Lesotho, the China Strategy, and the Lingering Risks

A few weeks ago, I was scratching my head over the Trump administration’s tariff plan. The reason?

Lesotho.

I did some digging and found that we export just $3 billion to Lesotho. I wasn’t surprised; Lesotho’s GDP is just $2 billion, and its poverty rate is high. I asked ChatGPT  what we sell them: delivery trucks, vaccines, and food processing equipment.

I thought, why are we crushing Lesotho with a 50% tariff? It still looked like the end game might be about balancing trade deficits. But we couldn’t possibly get Lesotho to import another $230 billion worth of goods from us. And I assumed that they were just selling us diamonds, their largest export, which I knew we can’t mine in the U.S. It just didn’t make sense.

I decided to see how much we make off the diamond trade – I knew we imported rough diamonds and exported finished diamonds. I was surprised to learn that we’re the second-largest exporter of finished diamonds. But when I learned that we only import about $172 million worth of diamonds annually, knowing that we import more than $230 billion worth of goods from Lesotho, I wondered what else we buy from them.

Again, I asked ChatGPT. The answer: primarily textiles, but also electronics, machinery and equipment. I thought, “What electronics, machinery and equipment can a poor country like Lesotho manufacture that the U.S. would want to buy?” Having been to poor countries in sub-Saharan Africa, I couldn’t picture modern factories there producing those kinds of goods. Once again, I asked ChatGPT.

The response was primarily components that we assemble into finished products like computers and phones, or parts for things like boilers and nuclear reactors. Nuclear reactors? Computer components?

Knowing that China has made significant investment in many poor African nations, particularly those rich with natural resources, I asked, “Does China invest in Lesotho?” The answer?

“Yes, China has been a significant investor in Lesotho, contributing to various sectors including infrastructure, agriculture, and manufacturing … Chinese enterprises dominate Lesotho’s textile industry, owning 35 out of 41 factories. These factories employ over 40,000 workers and are a major source of export earnings.”

Bingo. That’s when I realized the punitive tariff on Lesotho was part of a strategy related to China.

Lesotho, I learned, is part of China’s Belt and Road Initiative (BRI). To summarize the BRI, it is central to China’s plan to undermine America’s global influence and economic dominance, undercut our trade alliances with other countries, end the dollar’s role as the global reserve currency, and become the new dominant superpower.

Through the BRI, China has made investments in countries large and small throughout Africa and Asia, but also Europe and Latin America. Its key objectives are to increase trade and investment between China and participating countries (but also shift production from China to other countries to expand trade beyond BRI participants); build infrastructure like roads, railways, ports, pipelines, and digital networks (the latter of which can be used to facilitate cyber-espionage); and expand China’s global influence through economic partnerships.

There are two main components: the Silk Road Economic Belt, a series of overland routes connecting China with Central Asia, Russia, and Europe; and the 21^st Century Maritime Silk Road, sea routes linking China to Southeast Asia, Africa (where more roads and railroads are being built), and Europe via major ports.

Projects include roads, power plants, fiber optic cables, and the Gwadar Port in Pakistan, a key strategic gateway to the Persian Gulf; railways in Laos, Indonesia, Kenya, Ethiopia, and Europe; the Piraeus Port near Athens, Greece; and energy projects in Argentina.

Criticisms have included debt trap diplomacy (China burdens countries with unsustainable debt to gain political leverage); lack of transparency and environmental standards; safety issues and project failures; and most importantly, geopolitical motives that transcend economics.

Imagine if the BRI is successful long-term. What if China replaced us as the largest shareholder in the IMF and the World Bank, and thereby could impose sanctions on other countries for alleged bad behavior and promote economic policies that align with its interests? China could sanction the U.S. for any false allegation it chose to levy, and use its influence to leverage BRI countries to support those sanctions. We could be cut off from exporting oil, or have to give up our nuclear arsenal, or have to close military bases in foreign countries.

This is not the stuff of tin foil hats. The BRI is about dominance over the U.S., but not through direct confrontation. It’s about replacing U.S. leadership in global finance by using yuan in BRI loans and trade. (China has recently done major energy deals trading in yuan.) It’s also about replacing our leadership role in technology (5G, AI) and infrastructure (ports, railways, energy). Ultimately, China wants to create a world where China, not the U.S., makes the rules, where other countries turn to Beijing, not Washington. It’s the 21st century Cold War.

Is there a military component? Not overtly (yet). However, the building of strategic ports (dubbed the “String of Pearls”) can be used for refueling, resupply, or as future naval bases. And China already has its first foreign military base in Djibouti. Its navy is expanding blue-water capabilities. The BRI has a “Digital Silk Road” component that has installed Chinese-controlled communications networks in several countries that can facilitate espionage or information control, which can be used for military purposes.

What does this have to do with the tariff plan?

I believe that the Trump administration wants to derail the BRI, and the tariff plan may be central to that.

There are two threats to King Dollar: Triffin’s Dilemma and the BRI. The tariff plan can resolve both. Here’s how it might play out with regard to the BRI.

Many companies are already deploying a “China+1” strategy, diversifying manufacturing out of China and into countries like India, Vietnam and Mexico. That’s increasing due to the tariff plan; Apple is planning to move more production to India. This will reduce dependence on China, slow its growth, and reduce its leverage.

As we forge key trade partnerships, especially for strategic industries like semiconductors, pharmaceuticals, rare earths, and defense manufacturing, we further reduce dependence on China, while continuing to encourage domestic investment in those sectors.

We restrict the transfer of technology to China. We’ve already banned high-end chip exports, limited AI hardware and software sales, and blocked Chinese investment in strategic U.S. companies, and we’re tightening further. Other countries like Japan and the Netherlands are joining the effort.

We can start targeting BRI countries, especially in Africa and Asia. Indonesia, Malaysia, and Lesotho are nations with BRI ties that are already in trade talks with us. Other countries with looser BRI ties, like Vietnam, are also in talks with us. Vietnam recently imposed its own anti-dumping tariffs on China, fearful that with the U.S. market effectively closed, China would turn to them as a place to dump cheap goods.

How is a country like Lesotho important in all this? It’s a domino effect. That 50% tariff would crush Lesotho. So, in spite of the heavy investment by China, Lesotho is clamoring for a trade deal. The U.S. is its third-largest export market – it sells nearly ten times as much in goods to the U.S. as it does to China, so it’s in its best interest to move our way.

If Lesotho inks a deal with us, other small African BRI countries might follow, like Botswana, or Eswatini (the only African country that recognizes Taiwan), or … Djibouti, home of China’s sole foreign military base. There’s a Cold War parallel here: U.S. success in Grenada and El Salvador in the early ‘80s was a sign that the USSR might be vulnerable.

This might then pressure mid-tier, regionally important BRI partners like Kenya, Vietnam, and Indonesia through things like strategic investment offers or debt relief packages contingent on limiting Chinese projects. Another Cold War parallel: Poland’s Solidarity movement showed that resistance was possible, and other countries followed.

The end game would be to slow or reverse BRI expansion. Countries might begin to default on China-backed debt, and China’s vision of a new global order could stall out, much as the USSR collapsed without direct military conflict with the West.

Now, it could very well be that the end game is nothing more than trade deals. But given what’s happening with the Panama Canal negotiations (wresting control from China), returning the U.S. military to a position of combat readiness and modernizing materiel like fighter jets, looking at strategic geographic alliances with countries like Canada and Greenland (I don’t believe we really want to “own” them, I believe the objective is to form EU-like trade and security partnerships), and the focus on rare earths, it seems like the tariff plan may be part of a larger plan as it relates to China.

Lesotho is the 164^th-largest economy in the world, ranked by GDP. China is second-largest. But there may be a strategic link between the two, and it may have started with a 50% tariff on one of our smallest trading partners.

Either way – whether or not the tariff plan is about disrupting the BRI – the China piece of the puzzle is about more than just trade. At a minimum, it’s also about addressing all of China’s other misbehavior, like IP theft, espionage, other unfair trade practices, etc. It’s also about reducing dependence on China for key infrastructure manufacturing.

I believe that the trade agreements with key strategic partners will get done within the 90-day “pause.” If not, it’ll be extended. In the meantime, I believe de-escalation with China will continue, because the current situation is unsustainable. And I believe a deal will get done with China before year-end.

There are two lingering medium-term risks, and by medium-term, I mean through 2028. The first is the risk that, even though we’ll have forged new agreements with our trading partners, the nature of the rollout and the persistent comments about being “ripped off by friend and foe” will damage relationships and undermine trust. It may be that this was all part of the broader China strategy, and key trading partners were clued in behind the scenes that we’d use that tariff calculation and accuse them of “ripping us off.”

I don’t believe that’s the case; someone would have leaked. I also don’t believe the President was thinking that strategically. I believe this is just another example of his often ham-handed rhetoric. (Fed Chairman Powell would agree.)

The other risk is that the market has lost some confidence due to its perception of an erratic process of executing and communicating the strategy. As one respected business commentator put it, it’s like we’re all in a pickup truck cab, and President Trump is driving down a bumpy dirt road after dark with the headlights off. No one can tell where we’re headed, but he’s saying, “Don’t worry, I’ve got this, I know where I’m going.” But everyone is still worried.

That could result in an “uncertainty discount” in the market throughout the remainder of his term: even though the market will recover, it may not go as high as it otherwise could, because it may price in an allowance for uncertainty over what the administration might do next. Time will tell.

The Trump 2.0 Tariff Plan: the Rollout and the End Game

We’ve defined tariffs and trade deficits, examined why we run trade deficits as the issuer of the global reserve currency, and discussed why and how tariffs are used. Before we get into the current administration’s tariff plan, I want to get something out of the way.

I generally try to remain politically agnostic when discussing economics. As such, I avoid showing my cards in terms of my political leanings. I have friends across the political spectrum. Some of my liberal friends hate everything President Trump does, and believe he and his team don’t know what they’re doing. Some of my conservative friends support everything he does, and seem to believe he can do no wrong.

I’d never agree with everything any political leader does. I call balls and strikes. When I believe a President’s policies are good, I’ll say so, and when I believe they’re bad, I’ll say that, too. I say this to establish that any criticism I make of the current tariff plan isn’t partisan, as is the case with most who criticize it. It has to do with economics, pure and simple.

I’ll also say this about President Trump, Treasury Secretary Bessent, Commerce Secretary Lutnick, and Counselor to the President Navarro. You may disagree with them. You may dislike them. You may even hate them. But it’s ridiculous to say they don’t know what they’re doing. These are four highly educated men, three of them very successful businessmen, one an economist. They understand trade policy better than you or I do.

On to the tariff plan.

When those four men walked out to the Rose Garden after the market closed (a wise strategic choice) on April 2 with the now-infamous tariff chart and announced the plan, my hair caught on fire, like so many other market observers and economists. (As a good friend put it, it was a very small fire.) Part of that had to do with the fact that I looked at equity futures and considered what my IRA balance was going to look like the next day.

But part of it had to do with the fact that the administration misrepresented the tariff rates that those other countries charge us – it was a complete fabrication. And I’d prefer they’d have told the truth.

By now this is pretty common knowledge, but let me explain how they came up with the “tariff rates” they claimed other countries charge on our exports. I’ve mentioned President Trump’s decades-long obsession with trade deficits, which he himself admits. They took each country’s trade deficit, and divided it by that country’s exports of goods to the U.S. (They ignored services altogether.)

Let’s return to the example of tiny Lesotho, with which we had a $234 billion trade deficit last year, resulting from exports to Lesotho of just $3 billion subtracted from imports from Lesotho of $237 billion. They divided the $234 billion trade deficit by Lesotho’s exports to the U.S. of $237 billion and came up with a “tariff rate” of 99%. They then claimed that for each country on the list, they would be “lenient” and only charge “half” of what that country purportedly charges the U.S. So in Lesotho’s case, they applied a reciprocal tariff of 50%.

The truth is that Lesotho’s Most-Favored-Nation (MFN) trade-weighted average tariff rate is 11.2%. A 50% tariff rate on imports from the tiny African country would dwarf what it charges its trading partners, and would crush its economy. The U.S. is its third-largest export market, representing nearly 20% of its exports.

The fact of the matter is that no one calculates tariff rates the way the Trump administration did. No one has ever calculated tariff rates that way. No one could find any examples in the economic literature of tariffs being calculated that way.

Tariffs are calculated in one of two ways: either a unit tariff, which is a fixed charge per unit (e.g., $1 per bushel of wheat) or an ad valorem tariff, which is a percentage of the value of the goods being imported (e.g., 5% of the price of each imported vehicle). These can be combined into a compound tariff (e.g., $100 per vehicle plus 5% of its price).

But again, no one – no one – calculates tariffs by dividing the trade deficit with a country by the imports from that country.

When the administration presented those numbers, the reaction was immediate. Equities tanked. Trading partners were shocked. And economists and market pundits thought that Trump, Bessent, Lutnick and Navarro didn’t know what they were doing.

In hindsight, I believe they did. Let’s illustrate one reason.

Consider Vietnam. Vietnam’s trade deficit with the U.S. in 2024 was $123 billion, on exports to the U.S. of $136 billion and imports from us of $13 billion. By the administration’s calculation, that amounts to a “tariff rate” of 90%. So we announced a “lenient” reciprocal tariff of 46% on Vietnam.

Vietnam’s actual trade-weighted MFN tariff rate? 5.3%.

Shortly after the tariff plan was rolled out, Vietnam offered to cut its tariff on exports to the U.S. to zero. While no deal has yet been made, I believe this gives us a peek into part of the strategy behind using the draconian calculation of other countries’ “tariff rates” on the U.S. and then cutting those in half to come up with a “lenient” retaliatory rate that is actual extremely punitive.

President Trump prides himself on his negotiating prowess. After Vietnam offered to drop their tariff rate to zero, some conservative commentators heaped praise on his deal-making ability, stating that he’d gotten Vietnam to drop its tariff rate from 90% to zero! In reality, they’d gone from 5.3% to zero, a pretty painless sacrifice when faced with a 46% tariff from your largest export market. Deals like this would paint a picture of the President as the consummate dealmaker.

(It should be noted that Vietnam is also a China proxy. As U.S. imports from China have trended downward, Vietnam’s exports to the U.S. have increased, in part due to China shifting production into its fellow Communist neighbor to the south. And Vietnam, like China, has been guilty of currency manipulation, dumping, unfair subsidies, IP theft, and cyber-espionage. So there are other reasons to impose high tariffs on Vietnam besides trade tit-for-tat.)

While I’m not a fan of the calculation used, and I think there are associated medium-term risks, I believe it was strategic for reasons beyond the President’s ego. But let’s turn to the likely end game. There are three possible scenarios, and two are implausible.

The first is that these are broad, long-term tariffs aimed at permanently eliminating trade deficits and completely re-shoring manufacturing. I’ve already addressed the damage that would cause to our status as the global reserve currency. It’s also impossible, but even if it weren’t, it would take decades. Little progress would be made during President Trump’s term, so he wouldn’t have an opportunity to take a victory lap for his policies, and he loves taking victory laps. The economic fallout would also likely hand the White House to a Democrat in 2028, who would surely reverse the tariff policy. This obviously isn’t the end game.

The second scenario – I actually saw this floated, and not by conspiracy theorists – is that the administration was trying to tank the stock market to drive a flight to quality (Treasuries), driving bond yields down. With $9 trillion in debt coming due in 2025, each basis point of yield is worth $1 billion in borrowing cost. So when the ten-year yield dropped 20 basis points, that would have saved $20 billion.

Two problems: one, that’s a drop in the bucket, even if you combine it with the tax cuts, savings from DOGE, lower energy costs, deregulation, revenue from tariffs, and other economic positives. And second, yields returned to where they were before the rollout or higher, negating any potential savings. This obviously wasn’t the plan.

The third possibility is that the plan all along was to use the flawed calculation of the “tariff rate” other countries charge us to justify the exorbitantly high reciprocal tariffs that were announced on those countries. Of course, we now know that after Treasury yields spiked by 50 basis points, when tariff hawk Navarro was away from the White House, the more diplomatic Bessent (who’s also responsible for refinancing the debt), accompanied by Lutnick, met privately with Trump and persuaded him to pause the reciprocal tariffs on all countries but China for 90 days.

At first blush, it appeared that the administration was bumbling through its strategy, making things up as it went along. However, there’s a good chance that the private meeting in which Bessent talked the President into the pause was more along the lines of, “The time for the pause is now,” rather than, “Gee, maybe we should think about a pause on the tariffs.” In other words, maybe a pause was part of the strategy all along; the timing of its announcement was the question mark.

So why use the phony “tariff rate” to justify those high reciprocal tariffs? To pressure key trading partners into coming to the table quickly to make trade deals.

I believe that the administration wants to quickly forge trade alliances with key partners like Canada, Mexico (through accelerated renegotiation of USMCA), the EU and member nations, Japan, South Korea, Australia, and India. Other countries like Israel are of strategic interest beyond just trade. The same is true of China proxy Vietnam, and other Asian nations like Taiwan, Thailand, Indonesia, Singapore, and Malaysia.

Further, I believe the administration wants to keep the pressure on China to isolate them while it makes these trade deals, to force them to eventually come to the table. The U.S. does not want China to strike a deal first, because, as Bessent said, “The first person that makes a deal gets the best deal.” And the strategy with China goes far beyond trade.

I don’t believe the U.S. necessarily wants to eliminate trade deficits with all those countries, because I believe that Trump, Bessent, Lutnick, and even Navarro understand what it means to be the issuer of the global reserve currency. I believe they just want a more level playing field, and reduced tariffs worldwide. Remember, the U.S. historically has charged lower MFN tariffs than most of its trading partners.

As far as re-shoring manufacturing, I don’t believe they’re too concerned about that. I believe it’s an objective to some degree. But I believe they’re just as interested in moving production of critical security and supply chain infrastructure from China to other countries. We know we can’t produce most things as cheaply in the U.S. as we can in China. But we can produce them just as cheaply in India or Singapore or Malaysia – and those countries don’t hate us. Key priorities include pharmaceuticals, technology, war materiel, and microprocessors.

Now, all of the countries I listed, and some others, are already negotiating with the U.S., and it’s likely that the first deals will be announced the week after I post this. So you may be saying, “Brilliant deduction, Captain Obvious.”

In my defense, I came to this conclusion two weeks ago. What tipped me off that this might be the end game?

Tiny Lesotho. And I’ll save that story for the last post in the series.

The Lawn Guy, the Chicken Tax, and Rice: More Tariff Talk

A good friend of mine, after reading the first two installments in this series of posts, asked me exactly the right question:

“Assume you’re the U.S., and your lawn guy is China. You (the U.S.) send lots of dollars to your lawn guy (China). In return, you get your lawn mowed (Chinese goods). So the U.S. has sent dollars to China, which you say is a good thing. Then why does an additional tax/tariff need to be applied on top of the dollars we’re sending them?”

The simple answer is that it doesn’t – tariffs are unnecessary, which is why I don’t like them. But it’s never that simple. Having defined tariffs, let’s dive into why they’re used.

There are two primary reasons tariffs were traditionally imposed on imports from other countries. The first was to generate revenue for the government imposing the tariff. In fact, the U.S. used tariffs as its primary source of revenue during most of the 18^th and 19^th centuries. That changed when the 16^th Amendment was ratified in 1913, which gave Congress the power to levy income tax. After that, the income tax became the main source of government revenue.

(Sidebar: if we would eliminate the income tax, I’d be a big fan of tariffs. A consumption tax, which is basically what a tariff is, makes far more sense to me than an income tax.)

The second reason is to protect domestic commerce. An example is the absurdly named “Chicken Tax.” In the 1960s, the U.S. was exporting large quantities of cheap chicken to Europe, undercutting domestic poultry production. So some European countries imposed tariffs on U.S. chicken exports. In response, President Johnson imposed a 25% tariff on some imported goods from Europe, including light trucks (aimed primarily at VW).

Later, the light truck tariff – still in place today – was expanded to include other countries, including Japan. This helped protect the U.S. auto industry from cheaper imported trucks (and the original “chicken tax” protected European poultry production).

Another example of a protectionist tariff – and it’s a perfectly rational one – is Japan’s rice tariff. The Trump Administration claimed that Japan imposes a 700% tariff on U.S. rice exports. That’s misleading. Japan has a tariff-free import quota for rice. For imports above that amount, it does charge a steep tariff, which got as high as 700% several years ago, but based on recent rice prices, it’s “only” about 400%. Still, the Administration used the higher figure for effect. Also, while the U.S. is a significant exporter of rice to Japan, it generally stays within the tariff-free import quota, so it avoids paying any tariff at all on rice exports to Japan.

Why does Japan charge such a high tariff on rice? Rice farming is very important to Japan’s agriculture sector, and to its culture, because rice is a major food staple in Japan. Japan consumes more rice than it can produce. However, Japan’s rice production is declining due to increased urbanization and a declining rural population. Also, its rice farms are quite small compared to other rice-producing countries. The average U.S. rice farm is more than 100 times the size of the average Japanese rice farm. Without Japan’s tariffs, countries with greater efficiencies and economies of scale like India or Thailand, the largest rice producers, could flood the Japanese market with cheap rice, destroying a key component of its ag sector.

That brings us to another important point: Japan imposes that tariff on all countries it buys rice from. In fact, virtually all countries impose the same tariff rate on all their trading partners under the Most-Favored-Nation (MFN) principle of the World Trade Organization (WTO). One exception to this is negotiated free trade agreements, like the U.S.-Mexico-Canada Agreement (USMCA) or the EU’s single market. These allow countries to have more favorable trade conditions with their partner countries without violating the MFN principle.

Retaliatory tariffs are another exception, and the retaliation may be for dumping goods at below-market prices or other unfair trading practices. Another exception to the MFN principle is tariffs used as a negotiating tool, but let’s revisit that later.

Other than these exceptions, tariff rates are applied uniformly to all trading partners under the MFN principle. If other countries are “ripping off” the U.S. based on the tariff rates they charge, then they’re ripping off every other country they trade with, too. And if all of these countries are charging each other tariffs to the extent that they’re all ripping each other off, you’d think a global trade war would have ensued a long time ago. (At issue is the fact that while the U.S. did impose tariffs prior to President Trump, our tariff rates were generally much lower than other countries.)

I mentioned that President Johnson used tariffs to retaliate against Europe’s “chicken tax,” and that retaliatory tariffs are an exception to the MFN principle. That’s a good clue as to a third use of tariffs besides revenue and protectionism: retaliation. We’ve already talked about that, and we’ve seen it play out in real time in recent weeks between the U.S. and China. I believe that part of the exceedingly high tariffs against China have to do with things other than their unfair trade practices, but we’ll get to that later (sorry to jump around, but I don’t want to go down too many rabbit-holes).

Now let’s talk about tariffs as a negotiating tool, the fourth use case. That can apply to trade – to bring a trading partner to the table to negotiate a better trade deal, improved market access, maybe a free trade agreement like USMCA. Or it can apply to some other policy priority.

During President Trump’s first term, he threatened an escalating tariff against Mexican imports unless Mexico gave him what he wanted on illegal immigration through Mexico from Central America. After negotiations, Mexico agreed to assist with limiting the flow of migrants through its country to the U.S., and the tariff was never imposed.

President Trump used similar tariff threats earlier this year against Canada, Mexico, and Venezuela to gain cooperation on border security, fentanyl trafficking, and repatriation of illegal immigrants from Venezuela. In each case, those countries agreed to terms, and the tariff never materialized. So the U.S. is able to use its considerable economic clout to gain assistance from trading partners in achieving policy objectives unrelated to trade.

Okay, now let’s talk about some of the other possible reasons for the high tariffs on China. First, there’s theft of intellectual property. Remember the recent DeepSeek AI chatbot that China rolled out? It was claimed that it was just as good as ChatGPT, but that it took a fraction of the development time and budget. (Those claims have since come into question; the development cost may actually have been much higher – imagine, China lying to the rest of the world.) Well, when some smart tech people tested DeepSeek and asked it to identify itself, it sometimes identified itself as ChatGPT.

While there’s no definitive proof of IP theft, the fact that the model identified itself as ChatGPT more than half the time suggests that its training data probably included ChatGPT-generated text, which violates ChatGPT’s terms of service.

That’s just one of thousands of examples. China also spies on the U.S. and other countries. Remember the spy balloon? And they recently admitted hacking into some of our key infrastructure. (You’re worried that DOGE may have your Social Security number? Look east, young man.) China copies our technology and sells products using that technology back to the U.S. Our companies can’t sue Chinese companies, because we don’t have access to their courts. But they have access to our courts, so they can sue our companies. Chinese companies operating in the U.S. don’t have to comply with Generally Accepted Accounting Principles (GAAP). They restrict access to our markets for exporters and investors, but they manufacture, sell, and invest here.

Get the picture? The playing field isn’t level.

Let’s go back to my friend’s analogy. It doesn’t make sense for me to charge my lawn guy (China) a tax just on the basis of the trade deficit I run with him, because of the exorbitant privilege I enjoy from not having to mow my own lawn.

But what if I found out that every time he mowed my lawn, he was stealing from me? Peeking into my windows and spying on me? Cheating me in other ways? What if he ultimately wants to take over my house? You can be sure that I’d restrict him from being able to mow my lawn anymore, at least until he changed his ways. (Actually, I’d fire him for good, but let’s go with the analogy.)

That’s basically what the U.S. has done by hitting China with a 145% tariff: we’ve imposed a trade embargo. China can’t trade with the U.S. at that level. And the U.S. can’t trade with China given the 125% retaliatory tariff they’ve imposed on us. Something’s got to give.

I’m going to end with a discussion of what effect tariffs have in the context of “King Dollar,” and I’ll wait to address the specifics of the Trump Administration’s plan in the next post.

Strategic, temporary tariffs used as leverage in trade negotiations to open foreign markets and target behaviors like dumping, IP theft, currency manipulation, and state subsidies can enhance long-term U.S. competitiveness without having an excessive adverse impact on global dollar circulation. The result can be new free trade agreements, and bilateral elimination or reduction of tariffs.

However, broad, long-term tariffs aimed at permanently reducing trade imbalances to re-industrialize will shrink the flow of dollars globally and weaken reserve status. The way it works is that those tariffs reduce imports, resulting in fewer dollars flowing abroad. This leads to less dollar liquidity for central banks to hold in reserve, for global trade to be settled in dollars, and for foreigners to buy U.S. assets.

That reduces the dollar’s status as a reserve currency, especially if other countries step in and try to create an alternative. The problem is that there is no viable alternative that could replace the dollar in the foreseeable future, so global financial markets could collapse. Even if there were a viable alternative, if the U.S. lost its status as the global reserve currency, it would also lose all of the benefits thereof, and it would take decades to re-industrialize, if it ever could, given the current regulatory framework, cost of labor, etc. We would no longer be the dominant economic player on the world stage, and we’d lose our geopolitical clout. Who would have the strength to impose sanctions on the bad actors? The world would be much less safe.

In summary, targeted, temporary tariffs can be a powerful tool in addressing Triffin’s Dilemma and increasing fairness in global trade. But broad, long-term tariffs cause far more harm than good. And that should provide some clues as to what’s coming in the next post.

King Dollar, Triffin, and the Exorbitant Privilege

This post is going to focus on reserve currencies and why countries run trade deficits; the benefits that accrue to the issuer of the global reserve currency; and the tension that can produce. But first, a bit of history.

Prior to WWI, the British pound sterling was the world’s reserve currency (meaning that most global trade was conducted in pounds), and London was the financial center of the world. Then WWI and WWII came along. Britain had spent its industrial dominance building (and depleting) its war machine, it had taken on heavy debt defending itself, and it had been bombed mercilessly by the Germans, requiring extensive rebuilding. Meanwhile, the U.S. emerged from WWII with half the world’s gold reserves, a massive industrial base, and little physical destruction at home.

Thus, in 1944, the Bretton Woods Agreement formalized the dollar’s role as the world’s reserve currency, linked to gold, and the pound was forever replaced in that role. President Nixon decoupled the dollar from gold in 1971 to stop other countries, which had rebuilt after the war and were now running trade surpluses with the U.S., from exchanging their dollars for gold and thus draining U.S. gold reserves. (This began the era of floating exchange rates and fiat currencies, but that’s another story.)

It’s in the U.S.’ best interest to maintain the dollar’s status as the global reserve currency, for several reasons. The first is cheaper borrowing costs. Global demand for dollars and Treasuries keeps U.S. interest rates lower than they would otherwise be. For that reason, the U.S. can borrow more cheaply than any other country. And when we need to conduct emergency borrowing, as we did during the 2008 financial crisis and the covid pandemic, when we issued trillions of dollars of new debt at very low interest rates, we have a competitive advantage over other countries affected by those crises.

Second, we can run persistent trade deficits without facing a crisis (up to a point). We can import more than we export and pay with our own currency without facing capital flight. (We’ll explore this more later.)

Third, we wield considerable geopolitical power. We can impose financial sanctions on countries like Russia and Iran, enforce those sanctions through control of dollar clearing systems, and influence global finance through institutions like the IMF and the World Bank. As the largest shareholder in those institutions, we can maintain the dollar’s dominance and promote economic policies that align with our interests.

And finally, we enjoy global seignorage, which in effect allows us to obtain zero-interest loans from other countries that trade in dollars. Here’s an example: the Fed creates $100 billion, at minimal cost. Those dollars flow abroad in one of several ways: a foreign government buys U.S. Treasuries, or a company in Europe keeps dollars to pay for oil, or tourists use U.S. cash abroad and it never comes back into the U.S.

In return, the U.S. gets real goods, services or financial assets in return. For example, Americans buy cars from Europe or oil from the Middle East. The other countries accept dollars and hold them rather than converting them back into their own currency or demanding U.S. exports. The dollars may sit in foreign central bank reserves or be used as trade currency elsewhere. Globally, about $7-8 trillion in physical and digital U.S. dollars is held outside the U.S., much of that amount never returning home.

Because the U.S. issued those dollars at little to no cost and received real value in return, we’re effectively importing goods and services from the rest of the world, in exchange for paper or digital currency that the rest of the world is content to hold and not redeem. It’s like writing IOUs that are never cashed in, and that we don’t pay interest on. That interest-free loan is estimated to be worth as much as tens of billions of dollars a year, plus demand for Treasuries – especially during times of crisis – keeps U.S. borrowing costs lower than they would be otherwise.

That global seignorage is what former French President Charles de Gaulle grumpily called the U.S.’ “exorbitant privilege.” But that privilege comes with a cost. It contributes to persistent U.S. trade deficits, as other countries are more than happy to sell us goods and services in exchange for the dollars they hoard. This can eventually lead to overvalued currency and, ultimately, erode confidence in “King Dollar.”

Now we’re getting to the crux of the matter of why we run persistent trade deficits: it’s in our best interest to maintain the dollar’s primacy as the global reserve currency; we don’t ever want to lose that. To do so would be to lose our pre-eminent role in the global economy, as Britain did in 1944. But before we explore that, let’s look at a micro-level example of the “exorbitant privilege,” which may help better grasp how this plays out.

Recall the examples of the persistent “trade deficits” that I run: I pay someone to mow my lawn, cut my hair, groom my dogs. I pay restaurants to prepare meals for me. On a less persistent basis, I pay airlines and cruise lines; these expenditures are larger, but derive a greater benefit for each transaction. I pay for these services to enhance my quality of life – I’m spending my own currency in ways that bring me greater value in the form of time, enjoyment, and experiences.

In economic terms, I’m functioning like a micro “global reserve currency” because I’m able to make these transactions and reap the benefits, similar to the way the U.S. dollar is used globally as a reserve currency: other countries trade with us because the dollar holds inherent value, and we enjoy the privilege of being able to run trade deficits with little consequence. Likewise, my dollars have value to the entities with which I trade, and I’m able to enjoy the goods and services they provide with little consequence (as long as I don’t overspend).

My “exorbitant privilege” comes from being able to spend my (relative) wealth in a way that enriches my life, so even if I incur a “trade deficit” in a monetary sense, the return on my investment is substantial in terms of my well-being. Make sense?

Okay, so here’s the issue with being the issuer of the world’s reserve currency – “King Dollar”: in order to supply the world with dollars, the U.S. must run trade deficits. In other words, we must import more than we export, so that more dollars flow outside the U.S. than other currencies flow in. This allows foreign central banks and institutions to acquire dollars for trade and reserves. However …

If we run persistent and excessive trade deficits, we risk undermining global confidence in the dollar, which could lead to inflation, devaluation, or a run on dollar-denominated assets.

This happened after the Bretton Woods Agreement, when the U.S. had to supply dollars to the rest of the world to support trade and investment. But as dollar reserves accumulated abroad, concerns grew that we didn’t have enough gold to back all of those dollars. That led to a crisis of confidence in the dollar, which was what led Nixon to end the convertibility of dollars to gold.

This conundrum – the fact that we have to run trade deficits to maintain “King Dollar,” but we can’t let those deficits become so large and persistent as to erode confidence in the dollar and thereby threaten its supremacy, became known as the “Triffin Dilemma,” named for economist Robert Triffin, who explained it in testimony before Congress in the 1950s while addressing the sustainability of the Bretton Woods system.

Today, the U.S. finds itself once again running very large and persistent trade deficits, and …

I believe that addressing the Triffin Dilemma is the over-arching goal of the Trump Administration’s tariff strategy.

Now, a naturally occurring consequence of being “King Dollar” is that by running trade deficits to supply the world with dollars, we undermine domestic manufacturing over time. This leads to gradual deindustrialization, a decline in blue-collar manufacturing, globalization of the supply chain, and a more service-based economy. It’s not that the U.S. has intentionally decimated the factory sector; it’s a naturally occurring consequence of being the global provider of liquidity. All this talk about “bad policy of previous administrations shipping manufacturing jobs overseas” is just a populist political talking point, one that’s used by both parties.

Economists like Triffin and even former Fed Chair Paul Volcker, who rescued the U.S. from the stagflation of the 1970s, understood this. Volcker said, “A global reserve currency has to be available in sufficient quantities, and that availability inevitably involves running balance-of-payments deficits.” And running balance-of-payments deficits means importing more than you export, which will naturally result in deindustrialization. You can’t have both a strong, export-led, manufacturing economy and be the issuer of the global reserve currency, at least in the long run.

So should we re-industrialize entirely, and sacrifice the status of “King Dollar?” Absolutely, unequivocally not. Doing so would mean giving up all of the benefits that accrue to the U.S. due to the dollar’s supremacy: seignorage, considerable geopolitical clout, and perhaps most important of all, low borrowing costs, especially during times of crisis. Those things are of far greater value to the U.S. than manufacturing dominance – just ask Britain.

But if our deficits get out of control, couldn’t China eventually overtake us and become the issuer of the global reserve currency? Not a chance.

Even though China is the world's second-largest economy and top exporter, the yuan faces huge structural barriers to reserve currency status. First, China strictly controls capital flows into and out of the country. You can’t have a true reserve currency if other nations can’t freely move money in and out of your system. Second, the yuan isn’t backed by an independent judiciary, a transparent regulatory regime, or a stable political system. Global investors don’t trust the CCP to keep the rules consistent.

Third, the yuan is only partially convertible. It doesn’t trade freely like the dollar, euro, pound, or yen. This makes it unreliable for reserves or large-scale trade settlement. Fourth, global reserves are parked in liquid, safe assets, with U.S. Treasuries being the gold standard. China’s bond markets aren’t nearly as liquid, or accessible. And finally, other countries simply don’t want to be dependent on China, given its track record on things like debt diplomacy, technology control, market access, censorship, spying, and IP theft.

As for any other country’s currency replacing the dollar, no other country is even close in terms of the size of its economy. U.S. nominal GDP is more than $30 trillion, nearly doubling China’s at less than $20 trillion. The third-largest economy in the world is Germany, with nominal GDP of less than $5 trillion. India is fourth, but if California were a country, it would hold that position.

That’s enough for this post. The next post will address some issues with tariffs in general and the administration’s tariff policy. If space allows, I’ll get into the possible end games, and the most likely one; if not, I’ll save that for a final post.

A Primer on Tariffs and Trade Deficits

For obvious reasons, there’s been a lot of talk about tariffs over the past several weeks, since President Trump rolled out his tariff plan on April 2. (It seems a lot longer ago than that, doesn’t it?) I’ll weigh in with my thoughts on the plan; the good and the bad; what I believe the end game is, including possible other scenarios and why I believe they’re not likely; and what I believe are the key risks regardless of how it plays out.

But first, a couple of posts are in order to lay the foundation for further discussion. It’s a complex topic, and rather than inundate readers with one of my trademark “War and Peace” length posts, I thought I’d be kind and break this into more manageable chunks (assuming you consider nearly 2,000 words “manageable”). So let’s start with some basic definitions, because from some of the comments I hear, a lot of people don’t really understand what tariffs are, what they’re used for, and who actually pays them.

And because President Trump is obsessed with trade deficits, I also want to address that topic on a fundamental level, since it appears to be equally misunderstood. In the next installment, I’m going to delve into trade deficits in more detail, and that post may be the most important one in truly understanding what all of this is about.

In general, as a free-market monetarist, I’m not a fan of tariffs. When I’ve remarked that I don’t like this tariff plan, I’ve had friends ask me, “What’s wrong with us slapping tariffs on countries that have been charging tariffs on the U.S.?” That question may indicate a misunderstanding of what a tariff is. (I say “may,” because it could be that the person who asks it is just playing fast and loose with the wording of the question.)

The textbook definition of a tariff is that it’s a tax on the importer of a good (or service) from a foreign country. It is not a tax on another country itself. The U.S. doesn’t have the authority to impose a tax on another sovereign country. So when the headlines say that the U.S. is charging China a 145% tariff, they’re misrepresenting the facts.

What’s actually happening is that the U.S. is charging a tariff, or import tax, on any company that imports goods into the U.S. from China. That could be a Chinese company, like AliExpress, which is kind of the Chinese version of Amazon Marketplace. AliExpress aggregates a bunch of smaller Chinese sellers who sell goods through its platform to U.S. consumers. So the tariff would be charged to AliExpress. Then it’s up to them to either absorb part or all of the tariff, or pass it along to its sellers, who also have to decide whether to absorb part or all of it, or pass it along to their U.S. consumers.

I can guarantee you that given the magnitude of a 145% tariff, AliExpress and its sellers are going to pass that tariff along to the U.S. consumers, in the form of higher prices. So that $15 shirt you buy from AliExpress is going to cost more than double that amount.

(Note that this example is overly simplified for illustrative purposes.)

Another possibility is that the tariff is applied to a U.S. company. Apple builds their iPhones in China and ships them to the U.S. to sell them here. So they’re importing the phones from China. Thus they, too, would be charged a 145% tariff, even though they’re an American company. (And they, too, are going to pass a tariff that large on to their customers, who are now going to pay a whole lot more than $1,600 for an iPhone – except that President Trump granted an exemption for electronics coming in from China, and is now only subjecting them to the 20% “fentanyl tariff.” Are you confused yet?)

Actually, there’s a third form of tariff. Have you ever traveled abroad, or gone on a cruise and visited a foreign port, and bought souvenirs? You bring them home, and when you clear Customs, you have to declare what you bought and how much you spent. If it’s more than the duty-free exclusion (currently $800 per person with some conditions), you have to pay a duty on the amount you spent above the exclusion.

That duty is a tariff. So if you ever declared more than the exemption and paid a Customs duty, you paid a tariff for importing goods into the U.S. Congratulations.

Now that we’ve cleared up what tariffs are and who pays them, let’s turn our attention to trade deficits. A trade deficit occurs when one country (or entity) imports more from another country (or entity) than it sells to that country. For example, the U.S. imported about $439 billion worth of goods from China last year. (I know I’m picking on China – but hey, so is President Trump.) We exported $144 billion worth of goods to them. So our trade deficit with China was about $295 billion.

If we export more to a country than we import from them, we run a trade surplus with that country. (China runs a trade surplus with us; for every country “A” that runs a deficit with a country "B,” country “B” runs a surplus with country “A.”) Our largest trade surplus in 2024 was with the Netherlands; we exported $124 billion to them, and imported just $51 billion from them, resulting in a surplus of more than $70 billion. Love that gouda cheese.

Note that I said that countries or entities can have trade deficits and surpluses. Although the data isn’t readily available, individual states have deficits and surpluses with each other (and you don’t see them threatening each other with tariffs). And why don’t they?

Because there are certain benefits to be derived from running a trade deficit. Let’s start with a very simple, “entity-level” example. I don’t mow my own lawn. I haven’t since 2013. It’s not that I’m not physically able, nor do I not have the time now that I don’t travel for work much. There are just other ways I’d rather spend my time.

So we pay a guy to mow our lawn. He provides that service to us, and we pay him for it. There is no quid pro quo. I don’t do anything for him that he pays me for. Therefore –

I run a chronic trade deficit with him.

He gets my money, I get my lawn mowed. That’s my benefit. I guess you could say that he “pays” me in time, or quality of life. If I wanted to balance that deficit, I could do it in one of two ways: I could demand that he pay me an equal amount to do something for him (like what – manage his investments?), or I could “onshore his production” by mowing my own lawn, which would save me some money (after I invested in a lawnmower, gas, oil, and a weed eater), but it would cost me my time. Plus my allergies would suffer in the Spring, and I’d get hot and dusty in the Summer.

I also run persistent trade deficits with the person who cuts my hair, the person who grooms our dogs, my doctor, my dentist, our veterinarian … And I run occasional, but large trade deficits with airlines and cruise lines, but I get significant benefits from the experiences I enjoy when we travel (I’d much rather pay for experiences than things).

Wow, how do I pay for all these trade deficits? Well, my clients run chronic trade deficits with me (technically my employer does – they “import” my services on behalf of my clients, who “consume” them).

Are you getting the picture? Unless an entity is entirely self-sufficient, it is going to run trade deficits. For an individual to avoid running trade deficits, one would have to basically live off the land. And for a country to do so, it would have to either be entirely isolationist, and not trade with any other country, producing everything its citizens consume (and nothing more, unless it ran surpluses, but let’s not get into that scenario); or, it would have to balance trade with every country by requiring each trading partner to import from it the exact amount of goods that it exports to that country.

Before we wrap this up, let’s look at an extreme example of why that’s impractical. We’ll use the African nation of Lesotho, and I’ll be revisiting this example in subsequent posts, because it helps define what the likely end game of the tariff strategy is.

Lesotho is a small landlocked country in the middle of South Africa. Its area is about the size of Maryland, and its population is less than that of Kansas. Its poverty level is roughly similar to that of Malawi, a country I’ve visited four times, and I can tell you that it’s poverty the likes of which most Americans will never see.

Our trade deficit with Lesotho was $234 billion last year, resulting from imports of $237 billion less exports of $3 billion.

There are two ways to balance that deficit. One is to require that they import an additional $234 billion from us, or about 80 times what they already buy from us. Lesotho’s GDP is about $2 billion. Do you think that’s going to happen?

The second way is for the U.S. to onshore the production of what we import from Lesotho. And what do we primarily import from them? Textiles, for one – like jeans. Sure, we could start making Levi’s in the U.S. Between paying union wages, complying with the alphabet soup of U.S. labor laws, and wading through the myriad of other regulatory hoops that the U.S. imposes on businesses, your Levi’s would cost upwards of $100 a pair.

What else do we import from Lesotho? Diamonds. Guess how many diamond mines are operating in the U.S.? Zero. Okay, technically, there’s one: Crater of Diamonds State Park in Arkansas, where you can dig for diamonds and keep what you find, which is most likely going to be nothing but dirt. But there are no active commercial diamond mines in the U.S. So we’d have to import the diamonds we buy from Lesotho from some other country, which would reduce our deficit with Lesotho, but increase our deficit with that nation.

But wait – the U.S. also happens to be the second-largest exporter of diamonds. How can that be? We import primarily rough diamonds, polish them, and export the finished product. And guess what? We make money doing so – about a 26% margin. Given Lesotho’s $56 million worth of diamond exports to the U.S. in 2023, that means we might have earned a margin of nearly $15 million selling the finished product. So we do gain a benefit from importing a product that it’s impossible for us to produce domestically due to a lack of mines.

Okay, this post is long enough for an introduction. In the next post, I’ll address the biggest benefit the U.S. gains from running trade deficits. In fact, it’s the very reason we run trade deficits, and the reason that we would never want to return to being an export-led manufacturing economy (yes, you read that right).

My Buddies, They Wrote Me A Letter

The Biden-Harris administration has made much of a letter signed by 16 Nobel prize-winning economists in late June "warning that the U.S. and world economy will suffer" if President Trump wins another term in the White House (Reuters). The letter says that the economic agenda of President Biden is "vastly superior" to that of President Trump. It goes on to say that Trump's plan to impose tariffs on China again would cause rampant inflation, leading to higher prices on imported goods. "We believe that a second Trump term would have a negative impact on the U.S.'s economic standing in the world, and a destabilizing effect on the U.S.'s domestic economy.," the letter stated.

President Biden referred to the letter during the disastrous debate performance that ultimately led to his ouster from his re-election campaign by the Democrat Party machine, and it was a topic he brought up during several of his subsequent rare public appearances. No doubt Vice-President Harris will make it a part of her campaign repertoire, assuming the Party machine allows her to remain the presumptive nominee.

I'm going to debunk that letter in this post. I'll start with facts and data - something those 16 Nobel laureates curiously left out of their letter - then I'll discredit the signatories to the letter itself, for they are not impartial, and they violated a couple of the cardinal rules of economics in writing the letter.

***************

Let's start by looking at Trump's economic agenda, then we'll contrast that with the agenda we could likely expect from a President Harris, which we can assume would be pretty close to that of President Biden, although Harris has yet to articulate an economic agenda of her own.

The beauty of the task set before me is that I have history on my side: Donald Trump has already been President for one term. And his economic agenda for the next term is really little different than it was for his first term: cut taxes and regulations, adopt an all-of-the-above energy policy to make America energy dominant, and yes, impose tariffs on those countries that engage in unfair trade practices with the U.S., especially those who impose tariffs on our goods and services.

Trump did all of that during his first term, so we have a rich data set by which to measure the results. We can see whether economic growth resulted, and we can see whether those policies ignited inflation, or hurt America's economic standing at home or abroad. I will present data to support my conclusions, unlike the Nobel laureates who penned the letter back in June.

One caveat is that Trump's economic record was interrupted by the economic shutdown that was implemented in response to covid, which caused an outsized, anomalous recession. However, it was very brief, and the recovery was rapid and robust. So we will look at President Trump's economic record both before and after the shutdown.

Taxes

In 2017, the Trump administration put forth the largest overhaul of the U.S. tax code in three decades. The legislation, known as the Tax Cuts and Jobs Act (TCJA), took effect on January 1, 2018. Its primary features were as follows:

• Cut the corporate tax rate from 35% - which in 2016 was third-highest in the world - to 21%.
• Cut the top individual tax rate from 39.6% to 37%; the 33% bracket to 32%; the 28% bracket to 24%; the 25% bracket to 22%; and the 15% bracket to 12%. The 35% and 10% brackets remained unchanged.
• Raised the standard deduction for single filers and married couples filing jointly significantly, eliminating the need for many itemized deductions.
• Suspended the personal exemption.
• Ended the individual mandate under the Affordable Care Act, which imposed penalties on those who did not purchase health insurance under the Act.
• Increased the Child Tax Credit and created a credit for non-child dependents, with income qualifications.
• Raised the estate tax exemption.
• Limited the mortgage interest deduction to $750,000 of debt vs. $1,000,000 previously.
• Suspended some miscellaneous itemized deductions.
• Capped the deduction for state and local taxes.

(Note that the Act was widely criticized for cutting the top bracket rate by more than the next two brackets. However, those in the top bracket tend to be business owners who create jobs, vs. the next two brackets who include more individuals who are merely wealthy earners, which was the rationale for the relative magnitude of the cuts for the top three brackets.)

To measure the effectiveness of the TCJA, we should look at three things:

1. Labor market metrics - as the name implies, the Act was intended to spur job growth. (We'll look at this only up to the covid shutdown; job recovery after the shutdown was largely a function of re-opening the economy.)
2. Economic growth, as measured by GDP growth.
3. Stock market performance - cutting corporate tax rates would benefit publicly-traded companies, and if their stock values increase, the wealth of Americans would also increase; not only wealthy investors but teachers, nurses, union members, and others whose retirement savings are invested in mutual funds, exchange-traded funds, and pension funds, the largest holders of U.S. equities in the world.

Under the Obama-Biden administration, nonfarm payroll growth averaged 121,000 jobs per month. However, during the early months of the administration, payrolls were still declining sharply due to the Great Recession of 2008-09, so let's just look at President Obama's second term. During that time, payroll growth averaged 216,000 per month.

In 2017, prior to the effective date of the TCJA, payroll growth averaged 171,000 per month. From the effective date of the Act to the covid shutdown, payroll growth averaged 184,000 per month.

Thus it's inconclusive whether the TCJA resulted in greater job creation. However, there are a lot more variables involved in job creation than just taxes. Also, payroll growth was gaining momentum in late 2019 and early 2020, averaging more than 200,000 per month, so assuming there would be some lag between the effects of lower taxes and job creation, it could be argued that the TCJA had some effect. Note also that job recovery and growth from the Great Recession had matured, and we were approaching full employment. At that point in an economic cycle, job growth always slows. So we need to also look at the unemployment rate.

The jobless rate under the Obama-Biden administration was similarly skewed by the early months, when unemployment was still very high due to the Great Recession, so again let's just look at the second term. During that time, the unemployment rate averaged 5.8%.

In 2017, prior to the TCJA, it averaged 4.3%. (To be fair to Obama, it had been declining throughout his second term - and there's that evidence that we were reaching or had reached full employment, which Obama's Fed Chair, Janet Yellen, had defined as 5%. This explains why job growth was slowing.) 

From the effective date of the TCJA until the month prior to the covid shutdown, the jobless rate averaged 3.8%, reaching 3.5% in February 2020 - which at the time was the lowest rate since 1969. Also, unemployment among minorities was at record-low levels. Jobless claims were also at levels not seen since the 1960s.

As for GDP growth, during the second Obama-Biden term, it averaged 2.48%. For 2017, it was 2.96%. From the beginning of 2018 up to the covid shutdown, it averaged 2.63%. So again, an inconclusive result; but again, there are more moving parts at play than just taxes. (And, I should note, some of the rapid and strong recovery from the covid shutdown, both in employment and in output, undoubtedly owes to the favorable tax environment.)

Finally, let's look at stock market performance, specifically, the S&P 500 Index. It's hard to place much weight on market performance during President Obama's term, because the market was still being supported by the Fed's Quantitative Easing program through 2014, halfway through his second term. However, the average annual gain in the S&P during that term was a little under 13%.

In 2017, it was 18.6%. From the TCJA effective date until just before the covid shutdown, it averaged 9.75% per year. Again, this is inconclusive, and again, there is much more to stock market performance than taxes (in fact, taxes play a much smaller role than other factors, including regulations). However, it's noteworthy that in early 2020, just before the covid shutdown, the S&P 500 hit an all-time record. Also, despite a 19% decline in March 2020, when the economy was shut down, the S&P eclipsed that record in August, just five months after the shutdown, and had reached a new record by the time President Trump left office. The index returned 16.3% overall for 2020, in spite of the shutdown, and arguably some of that was the result of a favorable tax environment.

Perhaps the best measure of the effects of the TCJA is to answer the question Ronald Reagan posed in his campaign for President in 1980: "Are you better off today than you were four years ago?" In economic terms, very few Americans could honestly answer that question "no" in October 2020. Virtually all of us were paying less in taxes. Our investment portfolios were doing better. There were more jobs, and unemployment was lower, at least until covid hit. Even after covid, taxes were lower and investment returns were higher, and output growth had recovered to 99% of its pre-covid level.

It's harder to measure the effect of cutting regulations, so I'm not going to address that here, other than discussing energy policy below. Suffice it to say that cutting regulations benefits businesses, which is good for job growth, stock market performance (again, benefitting both large investors and small retirement savers), and economic growth and competitiveness. One example of cutting regulatory red tape under the Trump administration was Operation Warp Speed, which got the covid vaccine developed, approved, to market, and ready for global distribution in well under a year. This enabled the Biden administration to be ready to respond to covid (although they initially fumbled the distribution plan), and it's responsible for much of the economic growth of 2021, as it allowed more sectors of the economy to re-open. After 2021, the economy began to contract.

Energy

There are also a lot of moving parts to energy prices. However, prior to the Trump presidency, America was heavily dependent on foreign oil. We saw the disastrous effects of that during the Carter years. And while the Obama-Biden and, to an even greater extent, the Biden-Harris administrations have attempted to push the nation toward "green" energy, there are a multitude of problems with attempting to make those sources our primary sources of energy today.

First, the world still runs on oil. Attempting to change that overnight, rather than gradually, is a fool's errand. Second, the infrastructure does not exist today for green energy to be a primary energy source. We don't have the electrical grid to support widespread ownership and operation of EVs. There aren't nearly enough charging stations, and the Biden-Harris administration's $7 billion investment in building 500,000 charging stations within eight years has only resulted in 12 new stations in two years. Third, EV technology is expensive, and it can't scale fast enough to become affordable. Fourth, EV technology isn't sufficient for most Americans' needs. EVs' limited range won't accommodate most Americans' travel preferences, and there are risks in the event of evacuating from events like hurricanes, operating them in severe winter weather, etc. And finally, green energy isn't that green. The fossil fuels required to produce an EV battery or a wind turbine are greater than the carbon footprint savings, and disposing of them creates more environmental harm than the benefits they provide.

President Trump immediately adopted an all-of-the-above energy policy upon taking office in 2017. I'm not going to look at energy prices post-covid, because a lot of the downward pressure on prices after the pandemic resulted from a severe decline in demand, as air and cruise travel were decimated and there were a lot fewer Americans on the road. (I know - I went on a driving vacation in June 2020, and it was pretty much just us and the tractor-trailers.)

West Texas crude oil prices only fell by about $1.60/barrel from February 2017 to February 2020, but part of that was because we were drilling a lot more oil and selling it abroad. Gas prices from the time President Trump took office until the covid shutdown averaged $2.58/gallon, vs. more than $3/gallon for the seven years prior (discounting the first year of the Obama-Biden term due to the dampened demand from the Great Recession).

(I'm getting ahead of myself, but gas prices under the Biden-Harris administration have averaged about $3.50/gallon.)

From 2017 to 2020, the U.S. was the #1 oil producing country in the world, higher than Saudi Arabia or Russia. We were still the top producer of oil in 2023, but our production had fallen 32% from 2020, and Russia had surpassed Saudi Arabia. We were energy independent when President Trump left office, and moving toward energy dominance. Our Strategic Petroleum Reserve was 638M barrels at the end of 2020. Again, I'm getting ahead of myself, but today, it's less than 367M barrels, down more than 42%. We are no longer energy independent.

Tariffs

This is the hot button, the item that the Nobel laureates claim will cause inflation to spike. Let's look at the record, because Trump imposed tariffs in his first term.

In January 2018, President Trump imposed tariffs on solar panels and washing machines. The tariffs were steep - 30-50%. In March, he imposed tariffs on steel and aluminum imports from most countries, ranging from 10-25%. The administration also increased tariffs on Chinese imports.

Some trade partners implemented retaliatory tariffs, including Canada, India, and China. The Trump administration responded by using the Commodity Credit Corporation to provide aid to U.S. farmers. The administration threatened additional tariffs on Mexican imports to stem the tide of illegal immigrants, but those tariffs were averted through negotiations. (It worked, as Mexico cooperated in stopping immigrants at its border through the Remain in Mexico agreement, and illegal immigration fell by 50% as a result. We know what's happened since - and what the results have been. An estimated 50% of job growth today is due to illegal immigration, at the expense of U.S. workers.)

In December 2019, the U.S. and China suspended a portion of their tariffs, then a month later signed a trade agreement that resulted in the tariffs being further reduced in February and March, 2020.

So, did the tariffs cause inflation from 2018 to 2020? Again, we'll exclude the post-covid time period, since reduced demand and opportunity to spend during and after the shutdown dampened prices.

The month after Trump took office, CPI year-over-year was 2.8%. In February 2020, just before the covid shutdown and when the tariffs had largely been suspended and/or reduced, CPI was 2.3%. The highest annual rate of inflation during the time the tariffs were in place was 2.9%, one-tenth of a percentage point higher than when Trump took office. The lowest rate was 1.5%, in January and February 2019, when the trade war was at its peak - roughly half the rate of inflation when Trump took office, and nearly a percentage point lower than when the tariffs were put in place.

Clearly, the tariffs did not cause an inflationary spike. Further, GDP grew, unemployment fell, the stock market rose, and illegal immigration declined.

Conclusion

It's inconclusive whether Trump's tax policy created jobs, increased output growth, or increased stock market returns, but there are many variables involved in those measures of economic performance. We do know that jobs grew, unemployment fell, GDP rose, and the stock market reached record levels during his term, in spite of the covid shutdown. We also know that Americans' after-tax incomes were higher.

It's clear that his energy policy reduced gas prices and made America energy independent. And it's unequivocally clear that his tariffs did not result in higher inflation. Trump's policies certainly didn't have an adverse impact on America's economic standing in the world, nor did they destabilize the domestic economy (unless you want to count the decision to shut down the economy in response to covid, but we can largely thank Fauci and Birx for that, and besides, his policies brought the economy back to near-full recovery before he left office, as I outlined in my most recent post).

Now, let's turn our attention to what we might expect from a Harris economic agenda. As noted, we really know nothing at this point about what her plans would be, assuming the party machine even allows her to remain the presumptive nominee. Only the polling results will tell.

We do know that she has been in lockstep, to a degree, with President Biden's policies over the last three and a half years. We also know from past statements that she is even more opposed to fracking and more committed to green energy than her boss has been. So about the only thing we can conclude is that we'd be looking at four more years of Bidenomics, but possibly with a booster shot.

So what have we experienced as a result of Bidenomics in terms of the measures above? Well, we've had job growth, but as I've written extensively, that's still just job recovery from the covid shutdown, because we're still about four million jobs short of where we'd be in terms of normal growth had the economy not been shut down in the first place. And as noted, it's been aided and abetted by illegal immigration.

We do know with certainty that taxes would go up, because most of the provisions of the TCJA are scheduled to expire at the end of 2025, including the cuts to the corporate tax rate and the individual brackets, as well as the increase in the standard deduction and the elimination of the personal exemption. So, unless Congress and the new President take action to make those cuts permanent next year, the 2026 tax brackets will revert to their pre-2018 levels.

That means a tax increase for nearly every American, and a return to a corporate tax rate that is among the highest in the world, which would almost certainly result in a sharp correction in the stock market, hurting small and large investors alike. If you're a teacher or a nurse or a truck driver, your retirement savings will take a hit - and so will your take-home pay.

President Trump has vowed to fight to make those tax cuts permanent. In fact, he wants to cut the corporate tax rate further, to as low as 15%, and to eliminate income taxes on tips.

(As an aside, there is a meme floating around social media claiming that this plan is intended to allow lawyers and hedge fund managers to get their large bonuses re-classified as tips so that they're not taxable. America, how ignorant are you? This would be a blatant violation of wage and hour laws. It simply can't happen. Wise up.)

On the other hand, Congressional Democrats are determined to allow the TCJA to expire as planned, and President Biden has said he would veto any legislative effort to make it permanent. We can only assume a President Harris would do the same.

Under President Biden, GDP slipped into negative territory in the first two quarters of 2022, and the 2024 Q1 reading was below 1.5%. The advance release for 2024 Q2 was better, at 2.8%, but is expected to be the highest level of the year (and note that the advance release for Q1 was revised downward in the later releases). Clearly, we're tilting toward recession. Maybe the Powell Fed can engineer a soft landing in the event of a Harris victory, but otherwise, a recession appears inevitable. Trump's agenda is pro-growth, pro-business, and pro-jobs, providing a better chance of a return to growth without relying on monetary accommodation that could result in another bubble.

I already noted what's happened to gas prices under President Biden, and that would be likely to continue with Harris' staunch opposition to fracking and commitment to green energy. We'd likely see a doubling-down of the commitment to phase out gas vehicles and force Americans into EVs. A recent study of EV owners found that nearly half of U.S. EV owners plan to switch back to gas vehicles with their next auto purchase - assuming they can. Ford missed its Q2 earnings estimate by a significant margin due to massive losses on EVs, so corporate America will suffer if the EV-only push continues. China will prosper, and Americans will continue to drive their used gas-powered cars.

We've also seen a huge spike in inflation under the Biden-Harris administration: prices are up about 20% since they took office, even though the rate of inflation is down from the peak of 9% year-over-year in mid-2022. What's worse is that they don't seem to understand what inflation is; as the rate of inflation has fallen, they insist that prices are down. They're not. They continue to rise, but at a lower rate than two years ago (but still at a higher rate than under the previous administration, tariffs and all).

Now that we've thoroughly debunked the letter penned by these 16 Nobel laureates, I'm going to discredit them.

First, let's address the Nobel prize itself. Several noted economists - Franco Modigliani, Merton Miller, Harry Markowitz, William Sharpe, and Eugene Fama - were awarded the Nobel Prize for their work in various market pricing theories. I've studied this work extensively, and much of it is solid. However, a good portion of their work - especially that of Fama - is based on the Efficient Market Hypothesis (EMH), the notion that markets are efficient. I won't go into EMH in detail, but suffice it to say that it's wrong.

Markets aren't efficient. I knew it intuitively when I studied Fama et al during my Chartered Financial Analyst (CFA) studies, and based on my own research. But smarter people than I have debunked Fama's work, and have themselves received the Nobel prize for doing so (Robert Shiller and Richard Thaler). These aren't the only instances of Nobel prizes having been awarded for work that was subsequently proven wrong. Science and literature provide other examples. But Fama didn't have to surrender his Nobel prize.

And let's not forget that the Nobel Peace Prize was awarded to a freshman President whose only contribution to global peace at the time was a world tour during which he apologized to foreign leaders for America being ... America.

But as far as these 16 Nobel laureates who wrote the letter in June regarding Trump's agenda vs. Biden's, they broke two cardinal rules of economics. First, they didn't use data to support their conclusions, as I've attempted to do above. They easily could have, and probably more eloquently than I, though they'd have had to have reached a quite different conclusion than they did, because the data contradicts their assertion.

Second, and more important, they did not adhere to the requirement of political agnosticism in forming an economic opinion or forecast. You see, eight of those 16 economists have made financial contributions to the Democrat Party, and four of them contributed directly to President Biden's campaign. (Not one of them has contributed to the Republican Party, or to President Trump.)

In other words, they're biased.

Sure, I have my political opinions, and I vote, as I assume every economist does. I did note above where the data was inconclusive. And I've criticized Trump for caving to Fauci and Birx and allowing the economy to be shut down. But I go where the data leads me. And I've never donated money to a political party or candidate.

This was a curated, hand-selected list of economists, recruited by the Biden-Harris campaign to pen this letter, without a shred of credible evidence or data to support it. It's no different than the curated lists of pre-screened reporters who are given pre-selected questions to ask in advance of the rare press appearances President Biden has made over the past four years.

So there isn't an ounce of credibility in this letter. We need only to look at the records of these two Presidents over the single term each of them served, and extrapolate it over the next four years (assuming the proxy of one of them continues his policies).

One would bring economic growth, lower unemployment across a broad socio-economic spectrum, lower taxes, low inflation, low energy costs, energy independence and/or dominance, and increased overall financial and retirement security.

One would bring economic stagnation (because output growth is slowing), increasing unemployment (because job growth is slowing and unemployment and jobless claims are rising), higher taxes beginning at least in 2026, higher energy costs and continued energy dependence (including on our enemies), and reduced prosperity.

The choice is yours.

The Truth, The Whole Truth, And Nothing But The Truth

Another election season is upon us, and so it's time for the Curmudgeon to get back in the saddle once again. But this post won't be about politics - at least, not overtly so. True to his roots, the Curmudgeon will take on economic data in this post, setting the record straight, as is his wont. For there's been a lot of misinformation as of late, and the record needs setting straight. As always, we will use hard data to do that.

It's been an interesting three or four weeks, to say the least. First, we had the disastrous debate performance by President Joe Biden, leaving us to wonder just why he insisted on debating his opponent in the first place. That led to a growing chorus of voices calling on him to step aside and let another candidate take his place at the top of the Democrat ticket, as his poll numbers, already flagging, slipped further.

Then, we had the Supreme Court immunity decision that effectively ended much of the lawfare waged against former President Trump, adding to the momentum of his campaign. Less than two weeks later, a would-be assassin's bullet grazed the former President's ear, coming within inches of ending his life, and leaving many questions regarding the Secret Service's security protocols - questions that remain unanswered more than a week later, despite a Congressional committee hearing for which the Director of the Secret Service had to be subpoenaed to appear, only to resign in disgrace a day later.

The following week brought the Republican National Convention, and the announcement of Ohio Senator J.D. Vance as Trump's running mate. These events further solidified the Trump campaign's momentum, and intensified calls for President Biden to step down. In the midst of the RNC, and just two days after the assassination attempt, a Federal judge threw out the classified documents case against Trump, arguing that the Special Prosecutor in that case - who would also preside over other lawfare cases against Trump - was unconstitutionally appointed. Further momentum for Trump.

Finally, three days after the RNC, and just over three weeks after the fateful debate, President Biden announced that he would not seek re-election - ironically forced out of the campaign by the Democrat Party machine that made him the 2020 nominee after forcing then-frontrunner Bernie Sanders aside, and for the same reason: the party machine determined that its frontrunner could not defeat Donald Trump, the will of the voters be damned.

Now, you might say, what does all of this have to do with economics, EC? It's sounding a lot like politics to me. Well, dear reader, read on. This is merely the backdrop. The misinformation, and the economic data that will disprove it, is forthcoming.

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The Misinformation

The initial misinformation came during the debate itself, when President Biden claimed that he inherited an economy that was on the brink of disaster following the covid pandemic, and that he brought America out of the pandemic.

But the catalyst for this post came in the aftermath of President Biden's announcement of his "withdrawal" from the campaign.

A teary-eyed Rachel Maddow - purveyor of more conspiracy theories and misinformation than the Kremlin itself - proclaimed that Biden had brought America from the dark depths of the economic disaster wrought by covid, implying that he took office at the nadir of the pandemic's economic malaise, and lifted the U.S. economy to recovery.

Well, as Col. Sherman T. Potter would say, "Horse-hockey."

Let's look at the data by sector. But before we do, I will, in the spirit of political agnosticism that any economist worth his or her salt should embrace when discussing economics, place blame for the covid shutdown at the feet of President Trump. He allowed Fauci, Birx, et. al. to convince him to allow the states to shut down their economies, the most disastrous policy decision in the history of disastrous policy decisions, a wholly unnecessary move that accomplished nothing in the way of public health but did nearly irreparable harm to the global economy, a move whose repercussions are still being seen in the economic data today. (To be fair, it was a decision - we now know - based on bad science, or no science, from the man who claimed he was science itself.)

There is a constitutional argument to be made that the decision to shut down economies was rightfully a states' rights decision. I would argue that given the gravity of the repercussions, for the good of the Republic, the federal response should have superseded states' rights at the time, something that Fauci, Birx et. al. themselves argued in trying to shut down ALL states. Trump and Pence unwisely followed their bad advice, permitting the calamitous "Two weeks to flatten the curve" lie, which turned into nearly two months, with disastrous results.

As a reminder, covid hit the U.S. in March 2020. The U.S. economy was shut down from mid-March through April, and re-opened in early May. Donald Trump was President at that time. Joe Biden was not even the presumptive Democrat nominee until Sanders was officially pushed out of the race on April 8, and he didn't secure enough delegates to become the nominee until June 5, having finished lower than third in the Iowa caucus and New Hampshire primary. So he had nothing to do with the economy from the time it re-opened in May 2020 until after his inauguration in January 2021.

On to the data.

Employment

As I've noted before, the covid shutdown eliminated nearly 22 million U.S. jobs. Every job gained since then has been recovered, not "job growth." (All 22 million jobs were recovered by June 2022, but that doesn't account for the normal growth that would have occurred had the economy not been shut down; it was growing by about 200k jobs/month prior to the shutdown, with no indication of slowing. Had growth continued at that pace, we'd still be about 4 million jobs ahead of where we are today.)

In the nine months from when the economy re-opened in May 2020 until the end of President Trump's term, about 12.5 million jobs were recovered, or about 57% of the jobs eliminated - and that includes the 243,000 jobs lost in December 2020, when California and New York shut down their economies for a second time. So President Trump got payrolls 57% of the way back to where they'd been before the shutdown.

How long did it take for President Biden's administration to oversee the recovery of the remaining 43% of jobs eliminated? Seventeen months, about twice as long as it took President Trump's administration to get us 57% of the way there. And how long did it take for the Biden administration to oversee the recovery of 12.5 million jobs, a feat the Trump administration achieved in just nine months? Three times as long - 27 months.

Let's look at another employment measure: the unemployment rate. President Biden likes to boast that the unemployment rate today is the lowest in U.S. history. (It's not - at 4.1%, it's not even the lowest in his term; that number is 3.4%, recorded in January and April of 2023. It's risen steadily this year.) But the lowest unemployment rate in U.S. history is 2.5%.

Moving on to the covid recovery numbers: in February 2020, just prior to the pandemic, the unemployment rate was 3.5% and trending lower; it had dropped from 4.0% at the beginning of 2019. (It averaged 7.4% under the Obama-Biden administration, and was 4.7% when Trump took office.) In April 2020, it peaked at a record 14.8% due to the shutdown.

By the time Trump left office, the unemployment rate had dropped to 6.4% - a decline of more than eight percentage points, and lower than the average under his predecessor.

How many percentage points has it declined under President Biden?

Just over two. Three, if you count the lowest point during his term. Again, Trump got us 77% of the way back to where we are now, in just. nine. months.

GDP

From the time he took office until the quarter before the pandemic, GDP growth under President Trump averaged 2.8%. (Under the Obama-Biden administration, it averaged less than 2.2%.) In the first quarter of 2020, which included the normal months of January and (mostly) February, but also the partial shutdown month of March, GDP contracted by 5.5%. In the second quarter, which included the full shutdown month of April (note that some large states like California and New York as well as smaller states like Hawaii and New Mexico remained shut down longer), GDP declined by a record 31.6%.

In the third quarter, with the economy fully open, GDP grew by a record 31%. And in the fourth quarter, it grew by more than 4%.

So President Biden inherited an economy that had already recovered, and was growing at an above-trend pace. And that continued through 2021 (thanks again to Trump - we'll get to that). But by 2022, GDP contracted again, for two consecutive quarters, the textbook definition of a recession (although the administration claimed that the definition had changed). No recession would have occurred under Trump had covid not hit. Yet it took the Biden administration only a year to turn a fully recovered, growing economy into a contracting one.

GDP growth under President Biden has averaged 2.7%, less than under President Trump prior to the covid shutdown (after having inherited the anemic growth of the Obama-Biden era). 2024 Q1 growth was just 1.4%, and Q2 growth is expected to be below 2% again, which will bring the Biden average even lower.

CPI

Now, this is a tricky one. Although President Biden claims he inherited 9% inflation when he took office, he didn't. (For the record, I don't believe he's intentionally lying when he says that. I think he just doesn't have a clue.) He inherited 1.4% inflation, as measured by year-over-year CPI. He created 9% inflation, which was the level of CPI just 15 months after he took office - the highest level since I was in college, and I just qualified for Medicare a few months ago. But let's get back to current inflation in a minute.

The 1.4% inflation that President Biden inherited was attributable largely to the fact that consumption plummeted during the covid shutdown - not so much because people couldn't afford to buy stuff. Sure, those 22 million people whose jobs were destroyed couldn't buy much during the period of time they were out of work. But the jobs came back pretty quickly, and there were trillions of dollars of stimulus payments in the interim.

However, most of the people who lost their jobs were at the "bottom" of the economy. I wrote extensively at the time about how it was a "bottom-up" recession, and predicted - correctly, I might boast - that that was the reason the recovery would be very rapid, and very strong. The people at the "top" of the economy - the highest wage earners - didn't lose their jobs. And many of them received stimulus payments they didn't need, because the income bar the government set for the stimulus payments was set so high.

So those people's incomes weren't affected; in fact, in some cases they were augmented by stimulus - but they still couldn't buy stuff, or travel. Why? Because the stores were closed, the airplanes were grounded, the cruise ships weren't allowed to take passengers, and the hotels were closed, and then re-opened at limited capacity. Some states imposed draconian quarantine requirements - Hawaii even encouraged residents to rat out visitors who violated them, and provided a hotline for them to use, so that the police could round them up. Shades of 1930s Germany or Stalinist Russia.

In any event, when the economy did re-open, and travel resumed, consumption did, also. But remember that CPI is typically measured year-over-year. So consumption in January 2021, when President Biden was inaugurated, was still only up 1.4% over January 2020, when the economy was roaring along under President Trump. In January 2021, cruising was still not allowed, strict quarantine and vaccine requirements were still in place for travel abroad, masks were required on airplanes, some states still had those draconian quarantine requirements in place, and some airlines were still limiting seats - and nearly all airlines had cut routes. There were also lingering supply chain issues that prevented some goods from getting to market.

The point of all of this is that I can't give President Trump too much credit for the low inflation that persisted post-pandemic, when it averaged just 1.1%. So let's look at his record pre-covid: CPI averaged 1.9% during that time. Under President Biden, it's averaged 5.4% - the highest average under any President since Jimmy Carter.

Now, President Biden also likes to say that prices have come down recently. That's also false, and probably just speaks to the fact that he doesn't understand inflation. The rate of inflation has come down, from the 9% peak in June 2022 to the most recent reading of 3.3%. But that still means that prices are up 3.3% vs. a year ago. And that 3.3% increase in prices vs. 2023 is on top of 2023's 4.9% increase, over 2022's 9% increase over 2021 ... get the picture? Prices under Joe Biden are up 20% in total, and his term isn't even over yet (technically). Prices under President Trump only rose 3.9% - and even without the dampening effects of covid, they were only on pace to rise 7.6%.

Interest Rates

As a result of the disastrous policies that led to rampant inflation under President Biden, the Fed has had to tighten interest rates aggressively. (What does this have to do with recovering from covid, you ask? Well, the catalyst for the runaway inflation that was launched in 2021 - and the thing that President Biden claims saved us from covid - was the massive, and wholly unnecessary, stimulus/spending bill he signed immediately after he took office.)

The rate on a 30-year fixed-rate mortgage, as of this writing, is 6.85%, according to Bankrate.com. When President Trump left office, it was 2.65% - a record low. On the average mortgage amount of $330,000, that's a difference in the monthly principal and interest payment of $832 - in other words, your mortgage payment on that median-priced home would have increased by 63%. (And mortgage rates actually peaked at more than 7.8% last October - again, under President Biden.)

Interest rates on everything else are up too, from auto loans to credit cards. And credit card balances are at record levels, because more and more consumers are having to borrow to pay for everyday needs, thanks to prices being 20% higher than they were less than four years ago.

Housing

Finally, let's look at the effect those higher mortgage rates have had on home prices. Home prices in virtually every market in the U.S. have been rising year-over-year, and in many markets, they're at record levels. That's good news if you're a homeowner looking to sell. The problem is that no one can afford to buy.

Prices are rising, because there's no inventory, because no one is selling, because they don't want to buy another home at these mortgage rates. (If you still have a mortgage today, chances are your rate is under 4%.) The only homes being bought are new construction, and new construction is priced on a cost-plus basis.

The most widely-followed national home price index, the S&P/Case-Shiller Index, which tracks 20 major metropolitan markets, is up 7.2% vs. a year ago, and that's unsustainable. Home prices simply shouldn't rise much more than the rate of inflation, since they don't throw off cash flows, unless you're in a market where buildable land is scarce and demand is high. Home prices are up 33% since President Biden took office. And rent inflation is up more than 21% under his presidency, vs. less than 14% under President Trump.

The Vaccine

This one's a little controversial, because many people who support Trump believe the vaccine kills people (which is curious, since Trump is the President responsible for fast-tracking the vaccine and getting it to the market in the first place), while those who oppose him embrace the vaccine - also curious, since the new Democrat nominee (for now), Kamala Harris, once said she wouldn't take the vaccine because it was "Trump's vaccine," and therefore dangerous. But the purpose of this post is not to discuss the merits or conspiracy theories surrounding the vaccine.

President Trump cut through the red tape of the bloated FDA to rush the vaccine into production - remember Operation Warp Speed? Do you think President Biden could have gotten a new vaccine, in response to a previously unheard of virus, into production, approved, to market, and ready for distribution globally in ten months? Heck, he took $7 billion of our money to build 500,000 EV charging stations two years ago, and to date has built twelve. He took another $7 billion to expand internet access to rural areas, and to date ... nothing has happened on that front.

In spite of Vice President Harris' reluctance to take the "Trump Vaccine" in late 2020, immediately after the election she and President Biden rolled up their sleeves and accepted the gift that President Trump made available for them. Then they followed his administration's distribution plan (and even managed to screw that up), and even went so far as to try to mandate the very vaccine that she had urged Americans not to get because it was "Trump's."

Well, she and her boss took credit for it. But it was indeed Trump's vaccine, and he's the one that made it available, which was a big part of the reason for the strength of the recovery in 2021, President Biden's first year in office, because more and more swaths of the economy re-opened on the basis on widespread vaccine availability and adoption.

Conclusion

In summary, Donald Trump - not Joe Biden - engineered the recovery from covid. Let's recap:

• Under President Trump 57% of the jobs destroyed by the shutdown were recovered, with 12.5 million jobs brought back in nine months. It took President Biden three times that long to "add" 12.5 million jobs.
• Under President Trump, unemployment fell eight percentage points from the pandemic peak - again, in nine months. Under President Biden, it's fallen by two percentage points in nearly four years.
• Under President Trump, GDP growth went from -32% to 31% in one quarter, then continued to grow through the end of his term. Total GDP at the end of 2019, the quarter before the pandemic began, was $20.95 trillion. By the time Trump left office, it was about $20.8 trillion. So economic growth had 99% recovered when President Trump left office. A year later, the economy was contracting, and today, GDP growth is less than 1.5%.
• What growth there was in 2021 was due to the widespread availability of the covid vaccine, leading to more and more segments of the economy re-opening. That vaccine was fast-tracked by President Trump.

The only economic contributions that the Biden-Harris team have made on their own have been rampant inflation, soaring interest rates, and unaffordable housing costs.

Do we really want four more years of this - and from the undercard, no less?

Okay, so maybe this was political. But, you know what? It's political to say you inherited 9% inflation, when you didn't inherit it, you created it. It's political to say you brought the economy back from covid when you know you didn't - and it's political for your propaganda mouthpiece, who knows better, to repeat the same lie. And it's political to say that your predecessor did nothing about covid, when his response was swift, effective, and strong - something that can't be said about anything you've done for the last three-plus painful, embarrassing years.

So, you've got to fight fire with fire. You've got to fight lies with the truth. And ...

The numbers never lie.