WHAT IS TRUMP DOING? 3d short answer: i dont fucking know. unexplicable Potus has targeted the trade deficit during the campaign, highlighting tariffs has the way to 1) raise indirect taxes (on consumers) to cut direct taxes 2) re-shore manufacturing 1/n

3) as a tool to deal with border control/immigration 4) as a tool to limit fentanyl import 5) as a tool to show his negotiating power on every other issue that comes to his mind (feel free to add) Lets talk the important point aka 1) and 2) and 3), the rest being propaganda 2/n

Point 1): without any shadow of a doubt any tariffs is paid by american consumers. Technically the US importers have to pay the tax "at the border" to a Government agency (External revenue service aka ERS). Assume a flat 10% tariff on any imprted good. 3/n

How much is the US consumer going to pay? It depends by many things, but in essence a) how much is the dollar appreciating vs the exporter currency (assume 4% in this case) b) how much the importer is gonna slash his profits to compensate the tariff 4/n

Importers work with very low margins. So lets assume the absorption is limited to 1% c) how much the exporter, subsidiazed or not, is gonna slash his profits. Lets assume 2% So a tariff of 10% will have a pass through of only 3%, aka 30% 5/n

High or low 3% pass through might be, it is inflationary vs no tariffs. period. The pass through obviously depends on other macroeconomic conditions (expansion, recession, employment) The better the economy the higher the passthrough 6/n

The so called ERS would have collected taxes on all imports In '23 US imports of Goods and services were 3.8trn. So retrospectively 10% on '23 imports would have collected 383bn In 2023 all taxes collected by US treasury were circa 4.4trn of which 2.2trn were income taxes. 6/n

So 383/2.200=18% income tax cut, at same deficit of no tariff situation Clearly there would be distributional consequences to take care of when allocating tax cuts, or tariff would risk be regressive 7/n

Needless to say than a much higher tariff (25%, 60% or whatever) would be much more difficult to manage by exporters, importers and consumers 2) RE-SHORING Manufacturing Companies take investment decisions when the conditions are stable. 8/n

Rule of law, taxes, regulation and so on, must be non-volatile in a decent investment horizon (5-10yrs) Investment decision entails front-end capex with multi-year amortisations of plants 9/n

If the regulation is volatile you simply dont go, as you risk your investment becoming a stranded asset Clearly manufacturing needs qualified labour force. No labour force no investments. Alternatively you might automized everything, but then little employment effect 10/n

MY THOUGHTS ON TRUMP ERRATIC BEHAVIOUR ON TARIFFS So far Trump spoke a lot about tariff. But no tariffs were enforced. It was "wax on, wax off" SO ON POINT 1) (raise indirect taxes and inflation to cut direct taxes), NADA, ZERO, NUNCA. 11/n

Hence any the tax cut will have to be done in deficitor thx to Doge ON POINT 2) (re-shoring) In order for tariffs to cause re-shoring, they have to be a) permanent b) high enough in order for tariffs not to be neutralised partially by the effects described above 12/n

c) there has to be "capacity" in the tariffing country aka the USA. Enough internal demand, supply of investment goods (you cannot import them, due to tariffs), labour force, credit. In essence you need high demand, and slack of resources A highly improbale scenario 13/n

GDP growth in the USA is circa 2.5%/3%, Inflation is 2.5%/3%. The USA is in full employment at 62.5% participation rate AND POINT 3) of the first tweet, Trump has restricted immigration 14/n

So if i am a manufacturer i would have to go to the USA and pay labour force substantially higher than in any other country. Like 30US$ an hour vs 7$ in mexico And maybe more, as there is no unemployment in the USA at the moment 15/n

But wage growth would be inflationary, and would add up to tariffs caused inflation ALL IN ALL no tariffs have been enforced so far. And 10% to China is peanuts for them considering the "overcapacity of everything" China has So Point 1) and 2) are not gonna be achieved 16/n

BUT more important, point 1) and 2) are colliding If you have re-shoring, you have no tariff income So for now Trump has just caused a massive policy uncertainty, which will slow down investment and spending decisions 16/n

SO I DONT GET TRUMP But probably, he doesnt get himself either 17/17 @ThManfredi @CrossWordsCW cc @AndreaRoventini @MarastiMattia @jeuasommenulle @degiorgiod

ADD ON Usually tariffs are temporarily used in emerging economies which needs industrialisation (they have slack) to protect their newly born industries That is why they worked in the USa during McKinley In other cases like UK textile industry, or Smoot Hawley act in USA 18/17

where Supply Value Chain were altready specialised and international, they caused bankruptcies of the industries in the tariffing country (UK), or the great depression in the USA just saying.... 19/17 @ChristosArgyrop

ADD ON #2: FINANCIALS The other side of the coin of the trade deficit is that exporting countries receive dollars And they recycle dollars in the USA tresury market That is why the USA can finance itself at decent costs 20/17

Therefore any itnterpretation of Trump actions as the begining of a de-dollarisation would imply 1) that the USa goes bust coz nobody would be buying Tbonds or 2) that the USA becomes Japan, balcanising its bond market 21/17

IMHO it is unlikely that the USA decides a drastic contraction of internal consumptions hence a lower trade deficit, and then gives up the dollar (NB Trade deficit was there in the USA even in recessions thx to credit by banks) Maybe that is the dream of bitcoiners 22/17