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Who benefits from Trump's tariff wall?
Ian Bremmer's Quick Take: A Quick Take to kick off your week and what a week it is going to be. An extraordinary downturn in US and global markets. The reaction to 'Liberation Day' where American citizens will be liberated from the highest performing economy in the world. Now, globalization, of course, is what is being undone here by the United States. The US benefited massively from globalization, from cheaper goods and services and capital and people moving more easily across borders all over the world. But the fact that the United States economy as a whole benefited did not mean that the average American benefited. They did not. And indeed, while the top 10% did much, much better in the US over the last 40 years, the top 1% even better, the top 0.001%, not only extraordinarily well, world leading well, but also had the money to capture the US political system and ensure that the policies were exactly what they wanted.
And that has led to a massive backlash in the United States where most voters no longer support free trade. Most voters no longer support collective security. Most voters no longer support US leadership on the global stage. They voted in Trump, and Trump is giving them what they voted for, which is a "tariff wall" around the United States that at least for the first few days, he is not backing down. And the implications of that are going to be significant destruction of wealth in the United States and in markets all over the world. And you saw it this morning, Hong Kong, Hang Seng down 13%. Other markets across Asia down 6%, 7& to 10%. The Europeans now following suit, though not quite as dramatic and same in the United States with the opening for the Dow and the Nasdaq. Now, look, I'm not a market watcher. I'm a political scientist.
As a political scientist, what I find very interesting here is this fight between "Deep MAGA" and "Dark MAGA." And Deep MAGA being the people that really do believe that the US has not represented them for a very long time. And what they want is a fair shake from people that are more representative. They want the ability for working and middle class to have better lives and not be taken advantage of. They want non-predatory policy domestically. Dark MAGA, globalism, free trade, and capturing the policies of a smaller state that do their bidding. And this last weekend has been a repudiation, at least tactically of Dark maga by Deep MAGA. This was the fight you saw between Elon Musk and who runs DOGE, and this happens to be the richest man in the world and the second most powerful heretofore in the Trump administration. And Peter Navarro, who is trade and manufacturing counselor for the White House and nowhere near as powerful as Elon, and yet told Elon to stay in his lane, said, "You're interested in selling cars, and what we are doing is making America great again."
Navarro's not in a fight with Elon to be clear. Navarro is supporting a policy that he knows Trump wants. And so Trump has decided that on this one, which is the most impactful policy he's put in place globally in this or in his previous administration, that he is decisively going against the globalists and he's going in favor of using American power to have manufacturing and capital in the US. Now, nevermind the fact that this is going to take a long time. That if it were to work, and if it were to work, you'd want it to be consistent. You'd want to build up American reputational capital. You'd want rule of law to be strong. You'd want people to think that they could come to US universities and prosper, that the US would be the most attractive place to send their kids to have jobs, and Trump isn't doing any of those things, so that's a problem, right?
The fact that the US is making itself less attractive as a destination and less predictable as a destination really undermines US putting massive tariffs on highest you've seen in over a hundred years to make other countries pay. But politically, what Trump could benefit from doing here is actually leaning in against the globalists. In other words, if he were to say, "Yes, this hit to the markets is a feature, it's not a bug. Portfolios, they're going to get hit. And the rich people that have benefited on the backs of the average Americans, I don't care if they don't make a lot of money. Just like the foreign governments that have been taking advantage of American free trade policy," which is overstated. But nonetheless, the politically smart thing for Trump to do domestically would be to then say, "I'm going to snap back the tax breaks that I gave to the highest bracket.
You guys are going to start paying again, and I'm going to take the money from the tariffs. Take these effectively a sales tax, all the money that the US government will be collecting from these higher goods, and I'm going to redistribute it to the average American. I'm going to give that money to the workers so that they can deal with the fact that their pensions have just blown up by 10%, by 20% or more over the coming weeks. I'm going to give them an opportunity because they're going to have to pay higher prices in a more inflationary environment where you can't actually substitute away from imports because all goods are so interconnected, whether it's automotive or it's a plane ticket or it's just a cup of coffee at your local Starbucks."
All of those things, Trump has the opportunity to lean in to the Republican base, which is also a lot of the former progressive base among Democrats who they have lost, in part because they have moved away from policies that have very popular under Trump in firming up the border against illegal immigrants, and also in opposing overly progressive woke policies that are very unpopular across the United States. Having said that, I don't think that's what he's going to do. And the reason for it is because I think that ultimately Trump is more interested in kleptocracy than he is in taking power for himself. I think he's much more transactional. He's much easier to buy off as an individual. If you give him money, he will give you the policies he wants. He's not going to throw Elon away.
Elon's already given over $250 million to the campaign, and we'll give a lot more and we'll find ways to benefit Trump and his family. A lot of people like that, that want lower taxes for the rich. A lot of people like that, that want lower regulations that allow their companies to benefit more, that ultimately screw the average person in the United States. And I think Trump is more interested in that. If you really wanted to ensure that you could benefit the poor people, you wouldn't be taking away so many of the capacities of the IRS for example. You'd want audits on wealthy people instead of wealthy people being able to avoid taxes because the IRS doesn't even have the capacity to do the most complicated audits out there.
You would have a group of policies that would be much more focused towards ensuring that the wealthy actually pay their fair share, that legal and tax policies are not buyable by special interests, and ultimately that the swamp could be drained. And that just, even though I think that's where JD Vance is more oriented, and I think that's where increasingly house Republicans are more oriented. Lord knows that's the Republican base, which today are less educated men, working class and middle class. The Democrats have lost almost all those voters, but that's not where Trump is. And I think as a consequence, the political opportunity that he has will be constrained.
That ultimately also means that there'll be more of a balance and probably more of a snap back eventually in reducing these tariffs and finding deals earlier than you would otherwise expect. So maybe the market hit long-term is not as bad as it could be in a full-on anti-globalist push by the Trump administration. But ultimately, one thing we've learned by Trump, who again used to be a Democrat before he was Republican, he's fundamentally not ideological. He's fundamentally about Trump. And here navigating that probably means less pain as opposed to more. Even though in the near term today, this week, there's going to be plenty of carnage in the United States and around the world. That's it for me, and I'll talk to you all real soon.
Are markets becoming immune to disruptive geopolitics?
There’s no escaping the intricate link between economics and geopolitics. Today, that link has become a crucial factor in investment decision-making, and who better to speak to that than Margaret Franklin, CEO of CFA Institute, a global organization of investment professionals? Franklin sat down with GZERO’s Tony Maciulis at a Global Stage event for the IMF-World Bank spring meetings this week.
Economists once predicted that sovereign debt would overwhelm global markets. But now, having been through the pandemic, the advent of AI, and wars in the Middle East and Ukraine, “there's almost a level of immunity,” she says, “to the dramatic nature of it until something really cataclysmic happens.”
And then? “The response, generally speaking, has been pretty positive,” Franklin says, with central bank intervention saving markets and building resilience.
In much the same way, the World Bank is trying to boost investor confidence by making changes that leverage private sector capital for public sector goals by better evaluating what level of risk the private sector will accept.
Individual investors should do the same, Franklin advises. “Really evaluate your risk profile … making sure you diversify,” she says, noting that fixed-income offerings have become more attractive. Younger investors, meanwhile, need to be cautious with getting their information on social media, she adds.