T-Day

By Michael Every of Rabobank

“I have also to announce to Congress that during the night and the early hours of this morning the first of the series of tariffs in force upon the European Continent has taken place. In this case the liberating assault fell upon the coast of France. An immense armada of upwards of 4,000 tariffs, together with several thousand smaller tariffs, crossed the Channel. Massed airborne tariffs have been successfully effected behind the enemy lines, and tariff landings on the beaches are proceeding at various points at the present time… The Americans are sustained by about 11,000 first line tariffs, which can be drawn upon as may be needed for the purposes of the battle. I cannot, of course, commit myself to any particular details. Reports are coming in in rapid succession. So far, the Commanders who are engaged report that everything is proceeding according to plan. And what a plan! This vast operation is undoubtedly the most complicated and difficult that has ever taken place. It involves tides, wind, waves, visibility, both from the air and the sea standpoint, and the combined employment of land, air and sea tariffs in the highest degree of intimacy and in contact with conditions which could not and cannot be fully foreseen.”

Apologies to Winston Churchill for misusing his report.)

Ahead of that last-second US decision, last-minute countermoves are being made. Israel (where not much work was needed) and Vietnam (where more was) have both cut all their tariffs on US goods in the hope of a better outcome, and India is reportedly considering the same. Europe (and Canada and Mexico) are instead preparing to fight back, the former even floating escalation into new areas like services and tech that will surely guarantee a furious US response.

The Wall Street Journal hopes tariff clarity today will calm markets, and that’s the White House view too. However, then we all have to wait and see what happens re: counter-tariffs, which seem inevitable –Europe is talking in suitably Churchillian terms again– and then what the US does in the trade space in response, and outside it to those who don’t see trade is now connected to things like US security umbrellas. In short, we need to quote Winnie again: “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Yet while D-Day was a very brave and uncertain exercise, the underlying dynamic of US and Soviet military production vs. German and Japanese made the ultimate outcome of WW2 inevitable, just as the ideological split between the US and the Soviets would always then split the world in a different way afterwards. You can’t focus on just one front, no matter how dramatic, but always need to see the entire theatre of operations.

Place US tariffs in the context of a ‘grand macro strategy’ to retain global hegemony as it is now massively outproduced by China, which is allied with Russia and Iran, and you can again see the risks: global bifurcation that makes any one US tariff like a pebble on a Normandy beach.

Economic models that project the rest of the world trading more with each other in the absence of the US market are just that – models. The actual world economy will not work like that. As such, if the US goes it alone today, it implies certain uncertainty; and if it tries to lever others to join it against China, it implies different but equally certain uncertainty. That’s as:

• China just rehearsed encircling and blockading Taiwan again with more ships and jets. Recall the US Department of Defence memo leak said this is now its national security focus. Europe’s Von der Leyen, talking about fighting on the beaches vs the US tariffs, said nothing, but has spoken
• US National Security Advisor Waltz, with the Signal scandal still swirling round him, is accused of conducting government business over his personal Gmail account. Is this a shotgun to his own foot, again, or friendly fire? How much longer will Waltz be around, and who might replace him if he goes?

Even the current data are uncertain. After yesterday’s US ISM data showing weak new orders and employment and a surge in prices paid, the Atlanta Fed now sees US GDP in Q1 at -3.7%. It’s not as bad stripping out recent gold imports, or all the other imports surging into the US to front-run tariffs. But it isn’t good.

Once again, central banks have no idea what to do and are clearly just hoping for the best. The Fed’s Goolsbee warned about a slowdown in consumer spending and business investment due to tariff uncertainty, which he sees may have a longer-lasting impact on prices than expected due to retaliatory tariffs and their effect on intermediate goods. That sounds like a long way to say “stagflation.”

Meanwhile, Eric and Donald Trump, Jr. launched a Bitcoin mining firm and talked crypto up. Is this all-American speculation, Trumpian grifting, or a signal on a future US policy pivot towards a neutral reserve asset? Moreover, gold prices hit a new nominal record high of $3,133, up 37.5% over a year in which some were/are still thinking about “rate cuts!” If that doesn’t underline the structural uncertainty we are dealing with, not a lot does.

Let’s finish by paraphrasing Winston once more: markets are drunk on uncertainty today, and tomorrow they may be sober, but the global backdrop will still be ugly.

Allow me to add: “By diligent effort, they must learn to like it.”