The US economy would have likely shown negative growth if not for the recent AI boom. This surge in AI-related productivity and investment masked the detrimental effects of tariffs, such as rising input costs for manufacturers and slowing growth in other sectors like housing.
The danger to the U.S. dollar is not a dramatic replacement by the Euro or RMB, but a slow erosion of its primacy. This is visible in central banks increasing gold reserves, greater hedging activity, and China’s de-dollarization campaign. This gradual shift ultimately raises borrowing costs for the US government and American consumers.
The core of the affordability crisis plaguing American families is a national shortage of 3-4 million housing units, particularly for middle-income workers and first-time buyers. This is not just a collection of local zoning issues but a macroeconomic problem that directly impacts consumer sentiment and economic well-being.
While interest rates are set by a committee vote, the Federal Reserve Chair wields immense influence by deciding what policy to propose and acting as the primary communicator to markets. The public and financial markets give deference to the chair's views, making their ability to shape the narrative a powerful tool.
The Biden administration's approach to China tariffs was more effective because it was highly targeted at strategic industries and coupled with domestic incentives. Simply imposing broad tariffs is insufficient; smart policy requires pairing trade restrictions with domestic investment to build competitive capacity in areas like semiconductors and batteries.
To counter China's dominance in rare earths, subsidies and tax credits are not enough. The US must also use tools like the Defense Production Act to create long-term, guaranteed demand contracts. This provides stability for private companies to withstand the price volatility caused by Chinese market manipulation and dumping.
Even if the Supreme Court rules against using emergency powers (IEPA) for tariffs, the President can use a patchwork of other legal authorities like Sections 122, 232, and 301. While this would curtail the ability to impose tariffs on a whim, it would still allow the administration to replicate the revenue effects.
Unlike the first term's China focus, the Trump 2.0 tariff policy is primarily a domestic tool to raise $300-$400 billion in revenue. This leads to strategically incoherent outcomes, such as imposing higher tariffs on allies like Switzerland than on China, driven by fiscal needs rather than foreign policy goals.