The latest episode of Mad King Trump

How long before businesses get fed up?

Art by Hieronymus Bosch

I do not believe that Donald Trump is secretly a Russian plant, hired by the Kremlin to destroy America’s economy and global influence. But frustratingly, Trump’s actions are often indistinguishable from what he might do if he were a foreign agent bent on destruction. Let’s take stock of some of his latest moves.

First, there’s yet another round of tariffs, this time on the auto industry. This time Trump is putting 25% tariffs on imported cars and car parts. Since many U.S. cars use foreign parts, and U.S.-made parts are often assembled into full cars across the border, these tariffs will disrupt the entire U.S. auto supply chain (the Cato Institute has a great explainer on how this works, if you’re interested.) Prices will go up for American consumers, and costs will go up for U.S. manufacturers. Predictably, American automakers saw big declines in their stock prices:

Many of Trump’s followers, of course, believe that the pain is only temporary — that after a period of adjustment, U.S. auto manufacturers will invest more in America and ultimately benefit from the lack of foreign competition. But stock prices are forward-looking — when GM and Ford see their stocks decline, it means that investors expect them to suffer not just in the short term, but over the long term as well. In other words, investors are not buying the “short-term pain for long-term gain” thesis.

The auto tariffs will have ramifications all throughout the supply chain. Auto insurance rates will probably go up too. And upstream industries that supply the auto industry, such as American steelmakers, will be hurt as well:

More than 600 Iron Range steelworkers will be out of a job as mines that supply the struggling auto industry go offline…Cleveland-Cliffs will temporarily idle two Minnesota operations…The Ohio-based company, North America’s largest producer of flat-rolled steel, has notified the state of the upcoming layoffs…[N]ew tariffs on imported goods from Canada, Mexico and China are throwing a wrench in the American auto industry[.]

Trump’s tariffs are hurting all the industries that they’re theoretically intended to protect.

The oil industry — a long-time bastion of Republican support — will be hurt as well, because of the increased cost of drilling equipment. Here’s Tracy Alloway in Bloomberg:

[W]e’ve got to talk about the latest energy survey from the Dallas Fed, whose turf covers a lot of the US oil patch…To sum it up, the survey is bad. It’s really worth reading the whole thing but to sum it up, it’s full of anonymous energy executives complaining about how the new Trump administration is creating massive uncertainty for their business viz the back-and-forth on tariffs.

Oil rig counts are flat; “drill, baby, drill” is a distant memory.

Trump and his people simply have no idea how manufacturing, mining, drilling, and other industries actually work. It’s all theory, no actual knowledge. And when reality doesn’t cooperate, Trump himself doesn’t even notice or care; instead, he simply lets the American people suffer for his theory’s failures.

Even Trump’s inner circle (except for his his economic guru Peter Navarro) is starting to feel mystified. Here’s some reporting by Politico:

Just days out from Trump’s April 2 announcement of global tariffs, which he has hailed as “Liberation Day,” even those closest to the president…have privately indicated that they’re unsure exactly what the boss will do…“No one knows what the fuck is going on,” said one White House ally close to Trump’s inner circle, granted anonymity to speak freely…[T]he president continues to throw curveballs at businesses — and even his own team…

The problem Trump’s own advisers and Hill Republicans face is that the president doesn’t share their alarm…Trump really believes in the protectionist policies pushed by aides like Navarro, the longtime trade adviser whom Republicans almost universally distrust. The president also believes that his tariffs are popular with voters…

“The president isn’t looking at it like they are,” said one of the people close to Trump’s inner circle of the president’s advisers. “For [him], if the economy tanks, then fine, the economy tanks — because the president truly believes that it will rebound and the countries will give in because they can’t withstand the pressure from the U.S.”

As for political blowback, this person continued: “No. 1, the president is not running for reelection — so where this may have been a political concern in his first term, it’s not a political concern now. ... And No. 2, we’re probably gonna lose the House in the midterms.”

The auto tariff move — which comes in advance of another huge wave of tariffs that’s expected to be announced on April 2 — will only add to a growing attitude of economic pessimism. The broader stock market declined after the announcement. Sentiment is falling among rich and poor alike:

Source: Heather Long

Crucially, this isn’t just “vibes” — Americans’ expectations for their own financial situation is approaching the lows of 2022, when the post-pandemic inflation was causing real incomes to plummet:

Source: Heather Long

It’s not just that people expect tariffs to put them out of a job or put pressure on their wages. They also think the tariffs are going to result in higher inflation, despite the destruction of aggregate demand. Market-based 5-year inflation expectations are creeping back up, and survey-based expectations are spiking:

And expectations might just be following reality here. The latest inflation numbers look pretty worrying:

And here’s a table with a bunch of different inflation measures, which have all risen to over 3% when measured only over the months since Trump’s election:

Source: Jason Furman

What does Trump plan to do about this? The Politico article suggests that he basically plans to do nothing, because he’s not running for reelection and his wacky theory and his one trusted economic advisor (Peter Navarro) tell him that the long-term consequences will be good.

That’s one possibility. Another is that he’ll turn to the playbook that quasi-authoritarian leaders typically use when inflation threatens: price controls. During the Biden administration, it looked as if Biden might try to use price controls to suppress inflation, on the advice of the Warrrenite progressives. But to his credit, he never did. Now Trump is making similar noises:

When President Trump convened CEOs of some of the country’s top automakers for a call earlier this month, he issued a warning: They better not raise car prices because of tariffs…Trump told the executives that the White House would look unfavorably on such a move, leaving some of them rattled and worried they would face punishment if they increased prices, people with knowledge of the call said.

Trump’s “warnings” and commands carry a lot more weight than Biden’s, because Trump is a lot more willing to use executive power to punish individual companies he doesn’t like. Real price controls would put the country in danger of a catastrophic spiral of shortages, hoarding, “anti-hoarding” measures, and inflation.

And of course, all this comes against a backdrop of insane moves in the international arena. Trump continues to threaten to invade and conquer Greenland, with JD Vance especially pressing for this move. To those who are still desperately looking for alternatives to the Mad King theory, this additional piece of evidence should come as a disappointment.

Anyway, although Trump’s apparatchiks are still bellowing that his tariffs will reindustrialize America, the country’s business community is beginning to realize that the country has elected a Mad King:

They expected a replay of the laissez-faire policies of Trump’s first term — a lot of bombastic rhetoric but few real policy changes and a lot of small, quiet deregulatory moves. Instead, they got a very different Trump this time — one who’s intent on breaking the American economy in the service of ideology.

People on the Tech Right are quietly starting to come to a similar conclusion. Here’s my friend Brian Chau, who is more frank and honest than most:

So far, there has not been a preference cascade within the American business community. Trump’s willingness to target and punish individual businesses or rich people who speak out against him is probably preventing anyone from sticking their neck out. And the memory of the Biden administration’s anti-business rhetoric, and the continued anti-business rhetoric emanating from both the Warrenite and Bernie wings of the Democrats, are probably still a deterrent as well.

It will still be a while before things get bad enough for the business community to flip to the Democrats. But if the Mad King’s madness continues to intensify, and things continue to get worse, what other choice will businesses have? In any case, center-left Democrats who care about winning elections should be working feverishly to welcome businesses (and rich people) into their big tent. I hope that the new embrace of Abundance liberalism represents the beginning of the end of the class-warfare rhetoric of the past decade.

The sooner that switch happens, the sooner conditions in America will stabilize. Hopefully the damage to our prosperity can still be limited. Business is not the only important group that needs to abandon Trump, and welcoming business is not the only coalition-broadening move the Democrats need to make. But it’s an important piece of the puzzle.

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