Tariffying!
US “remedial” tariffs to be announced on April 2 will raise the US effective tariff rate to above 15% - a level not seen since the Great Depression era. This is above the level needed to cause Tariff-Induced-Stagflation in the US economy. The announcement will confirm a bear market in most assets hit by lower profits and higher inflation. But the significance is far wider.
Firstly, Liberation Day will mark an acceleration of the process of substituting of “nationalist economics” for “globalisation”. It cannot happen in the US without doing so globally. That is the price of protectionist world. This lowers growth and productivity and raises inflation in a secular shift.
Secondly, attempts by non-US governments to separate trade from geopolitics are becoming unsustainable. It is hard to inflict punitive tariffs on an ally’s exports while still claiming to be an ally. The US has effectively integrated economics and diplomacy into a single nationalist, geo-economic weapon; US alliances are now paid services. Security and Economic Policies are increasingly aligned. Henceforth, economic and geopolitical frictions will act as interactive multipliers; the escalation ladder has become an upward moving escalator.