japan in 2024 totaled $129 billion while U.S. imports from Japan were $192 billion. That is a trade deficit of -$63 billion.

• U.S. exports to Canada in 2024 totaled about $349 billion while US imports from Canada totaled around $412 billion. That is a trade deficit of -63 billion.

So, we have exactly the same trade deficit with each nation, though a much larger volume of trade with Canada, yet Canada, which is our bigger trade partner and very close neighbor, is going to have more than double the tariff applied on the products and services it provides to the US. Clearly the tariff level has nothing to do with the size of our trade deficit that needs correcting because with nearly 2-3 times the trade volume with Canada, yet the same small trade deficit that we have with Japan, there shouldn’t be any reason to clobber Canadian goods harder than Japan. So, what gives?

Oh, I know: remember Trump’s threat that he would take over Canada and use economic means to do it? Trump also tried to tantalize Canadians with the reminder that they would have no tariffs at all if they were simply part of the US (because the US constitution does not allow interstate tariffs). This is that now playing out. Apparently, the Canadians are not rolling over, so they are going to have to have tariffs that are more than twice as high as Japan’s applied to their goods as they enter the US, diminishing their sales to the US as punishment for not joining the Union.

But, then, why 30% in Mexico, too? Well, for one, they are part of the same “free-trade agreement;” so, that could be it; doesn’t pay to have recently negotiated a free-trade agreement, I guess … or 2) maybe we secretly plan to take over Mexico, too, so that we can have just one United States of North America, taking ownership of the full Gulf of America, already renamed with that in mind. (I’m surprised it wasn’t renamed the “Gulf of Melania,” as Trump is now trying to do with the Kennedy Center to create a present for his bride. Ah well, something for next year’s birthday, or maybe for Ivanka down the road.)

Still, there is more chaos to come. In our headlines yesterday, Trump’s Suckertary of Commerce, Howard Lunatic, said that all of this goes back up for negotiation with Canada and Mexico next year (and this year is already half over) because that is when the US-Canada-Mexico trade agreement comes back up for renewal. Given that we are clearly renegotiating the last deal anyway with new sucker tariffs based on our desire to acquire the State of Canada as our own, I don’t know why either nation should negotiate with us at all … as the deals seem to mean nothing and get trounced all over before they expire.

Of course, it is that they need the trade, or they’d wipe their feet on the welcome mat and walk away. (OH, they kinda did; not much summer travel this year. That’s Canada walking.)

Talk about endless bludgeoning just for blood sport. Most Canadians would die in battle before they’d agree to the US taking over Canada. I’ve known a lot of Canadians, as a person who spent a lot of his life living near the border, and I have never met one yet who wanted to renounce his/her citizenship in order to become American. My sense is that they clearly regard themselves as a little better than us and have no desire to join the American rabble. (My sense is we generally regard ourselves as better than them, too; so, if Canada said it was going to appropriate the entire United States into Canada, I’m pretty sure we’d man the battle lines to prevent that from occurring. Not sure why Trump fails to realize they would do the same.)

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