Shownotes Transcript
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Well, it was a bit of a fraught weekend. The stock futures dumped all over the place. The market was set to open as of Monday morning down pretty much across the board. Markets prepared for a bloodbath, according to The Wall Street Journal.
In the United States, contracts tied to the tech-heavy Nasdaq 100 led the declines down more than 5%. In Japan, the Nikkei 225 dropped nearly 8% shortly after open actually hit the circuit breakers, meaning they had to shut down trading for a little while. Bitcoin and oil prices fell sharply as well.
Now, remember, Thursday and Friday were terrible days on the stock market. U.S. stocks lost $6.6 trillion in value during that two-day washout after President Trump announced that giant tariff regime that he called Liberation Day. And it appears that many traders are betting that things are going to continue to be really, really chaotic in the world of tariffs.
The biggest problem here is that the Trump administration has not made it clear what exactly they want to accomplish with these tariffs. This has been my point the entire time. There are times when tariffs can be useful. In fact, out of three times, tariffs could theoretically be useful. Two times could actually be useful.
Okay, so theory number one as to tariffs. One, tariffs are important to protect important industries. Like for example, defense industries because you need to produce that stuff here at home instead of producing it elsewhere. And so you actually protect and give effectively artificial subsidies to American defense industries. Totally understandable. Two, tariffs are designed in order to leverage other countries.
either because those countries are our enemies and we want to do harm to them, or because we wish to get other countries to lower their own tariffs. And the end goal is a lower tariff regime. And then there's the third possibility. And this is the possibility that is retailed by President Trump and many other members of the administration. And...
To be perfectly honest, all of these various rationales for the tariffs have been put forward. The third one is the one that's really problematic and the one that the economy is currently reading, that the markets are currently seeing. And that is the idea that tariffs are good. Trade wars are good and easy to win. Tariffs themselves are good and make us rich.
That somehow the simple fact of taxing product as it comes in, which is a tax on consumers, because again, people aren't going to ship us product and nobody's buying it on the other end. They'll just stop shipping us product. So it is a tax on American consumers. The idea that this is inherently good, it makes the American economy strong, is wrongheaded. It is
It is untrue. The idea that it is going to result in massive reshoring of manufacturing is also untrue, as we'll talk about in a little while. And this is why Bill Ackman, investor extraordinaire and ally to President Trump, put out a statement over the weekend saying, quote, the country is 100% behind the president on fixing a global system of tariffs that has disadvantaged the country. But business is a confidence game and confidence...
depends on trust. President Trump has elevated the tariff issue to the most important geopolitical issue in the world, and he's gotten everyone's attention so far so good. And yes, other nations have taken advantage of the US by protecting their home industries at the expense of millions of our jobs and economic growth in our country. By placing massive and disproportionate tariffs on our friends and our enemies alike, and thereby launching a global economic war against the whole world at once, we're in the process of destroying confidence in our country as a trading partner, as a place to do business,
as a market to invest capital. The president, and here's where Ackman is basically saying to Trump, take a timeout, figure out what it is that you want to do here. He says, the president has an opportunity to call a 90-day timeout, negotiate and resolve unfair asymmetric tariff deals and induce trillions of dollars to invest in our country. If, on the other hand, on April 9th, we launch economic nuclear war in every country in the world, business investment will grind to a halt, consumers will close their wallets and pocketbooks, we'll severely damage
Again, this is Bill Ackman, who is a Trump supporter. He says,
It's not just big companies that suffer. Small and medium-sized businesses and entrepreneurs will experience much greater pain. Almost no business can pass through an overnight massive increase in costs to their customers. That's true even if they have no debt. And unfortunately, there's a massive amount of leverage in the system. Business is a confidence game. The president is losing the confidence of business leaders around the globe, the consequences for our country, and the millions of our citizens who have supported the president, in particular, low-income consumers who are already under a huge amount of economic stress, are going to be severely negative. This is not what we voted for.
Says Bill Ackman. The president has an opportunity on Monday to call a timeout and have the time to execute on fixing an unfair tariff system. Alternatively, we are headed for a self-induced economic nuclear winter and we should all start hunkering down. May cooler heads prevail. Okay, that is a flashing red light that Ackman is aiming at the president of the United States saying, stop for the love of God, stop. Or at the very least, take the off ramp. And so today is going to be a very big day for the president.
Not just because of what the markets do, but because of what he could say. So Prime Minister Benjamin Netanyahu of Israel is visiting. The reason this is important is not just because of all the security-related concerns in Gaza and Iran, but more specifically with regard to the tariff war that's dominating the news. Netanyahu has already offered to go to zero.
zero tariff rates with the United States. Now, to be fair, Israel already had zero tariffs on 98% of all product coming into the United States and has had a free trade agreement with the United States for 40 years. This again is why it was rather frustrating when the Trump administration put out a ridiculous chart last week. And it was a ridiculous chart suggesting that, for example, Israel had a 33% tariff and non-tariff rate on the United States. That's not true by any possible measure. That is a measure of trade deficit is not a measure of the actual tariff rates. But
But put that aside, President Trump can take the off ramp here and get to zero with Israel. He should do the same exact thing with Vietnam. Vietnam also has a free trade agreement with the United States. That free trade agreement means that the effective tariff rate that Vietnam has on American goods is actually quite low. Even if you were to look at the very elevated version of the Vietnamese tariff rate on American goods, including, for example, their value added tax, which is like a 10% value added tax, the reality is that
that the tariff rate on American goods would be like 9.4%. Again, that's like a very high-end estimate. That chart had Vietnam at a 90% tariff rate with the United States, which of course is not true. So I asked our friends at Perplexity, our search partners and sponsors, quote, what is the effect of Vietnamese tariff rate on American goods? Not the tariff rate President Trump listed, including their value-added tax. As long as we're going to put in non-tariff additions, the value-added tax...
is where essentially they tax their consumers for buying any goods, kind of a sales tax. And what is their tariff rate on American goods under our free trade agreement with them? And perplexity says, Vietnam's effective tariff rate on American goods, including the value added tax, is significantly lower than the figures cited by President Trump.
According to the 2025 National Trade Estimate Report, Vietnam's average most favored nation applied tariff rate was 9.4% in 2023, with agricultural products facing an average of 17.1% and non-agricultural products 8.1%. Now, realistically, we're not sending all that many agricultural products to Vietnam, I believe. When factoring in VAT, which is typically 10%, the total effective tax burden on American goods averages around 19.4% for agricultural products and 18.1% for non-agricultural products.
Under the U.S. and Vietnam bilateral trade agreement and subsequent frameworks, Vietnam has made commitments to reduce tariffs on certain American goods. Recent negotiations suggest Vietnam is willing to lower tariffs to 0% on American imports as part of a potential bilateral agreement with the U.S., although that deal has yet to be finalized. And that's the thing that President Trump should do. Vietnam is saying, let's go to zero.
President Trump should say, cool, let's go to zero. That's the off ramp here. And then President Trump can fairly say that he has leveraged all these countries and bilateral trade agreements to go to zero. More free trade. That's better. However, that would require the president to believe not the sort of tariffs are good for America on their own version of what tariffs are good for. But the other two, the tariffs are there to actually protect America.
industries that are important to America, and also to get other countries to lower their own tariffs. And that is, it is absolutely unclear what President Trump is thinking at this point. And herein lies the problem. You have a vast combination of radical uncertainty and policy that is being spouted by members of the administration that is overtly bad. There's no one in the administration who's making the overtly good case. There are many people in the administration who are making bad to strained cases right now. In fact, the only person who seems to be making an overtly good case at this point is Elon Musk.
So President Trump over the weekend, he put out a statement on Truth Social. It said, China has been hit much harder than the USA, not even close. They and many other nations have treated us unsustainably badly. We have been the dumb and helpless whipping post, but not any longer. We are bringing back jobs and businesses like never before already. More than $5 trillion of investment and rising fast. This is an economic revolution and we will win. Hang tough. It won't be easy, but the end result will be historic. We will make America great again. Okay, those words, this is an economic revolution. Hang tough.
That scares the living daylights out of the entire market. Why? Because Hang Tough sets up a lengthy period of tariffs, a lengthy, significant period of tariffs. If that is to happen, we'll get into all the consequences. Basically, it melts down the markets. It melts them down. As Bill Ackman says, nuclear winter. If you're talking about these tariff rates on countries maintained as they currently stand, if they are implemented, as President Trump and team are saying they will be just a few days from now,
If that happens, you are talking about an economic catastrophe, like a serious, serious economic problem. And even if on the other end, there is a brand new world, we still have not heard what exactly that brand new world looks like. Is that a brand new world where what? We are reshoring manual labor from Vietnam to make t-shirts?
This is the confusion. No one knows what the hell is actually going on. There are people who are hopeful, like Bill Ackman, that what this all is is a sort of 4D chess game in order to leverage other countries to open up their tariffs. Fine. If that's the case, sounds great. Cool. I think the rollout sucked, but that's fine. We can get there. If the final policy is good and I don't like the rollout, you know, I can be wrong. That's cool. That's fine with me. I would much rather have a booming economy and be wrong about the original implementation of the policy than the opposite.
Okay, but President Trump keeps saying over and over, there will be pain. So here is President Trump on Sunday night saying this, there will be pain. Is there pain in the market at some point? You're unwilling to tolerate this idea of a Trump put? Is there a threshold? I think your question is so stupid. I mean, I think it's a, I don't want anything to go down, but sometimes you have to take medicine to fix something. And
We have such a horrible, we have been treated so badly by other countries because we had stupid leadership that allowed this to happen. They took our businesses, they took our money, they took our jobs, they moved it to Mexico, they moved it to Canada, they moved a lot of it to China.
and it's not sustainable, we're not going to do it. Now we have hundreds of billions of dollars that's pouring into our country on a monthly basis. It's pouring. It's already started.
because they put tariffs on and eventually it's going to straighten out and our country will be solid and strong again okay now that sounds like he wants long-term tariffs we've got hundreds of billions of dollars pouring into our country and it's going to continue pouring into our country and we've been screwed by the canadians and the mexicans which again we have not okay the president of the united states negotiated the usmca in his first term our tariff rate with the canadians is extraordinarily low except for oil we have a tariff surplus with the canadians
When he says we've been screwed by China, that's true in terms of IP, and I'm very much in favor of the harsh penalties on China. But the problem is, if you tariff everyone, everyone, including China, you know what all the other countries do, as we'll talk about in a moment? They actually reorient toward China, because China is perfectly willing to do free trade deals with all these other countries, while the United States is shutting them out. Well, speaking of pain, you're feeling the pain every time you pay your cell phone bill. I know you are, because it's bloated.
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And then President Trump doubles down on this. He says, it's not just that we need to get Europe to open its markets to us. We need them to pay us back. They need to actually pay us some sort of back taxes.
And we take their cars, Mercedes, Volkswagen, BMW. You know, we take their millions of cars. They take no cars. They don't take our farm product. They don't take anything. Europe's treated us very badly. We put a big tariff on Europe. They are coming to the table. They want to talk. But there's no talk unless they pay us a lot of money on a yearly basis.
Number one for present, but also for past. Because they've taken a lot of our wealth away and we're not going to allow it to happen. Okay, so he wants them to what? Like just sign us checks? So it's not just he wants the trade barriers going. He wants them to sign a check. By the way, it is not true that they are not importing American cars. Tesla is one of the best selling cars in Europe. Why? Because they have all sorts of greenhouse gas emission rules in Europe that we don't have in the United States, which means Tesla is a hot seller in Europe. In some countries in Europe, it's actually a hotter seller than it is in the United States.
As far as the idea that foreign car companies don't do business with the United States, that's not true. If you look at companies like Honda, a huge percentage of a Honda is made in the United States in American factories.
Okay, so there's sort of a battle inside the administration over messaging. And this is, again, one of the things that is roiling the markets is who's standing up for the position that says, let's get to zero. Let's get to zero on the tariffs. Who's doing that? Again, we keep being told there's a 40 chess position. There are basically two 40 chess positions that are being presented. One 40 chess position is President Trump is using leverage in order to get everybody to go to zero. Okay, if that's the case, people should be making that case. The other 40 chess position is this is all an engineered recession designed to
to jam down the yields on the bonds, thus to increase the bond market effectively so we can refinance our debt and take, what, a couple of hundred billion dollars off our national deficit? Again, I think the logic there does not stack up. I also don't think that's what President Trump is thinking. So inside the administration, there are a bunch of voices who have now been deployed on behalf of this particular position. The one who is obviously most pro-tariff is Howard Letnick, the Commerce Secretary.
Secretary Lutnick, a big fan of tariffs, and he is saying the tariffs are coming. And no matter what you want, no matter what you like, the tariffs are indeed coming. There will be no delay. There will be no postponement. They are coming. To be clear, April 9th, the so-called retaliatory tariffs, the reciprocal tariffs, I should say, are those coming or are they open to negotiation?
The tariffs are coming. He announced it and he wasn't kidding. The tariffs are coming. Of course they are. The tariffs are coming. No negotiation. The tariffs are coming. To which the markets say, price is right horn. It turns out the markets do not like that because the tariff regime as it currently stands is the single greatest increase in taxes because tariffs are a tax in modern American history and they are the single greatest increase in trade war
since the Smoot-Hawley Tariff Act of 1932. I mean, you're going back almost 100 years to get to the kind of tariff rates that you're talking about right now. Again, Lutnick keeps saying this. He keeps saying over and over, there's no postponing. We're not postponing it. It's going forward. Here's Lutnick again saying the same thing.
So the Treasury Secretary said on another network, we're going to hold the course. It's not the kind of thing you can negotiate away in days or weeks. That makes it sound like the tariffs are staying in place at least for days or weeks. Is that correct? Or is the president considering postponing implementation to negotiate?
There is no postponing. They are definitely going to stay in place for days and weeks. That is sort of obvious. The president needs to reset global trade. Everybody has a trade surplus and we have a trade deficit. We are paying away our future and our lives. The countries of the world are ripping us off and it's got to end. The president has made it crystal, crystal clear. This is the policy we are going to protect.
The factories that come build in America, we are going to protect them. They're going to be successful. That's why they're going to build in America the greatest economy in the earth. All of these companies are going to come and build here. All the companies are going to come and build there. There's significant problems with this, as we'll explore in a moment, including the fact that when you build a factory, you need to have, wait for it, parts from other parts of the globe. Because what are you going to make? A factory with all the stuff that's made here? The problem is it's not made here right now. So how's that going to work precisely?
There are all sorts of holes in this logic. Again, the very idea that a trade deficit means another country is screwing you is wrong on its face. It's not true. If you have a trade deficit with another country, it's possible that country is screwing you. It is certainly not sufficient to say you have a trade deficit. Therefore, the other country is screwing you. It's not true. In fact, there are several countries, many countries that have a trade deficit with the United States. That because we're screwing them. I again use the case of Ethiopia, the $12 billion trade deficit with the Ethiopians.
Is that because they're screwing us or is it because no place in America really grows good coffee? Hawaiian coffee ain't going to cut it, not for the entire country. And meanwhile, Scott Besant, who I believe the Treasury Secretary is significantly less, shall we say, committed to the tariff regime than the Commerce Secretary, but he's the one out retailing it.
Here he was trying to walk this back a little bit, at least give President Trump the possibility of an offer. I'm saying it could be permanent, could be a negotiating tactic. Who knows? Mystery meat here on a here on a Monday.
Well, I think that's going to be a decision for President Trump. But I can tell you that as only he can do at this moment, he's created maximum leverage for himself. And more than 50 countries have approached the have approached the administration about lowering their non-tariff trade barriers, lowering their tariffs.
stopping currency manipulation. And they've been bad actors for a long time. And it's not the kind of thing you can negotiate away in days or weeks.
Okay, so there's that quote that Kristen Walker was then citing back to Lutnick. Okay, but at least, at least Besant is providing an off-ramp there. He is saying, okay, well, these are bad actors. We're going to negotiate bilateral deals with them. We'll go down to zero. They'll go down to zero. They'll stop with their currency minute. Okay, fine. That's an actual off-ramp. That sounds like maybe a plan, but Lutnick seems to be saying, I don't want there to be a plan. No negotiations. Just go all the way to the wall. The entire purpose of this is to basically reshore manufacturing. It's autarky time here in the United States.
Now, the Treasury Secretary Scott Besson was asked how long we're supposed to hang tough. You heard President Trump's tweet that we're going to hang tough. And he's asked how long are we supposed to hang tough? And Besson is not going to commit to any timeline here. This is an adjustment process with.
We saw with President Reagan when he brought down the great inflation and we got past the Carter malaise that there was some choppiness at that time. But he held the course and we're going to hold the course. And this has been years in the building, years in the making. Yeah, I mean, there's there's only one problem. The difference is that Donald Trump inherited an economy where the inflation was too high
Typically, if the inflation is too high, that means you have to increase the interest rates, which is the actual thing that Paul Volcker did as the head of the Federal Reserve under Ronald Reagan. In order to break inflation, he had to increase the interest rates, which increased the unemployment rates. Then the interest rates went – then the inflation went right down. The interest rates could drop, and then employment went up. That's the way the Reagan administration works. That is nothing like what we are talking about here. President Trump is actually pushing policies –
that create more price inflation in the markets and calling on the Federal Reserve to lower the interest rates so as to inject more money into the economy. So that is an apples to oranges comparison. Meanwhile, Kevin Hassett, who's the head of the National Council of Economic Advisors,
He he's trying to rebut something that President Trump put out on Truth Social. So President Trump put out on Truth Social a video saying that he was purposely crashing the market. And again, President Trump on Truth Social, he kind of post stuff like kind of whatever he's feeling like that day. If you see something that's pro him, he posts it. It's not necessarily an indicator of his actual policy.
Kevin Hassett says, no, no, no, he's not purposefully crashing the market. Again, remember, that was an actual going theory, that he was purposefully crashing the market in order to push everybody from stocks into bonds, thereby lowering the yield rate, increasing the demand for bonds generally, and allowing for the lowering of interest rates on the repayment of our debt, right? That was the kind of sophisticated 4D chess theory. Kevin Hassett's like, no, that's not what's happening.
Is it his strategy to force the Fed to lower interest rates and that the market crash was part of that strategy? We understand the Fed is an independent agency. We respect the independence of the Fed. But the president's allowed to have an opinion. Absolutely, the president's allowed to have an opinion. But there's not going to be any political coercion over the Fed, for sure. So that is his strategy, tank the markets so the Fed lowers interest rates? No, no, no. Well, you just said the president's allowed to have an opinion. Is that his opinion or not? He's not trying to take the market. He's trying to deliver for American workers.
Okay, then Kevin Hassett says, don't worry, none of this is going to have any big effect on consumers. I would like a detailed explanation. Why? You can't just say that. Why? How? Okay, here we go.
I got a report from the USTR last night that more than 50 countries have reached out to the president to begin a negotiation. But they're doing that because they understand that they bear a lot of the tariff. And so I don't think that you're going to see a big effect on the consumer in the US, because I do think that the reason why we have a persistent long run trade deficit is these people have very inelastic supply. They've been dumping goods into the country in order to create jobs, say, in China.
Oh, boy. OK. And then Hassett says the job numbers will go up if the tariff regime stays in place. The job numbers will go up. OK. That's looking back. But looking forward, Salantis did say this week they were laying off workers. The reason the reason that they were starting in the last two months was they anticipated the tariffs that were announced this week. They're starting to ramp up in anticipation of that. I would expect that the jobs numbers and I'll come back and talk to you about it when they come out are going to go up by even more now that the tariffs are in place. OK. OK. Howard Lutnick.
And what had to be the funniest moment of the weekend and what appears to be a rather dismal economic cycle. Howard Lutnick was asked about the herd of McDonald Islands. You'll remember that that chart that President Trump held up contained the herd and McDonald Islands, which are islands that have no people on them. We are apparently putting 10% tariffs on the penguins that live in the herd of McDonald Islands. Lutnick was asked about this. I will say that this particular excuse, I am skeptical. I am skeptical.
What happens is if you leave anything off the list, the countries that try to basically arbitrage America go through those countries to us. Any country, like we had tariffs, the president put tariffs on China.
Right. In 2018. And then what China started doing is they started going through other countries to America. They just built through other countries through America. And so the president knows that he's tired of it and he's going to fix that. So basically, he said, look, I can't let any part of the world be a place where China or other countries can ship through them.
And then he was asked, you mean, so your theory is that China is going to use the Penguin Land as a cutout, like the Penguin Land near Antarctica. That's your theory. We had to tariff the Penguin Land because otherwise people will escape the tariffs by building factories in Penguin Land, again, near Antarctica in the middle of nowhere.
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The most obvious manifestation of debate inside the administration is coming courtesy of Elon Musk. Elon happens to be 100% right about this. So Elon Musk is ripping into trade advisor Peter Navarro. Navarro is a big tariff advocate. He's been a big tariff advocate for years. And the Tesla CEO ripped Peter Navarro as someone who ain't built bleep. And then when asked about his Harvard PhD in economics, he said, that's a bad thing, not a good thing.
And then he posted a quote from economist Thomas Sowell that said, in every disaster throughout American history, there always seems to be a man from Harvard in the middle of it. He then suggested that Navarro had an excess of self-confidence, writing, quote, results in the ego brains greater than one problem. Meanwhile,
Musk himself suggested that he wants a zero tariff situation, which again, this is the good explanation for why you would do the tariff game. I urge the president to do precisely what Musk is saying here. Go to zero with all these countries. Go to zero. That's a win. Take the win. Move on. That'd be good for the economy. Good for you. You'd have flexed your muscle. You'd have flexed American muscle. That'd be good. Here's Elon Musk.
I'm hopeful, for example, with the tariffs that at the end of the day, I hope it is agreed that both Europe and the United States should move ideally, in my view, to a zero tariff situation, effectively creating a free trade zone between Europe and North America. Navarro, for his part, started fighting back. Here was Peter Navarro on Fox News trying to push back against Musk.
I mean, look, Elon, look, Elon, when he's in his doge lane is great. But we understand what's going on here. We just have to understand. Elon sells cars and he's in Texas assembling cars.
that have big parts of that car from Mexico, China, the batteries come from Japan or China, the electronics come from Taiwan, and he's simply protecting his own interests as any business person would do. Okay, so open battle between Elon and Navarro. Navarro is wrong, Elon is right. It's that simple. The reality is that Navarro's trade prescriptions, which is this giant trade war where he believes the tariffs are in and of themselves good, not to get to zero, they in and of themselves are good.
That is a bad economic policy. We'll get to that in a moment. The biggest problem here is who's going to tell President Trump the bad news?
Who in that inner circle is going to be the person who delivers that news to President Trump? President Trump has a feedback loop. That feedback loop, I've said before, I trust that President Trump can see reality. He's very good at seeing reality. He's able to wipe away the BS of sort of prior assumptions on a variety of issues and cut straight to the heart of the matter. But that's only if someone is providing him the data. It's only if somebody is telling him the truth about what exactly is happening. And right now, because President Trump is such an outsized man on the national and international stage,
That's creating a climate of fear right around him, which means that the feedback loop may in fact be closed. As Politico reports, Capitol Hill Republicans, corporate America and White House allies are terrified about what's next in President Trump's escalating trade war, but they fear Trump's wrath even more. Republican lawmakers are signaling they're willing to tolerate the pain for now despite the economic fallout back home. Lobbyists are quietly prodding the same lawmakers to defend their interests, don't want to have a target on their back or their clients. Even some Trump world confidants, alarmed about the terrorist impact are hoping someone else intervenes.
An official in the energy industry said, quote, hearing angst and frustration from all quarters, but no one wants to be first out of the box saying anything negative about Trump's decision making. OK, well, a good leader and President Trump is a good leader. A good leader listens to reality, recognizes the reality of the situation, and then makes the best possible informed decision. I trust that President Trump is going to do that. That's literally his job because here is now get to the reality. Here is the reality. The reason that futures are dumping is because the recession risk is now quite real.
According to the Wall Street Journal, the world changed on Wednesday, which Trump dubbed Liberation Day. J.P. Morgan's head of economic research, Bruce Kassman, raised the probability of a global recession from 40% to 60%. The bank now expects U.S. gross domestic product to contract 0.3% in the fourth quarter of 2025 from one year earlier. It previously expected 1.3% growth. That is a delta of 1.6%. Unemployment, says J.P. Morgan, will reach 5.3% next year.
Kasman says, the size and disruptive impact of U.S. trade policies, if sustained, would be sufficient to tip a still healthy U.S. and global expansion into recession. The tariff shock will likely be magnified by its effects on sentiment and through potential disruptions to global supply chains. Now, again, that is the worry that everyone is currently fearing, that recession is on its way, because if economic activity slows, if investors pull their money out of the markets, if there's less investment, fewer IPOs, less innovation, if all that happens because everybody is afraid of what comes next,
then you will get an economic slowdown and it will affect everyone. It will affect everyone. As Bloomberg points out, there's a major problem with the possibility of debt default. Quote, Donald Trump's global trade war is already priming financial markets for the next wave of corporate defaults. A Bloomberg News measure of distressed debt worldwide swelled the most in at least 15 months this week, sending more than $43 billion of bonds and loans to levels that make it challenging to refinance. Few expected Washington to go after so many of its key trading partners with such high duties.
So corporate debt is being called in. The pile of distressed debt in the Americas region has now surpassed that in Asia Pacific for the first time since August. Robert Schwartz, portfolio manager at Alliance Bernstein said, quote, retailers are getting smacked. If you're a retailer, you tried to diversify into Vietnam or the Philippines. Those tariffs were not priced in until this week. Michaels, for example, the Arsene Kraus chain, had been working with its suppliers on pricing and sourcing in preparation for the announcement.
This week, its bonds due 2029 tumbled almost 10 cents on the dollar. It's now trading at 44 cents on the dollar. What does that mean? It means people don't expect these companies to survive and be able to pay back their debt. They expect them to go bankrupt. Other companies that are now in serious trouble, Wayfair, Nordstrom, Klairs, PetSafe. The owner of luxury department store chain, Saks Fifth Avenue is one of the biggest additions to the distressed universe.
According to Bloomberg, a $2.2 billion bond that it issued less than four months ago to finance the acquisition of Neiman Marcus is now trading at 73.5 cents on the dollar and yielding 16 percentage points more than treasuries. So people are buying up the corporate debt because what they realize is that perhaps that corporate debt, maybe these companies come back, but people are freaking out because most companies have to operate on the basis of rotating debt. Most companies, again, do not have a Scrooge McDuck
giant vat of cash in the back that they dive into every night. Most of them are operating off credit to get to payroll because the way that the cash flow works in pretty much every company, you use debt to pay the payroll and then, kind of like your credit card, and then all the money comes in, you use it to pay back the debt. That's how the cycle works. What happens when, for tariff reasons, this cash stops coming in? Now the debt starts to get really, really dicey. This is just another reason that margin calls are getting steep.
So margin calls, hedge funds are now being hit with the worst margin calls since 2020, since the COVID crisis. This according to the Financial Times. Wall Street banks have asked their hedge fund clients to stump up more money as security for their loans because the value of their holdings had tumbled, according to three people familiar with the matter. Several big banks have now issued the largest margin calls to their clients since the beginning of the pandemic in early 2020.
For those who don't know what a margin call is, here's the simple explanation. Let's say that you want to buy $10,000 worth of stock. So what you do is you drop $5,000 in cash, you buy $5,000 with cash, and you borrow $5,000 worth of stock from the broker. You get a loan, $5,000 worth of stock from the broker. And because the broker's lending you the stock, you have to have some collateral. So what's the collateral? The margin of 30%, which is the actual equity against the loan.
So then the stock drops to $8,000. So now your margin is 30% because $8,000, the value of the stock minus the $5,000 loan, which means $3,000, which is 30% of again, the original purchase. So if you're following me, what that means is that a decline in the stock now means that you have to invest more money in order to shore up the loan, in order to make clear to the broker that you're not going to default on your loan. Because if the stock goes down, how are you going to pay them back? That's the problem. Have you checked lately to see if your home's title is still in your name?
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Meanwhile, Jerome Powell on Friday, of course, announced that this was going to have a severe impact. He said higher inflation is now a likelihood. Looking ahead, higher tariffs will be working their way through our economy and are likely to raise inflation in coming quarters.
Reflecting this, both survey and market-based measures of near-term inflation expectations have moved up. Okay, then Powell acknowledged that there is tons of uncertainty in the market. Again, these are bad factors for the market. All of it being created by a wrong-headed view of trade. If you wanted to renegotiate these trade deals, you could. You just call up Vietnam and you say to Vietnam, hey, I want to renegotiate our trade deal. And if you don't like it, I'll tariff you, just Vietnam. And Vietnam goes, okay, and then they renegotiate. Putting tariffs on everyone...
means complete chaos. Here's Jerome Powell. At the same time, surveys of households and businesses report dimming expectations and higher uncertainty about the outlook. Survey respondents point to the effects of the new federal policies, especially related to trade. We are closely watching this tension between the hard and the soft data. As the new policies and their likely economic effects become clearer, we will have a better sense of their implications for the economy and for monetary policy.
Meanwhile, Larry Summers, who you'll recall is the former secretary of the treasurer under Bill Clinton, who suggested to Joe Biden that inflation was going to break out because of his overspending. Here's Larry Summers saying, guys, inflation is coming again.
I think it's almost inevitable. This is the biggest self-inflicted wound we've put on our economy in history. We're increasing inflation because the prices are higher because of the tariffs. That gives people less spending power. That means fewer jobs. Markets are looking at all of that and they think...
Now, meanwhile...
You know, all the talk about how we're going to build all these new factories here, as I mentioned before, the problem is if you're going to build a new factory, you know where you need stuff from, not America, to build those new factories. According to the Wall Street Journal, roofing products manufacturer IKO North America has been on a factory building spree in the United States with one plant completed and four more under construction. After President Trump launched a barrage of tariffs on U.S. trading partners, the math abruptly changed. Chief Executive David Koschitzky said IKO's just-finished factory in Texas now faces higher prices on steel.
The company will continue with the projects, but tariffs will make them significantly more expensive. Trump's tariff announcement threw a wrench into factory builders' plans and complicates a year-long government effort to reinvigorate U.S. manufacturing. Companies are now double-checking the numbers on planned factories or halting them altogether. So that's a problem. Another problem. The cost of the things that you are buying is about to skyrocket, which means less money left over for you to spend on other products, goods, and services in the United States.
Remember, if an iPhone gets a lot more expensive, that's money that you could have spent on other cool stuff that you were going to buy in the U.S., and now you no longer can. According to the Wall Street Journal, Apple's big moneymaker is a global patchwork. It has components sourced from all over the world, brought primarily together in China, where electronics manufacturing has been perfected for over a generation. Moving the process to the U.S., not cheap, definitely not easy. The iPhone 16 Pro, cost for a 256-gigabyte version, is $1,100.
The cost of all the hardware inside was about 550 bucks to Apple when the phone was introduced. Throw in assembly and testing, and Apple's cost rises to about 580 bucks. Even when you account for Apple's advertising budget and all the included services, there's still a big profit margin. Now, factor in the tariff for goods from China. That currently totals 54%. Now, the cost is 850 bucks. How about an American-made iPhone?
Well, there's a problem because first of all, the device has a lot of foreign parts and you have to pay the levy on the foreign parts. Then a manufacturing move to the United States would be a massive mammoth undertaking that would take years. The assembly ecosystem in China is labor intensive. It wouldn't make sense in the United States. By Lamb's estimate, the assembly labor that might cost 30 bucks per phone in China could cost 300 bucks in the United States. If every single component were made in the United States, then you would be talking about an increase of thousands of dollars in the cost of your iPhone. That is what you're talking about.
So does that sound like a great deal to you for the American worker? It turns out every American worker is also an American consumer. So the question is what other countries are also going to do because we're not the only country with agency here. So are other countries going to play along? Are they going to go for a bilateral deal? President Trump, one of the reasons, again, he should be signaling to Israel, Vietnam, Taiwan. These are all countries that have come and said we want 0% tariffs. He should signal to them, yes, because if he doesn't, all these other countries are going to start reorienting toward China and they're going to start doing so incredibly quickly.
Okay, so other countries are going to have to respond. And again, the question here is how they respond. And part of that is going to be whether the president actually accepts them coming on bended knee and giving him the thing that he supposedly wants, or maybe he doesn't want. It's totally unclear. Because again, does he want the trade deficit to go away? Or does he want the tariffs to go away? These are not the same thing. They're not the same thing. The trade deficit is how much money we are spending that other countries are not spending on our product. And a tariff is
is them taxing the product that's going in, thus to reduce our imports to them and to make their own businesses more competitive through artificial means. Those are two very different things. And what President Trump does here is going to make an awful lot of difference. So there are a couple of reads of things that are happening. One is we are putting China under significant pressure with the 34%. That's great. We should put China under significant pressure. They're terrible. They're a communist country.
authoritarian state with global ambitions or the very least regional ambitions. According to the Wall Street Journal, even before Trump had announced an additional 34% duty on imports of Chinese goods, Beijing had vowed to strengthen domestic consumption, part of a larger effort to fortify its economy and keep its growth trajectory on track. Now, with Trump's latest shakeup of the global trading environment, economists say it is more critical than ever for China to find an alternative to exports as a driver of economic growth.
According to Thomas Getley and Wei He of the research firm Gaveco Dragonomics, they said this is the worst case trade scenario for China. Chinese policymakers will need to step up stimulus efforts in response. Okay, that would be great. This is why we should do the tariffs on China. There's one problem. He's tariffing everyone else. And when you tariff everybody else, a bunch of other countries might tend toward China.
So for example, huge number of companies in recent years have reshored from China to Vietnam because China is our enemy and Vietnam is not. In fact, Vietnam has become one of the best capitalist growth stories of the modern era. There's a great book called In Defense of Capitalism that recently came out that traces what's been happening in Poland and Vietnam. Vietnam still titularly has a communist party that runs it, but it's actually a pro-America, very capitalist country at this point. Like Starbucks and McDonald's are there. As the Wall Street Journal points out,
After U.S.-China tension flared in the first Trump administration and Trump imposed his first round of tariffs on Chinese goods, suppliers for companies like Nike and Apple doubled down on Vietnam to avoid the tariffs. Foreign businesses found Vietnamese officials to be pro-business and eager to give manufacturing projects a boost. And with Vietnam wary of China getting too powerful, Vietnam's geopolitical stance actually aligned with Washington.
If you alienate the Vietnamese and you make it hard for them to produce, people are just going to reshore to China or Vietnam turns to China as its own possible export market. And that's true for Europe also, right? It means that all the countries we need to actually draw into our orbit are now alienated from us. Patricia Kim, China expert at Brookings Institute says, the tariff shock gives US partners in the Indo-Pacific region an urgent need to hedge away from the United States. They're going to be looking toward each other and toward China. That's a given.
And part of blocking in China is being nice to the people who we need to lock in China. Being mean to everyone is not, in fact, a very good strategy. Okay, so I have heard a couple of different sort of narratives that have been retailed that I just want to put to bed. One is tariffs are not a tax because, hey, you can volunteer to pay for the product or you don't even have to buy that product. Question, are sales tax attacks? They are. Sales tax are tax. They're a tax that you pay.
because it goes right into the price of the good at checkout. Now, it's clearer on your sales slip because it'll say sales tax right there on your sales. But here's an important thing. When Obamacare came out, it increased the prices of goods and services and your prices went up. Was that effectually a tax? Absolutely. It was government taking revenue from you indirectly. That is what a tariff is. Also, I'm hearing this bizarre narrative on the right. Do we really need stuff? Is stuff really that good?
And the answer for the vast majority of people is yes, better stuff is gooder. That is the narrative. This whole idea that you are healing spirits here, I'm going to need to see your evidence of that. Are you making the family stronger when dad can't earn as much money and get as much stuff for less work? Are you really healing the church when it turns out that your iPhone costs three times what it used to cost?
Is economic recession what's necessary to restore the soul of America? Is that the thing? Again, this is not a case to be made that we shouldn't be going after our enemies using trade as a tool. We absolutely should. The real question is why all of a sudden the language coming from the right sounds exactly like the degrowthers on the left. In order to fight this global catastrophe, we must have worse things all the time. I'm not up for that. And you know what? I don't think the American people are up for that.
Stop telling people that their lives have to be worse because you are going to remake the globe and then not explain what exactly you're even trying to do. Don't do that. It's bad. Speaking of narrative fails. So over the weekend, again, the rollout of this proposal has been bad. It just has been bad. If you're going to do something this big, this earth shattering, the kind of activity that has not been taken on the unilateral economic front for nearly 100 years, we're talking about this kind of tariff activity. And even Smoot-Hawley, by the way, did not go as high as this.
If you are talking about doing that sort of thing, you better have a damned good explanation that you retail to the American public. Because I can promise you, if people are freaked out, ignoring them or confusing them or telling them to hold on for your life is not going to be enough. And you can see it in the markets. It's not enough. So over the weekend, Democrats latched onto this, as you knew they would. It would be political malpractice not to.
The House Minority Leader, Hakeem Jeffries, he, of course, he's finally found his talking point, gang. The Democrats were on their heels and now they found their talking point. Here's Hakeem Jeffries, the House Minority Leader.
What we're seeing is that he is crashing the economy in real time. Costs are going up. The Trump tariffs are likely to result in thousands of dollars in additional costs on the American people in terms of groceries and gas and goods. And at the same time, we're seeing the retirement savings of the American people plummeting as well. This guy is driving us toward bankruptcy.
A recession. Okay, so that's going to be their talking point. And you know what doesn't help? What doesn't help is while the markets are tanking and everybody is freaking out, I understand. President Trump owns golf courses. I get it. I get that he had an LIV tournament, a live tournament, over the weekend. I understand all of that. Also, optics matter. They do. They do. Here's Hakeem Jeffries going after President Trump for being on the golf course.
Well, again,
First rule of politics, don't do things that make you look bad. This is like the number one rule of politics. CNN jumped on President Trump for going and playing golf over the weekend. You knew they would. Here they were playing a montage of President Trump criticizing Barack Obama for playing golf.
Obama, it was reported today, played 250 rounds of golf. Everything's executive order because he doesn't have enough time because he's playing so much golf. Obama ought to get off the golf course and get down there. I'm going to be working for you. I'm not going to have time to go play golf. He played more golf last year than Tiger Woods. That plays more golf than people on the PGA Tour. I love golf. I think it's one of the greats, but I don't have time. If I were in the White House...
I don't think I'd ever see Turnberry again. I don't think I'd ever see Doral again. I'm not going to be playing much golf. Believe me, if I win this, I'm not going to be playing much golf.
Okay, well, again, don't make these kinds of mistakes. And I understand that on the right, we don't care about this sort of stuff. I get it. I get that we are constantly saying nothing matters. President Trump is Teflon. And to this point, he has been. Recession stops everything. Economic downturn stops everything. You can do whatever you want so long as things are chugging along. When that number is going up into the right, everybody's pretty happy. Rising tide lifts all ships and covers for a myriad of political sins.
It doesn't when people are feeling insecure, when people are feeling bad. That is just the reality of politics. The rules of gravity still apply. They do. And there's no way really around that. Now, it is quite possible that these tariffs end up basically knocked down by the courts. That is a real possibility. According to the Wall Street Journal, a stationary company in Florida on Thursday challenged the president's earlier 20% tariffs on China through legal, but its legal arguments also apply to the Liberation Day tariffs.
As I mentioned before, President Trump is using national emergency authority to declare this massive tariff war. I don't understand how it is possibly covered under the International Emergency Economic Powers Act. That sanctions law gives the president authority to address what is called an unusual and extraordinary threat. Well, with regard to Canada and Mexico, he tried to declare that it was fentanyl. I think you can make the fentanyl case with Mexico. Hard to make that case in Canada when last year we seized a grand total of 43 pounds, which is a backpack of fentanyl at the Canadian border.
When you say that the national emergency is trade deficits, I don't know how you can do that. I honestly don't know how that is upheld by a court. It seems difficult to suggest that you should be able to declare a national emergency based on trade deficits that amount to wiping $6 trillion from the books in the first two days in terms of stock value.
So we'll see how that holds up over time. Meanwhile, economic policy has bleed over into the real world. It turns out that trade policy does have intersection with foreign policy, more generally military policy as well. Obviously, China, for example, growing its influence has some significant military ramifications. It is also true in Ukraine. So that China cork board that President Trump held up, the poster board, it did not have Russia listed on it. It listed Ukraine.
dozens and dozens and dozens and dozens of countries. It did not list Russia. Kevin Hassett tried to explain why Russia was not actually listed.
Well, it is pretty obvious at this point that all of the United States toward Russia are bearing very little fruit with regard to Russia actually caving in, changing its position. Over the weekend, according to the U.S. Sun, NATO had to scramble fighter jets
as Vladimir Putin unleashed a barrage of nuclear-capable bombers and ballistic missiles on Ukraine. Russia struck Central Kiev and other locations in brutal new strikes involving ballistics, cruise missiles, kamikaze drones, and aerial bombs. That came one day after a Russian missile strike on Vladimir Zelensky's hometown of Kerviri, killing at least 19 people, including nine children. The latest attack involved at least four 295 MS strategic bombers, with Putin's forces unleashing deadly KH-101 missiles from over the Caspian Sea.
So again, this is all in the middle of Zelensky saying that he is perfectly willing to sign a ceasefire like today. And Russia continues to push forward. And meanwhile, the administration continues to say we're not going to tariff you. Everybody else on earth gets tariffed, not you. At some point, reality has to set in and Vladimir Putin has to be brought to the table. If the idea is push Zelensky to get to the table, I'm all for it. I've been calling for it since 2022.
I've been doing this for three years, calling for this. But Zelensky's now at the table. That ain't the problem anymore. Putin is not at the table. That is very clear. And again, more niceties on trade are not fixing the problem, pretty obviously. Meanwhile, the Trump administration is actually doing a bunch of good things. And this is the thing that's killing me about this trade war that is, again, being poorly run out.
Get to the off-ramp. The off-ramp should be zero tariffs. Get to that off-ramp. If President Trump uses leverage to get there, great. He did it. He did the thing. Awesome. Get there because there's too much other important stuff that is happening. So, for example, the Trump administration is absolutely kneecapping higher education. The Trump administration escalated its campaign against American universities, according to the Wall Street Journal, by preparing to pull $510 million in federal grants from Brown University while also laying out demands Harvard must meet to avoid losing billions in government dollars.
The administration is freezing National Institutes of Health grants to Brown while it investigates the Ivy League school's handling of anti-Semitism and DEI. Additionally, new developments emerged regarding Harvard after the government opened a review of nearly $9 billion in federal grants and contracts earlier this week. This is great. This is necessary. This should be done. The administration is also looking into wastes of money, like, for example, an initiative called the U.S. Global Change Research Program.
Brent Schur reports this exclusively for Daily Wire. More than three decades ago in 1990, Congress mandated an initiative called the U.S. Global Change Research Program. Now it spends billions of dollars a year empowering liberal climate radicals to spread climate change doom. The government group says its role is to provide the scientific foundation to support informed decision-making across the U.S. on climate change. What that has amounted to is the production of five national climate assessment reports, the crown jewel of climate research. The report appears to be just about the only thing that the group actually does.
While the U.S. Global Change Research Program states on its website it has a budget of nearly $5 billion in 2025, it only lists two full-time employees. Mostly, the National Climate Assessment outsources its work to a group called the ICF, a massive government contractor that has an active contract to work on the report.
The Daily Wire identified at least one active contract from NASA for ICF to support the U.S. Global Change Research Program. It's set to be paid millions of dollars during the Trump administration to, quote, assist the nation and the world to understand, assess, predict, and respond to human-induced and natural processes of global change. That contract was first announced in June 2021 and described as a $34 million five-year contract to help with national climate assessments. So basically, it is a giant sop to a left-leaning organization.
And now Russ Vought, who runs the powerful Office of Management and Budget, is taking a look at this sort of stuff, which we should be doing. And this is the sort of stuff that has to be done. Doge is doing this sort of stuff. I was on the All In podcast last week, and one of the former members of the All In kind of team, Antonio, he is part of Doge. He's going through everything at Social Security, and they're coming up with giant lists of people who have been imported to the United States and given Social Security cards.
And the vast uptake in the people who are being given those Social Security cards cannot be explained by simple legal immigration. It is because Joe Biden was importing people across the border. Doge is doing really important work, really important work. If that's getting obscured by a tariff war, the rationale for which is utterly unclear and the endpoint of which is utterly unclear, and all of that is resulting in significant losses across the economy,
This is not what the Trump administration should be focused on. There are things that are really important to do. And if this is really important, then let's hear it. Let's explain. What is the end goal? What does the future America look like at the end of the pain that President Trump is pitching here?
All right, coming up, we'll be jumping into the latest from The Atlantic. We now know how that reporter from The Atlantic got into that secret signal group. Plus, we'll jump into the mailbag. But remember, to have your question answered in the mailbag and to actually listen to any of it, you have to become a member. Head on over to Daily Wire. Plus, become a member. Use code Shapiro. Check out for two months free on all annual plans. Click that link in the description and join us.