Market Sell-Off Continues: What’s Next?

It appears many traders are betting that things are going to continue to be really, really chaotic in the world of tariffs. The biggest problem, however, is that the Trump administration has not made it clear what exactly they want to accomplish with these tariffs.

This has been my point. There are times when tariffs can be useful. In fact, of the three times tariffs could theoretically be useful, two could actually be useful.

First: Tariffs are important to protect vital industries such as defense industries. You need to produce those goods here at home instead of producing them elsewhere. Thus, you actually protect and give what are effectively artificial subsidies to American defense industries. That is totally understandable.

Second: Using tariffs to leverage other countries, either because those countries are our enemies and we want to do harm to them, or because we wish to get other countries to lower their own tariffs. In the end, the goal is a lower-tariff regime.

But there’s the third possibility, one that is retailed by President Trump and many other members of his administration. Of all of the various rationales given for the tariffs, this is the most problematic and currently roiling the markets.

Third: Tariffs are good and trade wars are good and easy to win. Tariffs will make us rich; ignoring the fact that they are a tax on American consumers.

The idea that tariffs are inherently good and make the American economy strong is wrongheaded. It is untrue. The idea that these tariffs will result in mass reshoring of manufacturing is also untrue.

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And this is why Bill Ackman, investor extraordinaire and ally to President Trump, put out a statement over the weekend. He said: 

The country is 100% behind the president on fixing a global system of tariffs that has disadvantaged the country. But, business is a confidence game and confidence depends on trust. President @realDonaldTrump has elevated the tariff issue to the most important geopolitical issue in the world, and he has gotten everyone’s attention. So far, so good. And yes, other nations have taken advantage of the U.S. by protecting their home industries at the expense of millions of our jobs and economic growth in our country. But, by placing massive and disproportionate tariffs on our friends and our enemies alike and thereby launching a global economic war against the whole world at once, we are in the process of destroying confidence in our country as a trading partner, as a place to do business, and as a market to invest capital. 

Here’s what Ackman is basically saying to Trump: Take a time-out, figure out what it is that you want to do here.

Ackman continued: 

The president has an opportunity to call a 90-day time out, negotiate and resolve unfair asymmetric tariff deals, and induce trillions of dollars of new investment in our country. If, on the other hand, on April 9th we launch economic nuclear war on every country in the world, business investment will grind to a halt, consumers will close their wallets and pocket books, and we will severely damage our reputation with the rest of the world that will take years and potentially decades to rehabilitate.

What CEO and what board of directors will be comfortable making large, long-term, economic commitments in our country in the middle of an economic nuclear war? I don’t know of one who will do so.

When markets crash, new investment stops, consumers stop spending money, and businesses have no choice but to curtail investment and fire workers. And it is not just the big companies that will suffer. Small and medium size businesses and entrepreneurs will experience much greater pain. Almost no business can pass through an overnight massive increase in costs to their customers. And that’s true even if they have no debt, and, unfortunately, there is a massive amount of leverage in the system.

Business is a confidence game. The president is losing the confidence of business leaders around the globe. The consequences for our country and the millions of our citizens who have supported the president — in particular low-income consumers who are already under a huge amount of economic stress — are going to be severely negative. This is not what we voted for.

The President has an opportunity on Monday to call a time out and have the time to execute on fixing an unfair tariff system. Alternatively, we are heading for a self-induced, economic nuclear winter, and we should start hunkering down. May cooler heads prevail.

The problem here is a vast combination of radical uncertainty and overtly bad policy being spouted by members of the administration. There is no one in the administration who’s making the overtly good case. There are many people in the administration, however, who are making bad to strained cases right now.

Over the weekend, Trump put out a statement on Truth Social writing:

THIS IS AN ECONOMIC REVOLUTION, AND WE WILL WIN. HANG TOUGH, it won’t be easy, but the end result will be historic. We will, MAKE AMERICA GREAT AGAIN!!!

But the words “hang tough” scare the living daylights out of the entire market because “hang tough” sets up a lengthy, significant period of tariffs. If that is to happen, we’re getting all the consequences. Basically, it melts down the markets. If you’re talking about these tariff rates on countries maintained as they currently stand, if they are implemented just a few days from now, you are talking about an economic catastrophe.

And even if on the other end there is a brand new world, we still have not heard what exactly that brand new world looks like. Is that a brand new world where we are reshoring manual labor from Vietnam to make T-shirts? This is the confusion.

No one knows what is actually going on. People like Bill Ackman are hopeful that this is a sort of 4D chess game in order to leverage other countries to open up their tariffs. If that’s the case, it sounds great. We can get there if the final policy is good.

In the meantime, we can all hope and pray that’s what this chess game is.