No US corporation possessed of the slightest degree of economic insight is going to react to Donald Trump‘s demand that they invest in new productive capacity in the USA, which is his stated aim for the economic warfare that he has declared both on the USA and on the world through the imposition of tariffs.
The reasons should, I hope, be obvious, but maybe they need noting.
Firstly, it takes years to create new productive capacity. In many cases, five-year time scales might be optimistic. A rational investor might hope that Donald Trump is not President by then, and that his whole approach to economic policy might have been long forgotten by that time.
Secondly, a rational investor could easily presume that Trump will have forgotten this whole episode within five months, and not five years. Trump‘s ability to sustain any policy is, at present, open to question. In particular, when it is apparent that tariffs are being imposed as negotiating weapons, and not serious economic tools, the likelihood that they will be sustained is minimal, meaning that no rational person should act for the long term by taking them into consideration.
Thirdly, creating new productive capacity in the USA makes no sense when it is highly likely that if this tariff policy is sustained, then retaliatory tariffs against that country will be imposed by most other countries in the world. I did, for example, watch a video in the last day or so that discussed the impact of tariffs on the market for digital cameras in the USA. None of the major camera manufacturers has made a single camera or lens in that country for more than 20 years. Nor would it be rational for them to do so now. The US might provide 20% of the world market in cameras, but that would mean that 80% of the world market would be beyond the reach of a US based production facility if tariff barriers are maintained, and no rational company would do that when camera production makes no sense unless worldwide markets can be reached.
Fourth, the US is and will remain an incredibly expensive country in which to make products. Even tariffs at the levels now noted cannot overcome that fact.
Trump‘s tariff logic, if there is one, does in that case make no sense at all from an economic perspective. We do, as a result, either have to admit that there is no such economic logic, and that these tariffs are merely tools for the pursuit of a form of political economic warfare, or that he is just stupid.
The latter should never be ruled out.
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This is where Trumps attempts/plans to stay in power will become very interesting and may well be based on some of your arguments above.
It may well be that Trump has some form of mental impairment such as Alzheimer’s. His father Fred Trump Sr died of it, and I believe it has a tendency to be passed on in families.
Mental health experts quoted in this week’s New European say as much. The World Mental Coalition stated last November saying that his behaviour and speeches demonstrate strong evidence of significant cognitive decline, ….signs of an early dementia.
Great eh? The world’s most powerful country is led by a man with dementia?
Early? He is 78
I suspect Sickoftaxdodgers meant early ‘stage’ dementia as opposed to early ‘onset’ dementia. The latter applies to someone in their 40’s/50’s (or even younger) displaying signs of dementia. The former simply means the first stage of dementia and applies to anyone of any age. Like cancer dementia goes through stages or levels.
Agreed
An equally great problem, perhaps more, is that the circle around him are prepared to support those policies. Most are probably not so stupid as to believe that climate change is a hoax, or that tariffs are paid by the exporter but are prepared to go along with it. They are willing to trade their integrity for access to power.
It is like a medieval court. Self seeking and full of sycophants. The hope for us is that the internal rivalries will cause them to self destruct.
He wouldn’t be the first – Ronald Reagan.
It would have to be very early-onset dementia. Remember Trump Towers and all sorts of extravagant display back in the 70s and 80s?
“Never attribute to malice that which is adequately explained by stupidity.”
There’s some chatter in the tech community that if you ask ChatGPT to devise a tariff system it does something very similar to Trump’s list (including all the erroneous ones like tariffs on the unpopulated McDonald Islands). So there’s an open question whether a single economist looked this over at all.
I mean, I know you are critical of most economists here, but one would hope they were at least consulted on something as massive as a country’s trade tariffs..
No serious economist looked at this
Trump supposedly picked this formula from the options given to him
Of course everyone knows production wont shift. And everyone knows concessions will be made as Trump just sees tariffs are negotiating leverage. That is his game. Very messy and very disruptive for all concerned but the USA is such a big trading entity all countries have no choice but to enter into his game. Even worse there won’t be an immediate end game as this “negotiating” and horse trading will continue for as long as he is in office.
But why will anyone negotiate?
To what gain?
In a sane world of course there would be negotiation to try to reduce the effects of Trump’s stupidity. However who would negotiate with someone so unpredictable that there would never be any guarantee that the result of the negotiations would last until tomorrow?
That is why we need to work around him. And by we I mean the whole world.
Re negotiating with Trump on tariffs, this is taken from todays online FT..
.
“Next a partial rollback could be plausible if trade partners offer him sufficient concessions. Indeed, Trump has already shown a willingness to negotiate. Allianz Research’s baseline scenario is for several bilateral deals by the end of this year to reduce the US effective tariff rate by about 40 per cent.”
I suspect this will happen. I would rather it did not. The concessions will be very expensive.
Meanwhile, back home in living-in-the-past Ruritania Darren Jones MP, Chief Secretary to the Treasury has been defending the proposition that Britain received special tariff treatment from the US, with only a 10% general tariff regime (but motor cars, with 25% tariff fit this how?).
Jones is comically, absurdly wrong; and he must know it. The UK received 10% for two reasons. One technical; a consequence of the crude US tariff methodology, based on trade deficit levels.
The other, however is more important. The UK received the plain, base-line 10% (along with the likes of Afghanistan, Albania and Christmas Island) for non-sanctioned states. High tariffs fell on the EU, China, Japan, India. Even Darren Jones can see what is going on.
Very important States to the US in trade terms, receive 20%-30%+. Unimportant states in trade terms receive 10%. What Trump’s US tariff regime has done, is make explicit what has been implicit, and half hidden from public awareness; Britain doesn’t matter. In a Global World, you are either a Big Battalion, or you do not count. Britain no longer counts. Worse, we actually left a Big Battalion so we can flounder where we are (ignored and manipulated by the Big Battalions, which has produced the absurdist Starmer strategy: make yourself the US gopher to Europe, and give it the farcical title a “Bridge”).
In the new order of things, if you are no part of a Big Battalion, then a one way out is that you can be a niche player; that at least generally you can move faster than the Big Battalions. But we aren’t a niche player in the UK, we are too big and slow moving, too committed, tied to the trading status quo, and making money from it. And, much worse, we don’t have a niche. We think we are in “services” (finance) and this is our special niche. It isn’t a niche, it is too important to the Big Battalions, and they aren’t going to allow a small player to take fees off trade they do nothing to create, forever. That future has a short future life. We are thus in consequence committed to the deluded idea we can go on pretending it is the world’s ‘leader in finance’; but rather we simply the biggest prisoner of world finance markets (which is why we have so easily fallen for oligarchs, and attracted so much dubious money to London). In the end we are financial market ‘takers’, not ‘makers’ in the UK.
For once I have to disagree. The 10% tariff is became US data suggests we have a trade deficit with the US. UK data does not agree. It says we have a surplus. Go fathom.
Where we agree is that there was nothing special in this deal, and no result of negotiation. We were treated with equal contempt to everyone else.
The precise quantum is unfathomable, but from a US perspective – whether deficit of surplus – it just isn’t that material. It doesn’t shift US policy. The Big Battalions do shift US policy. That is the difference I am trying to highlight. It is a relativity issue. What is significant to the UK, just isn’t significant to the US. The consequence? Join steerage class in US economic priorities, and receive the 10% tariff, without much thought required (and 25% on cars, and who knows what others may follow, will all still happen).
The US can still play games about ‘relationships’ (as long as the US receives a lot more than it gives the UK); and it can indulge the UK simpering about a “Special Relationship” we can all see what ‘Special’ really means to the US in the case of Israel); and Trump is happy to tale the freebies offered by the UK in State Visits, for some reason (more modern mega-rich prefer space-walks for a holiday), and play golf on his own courses, without bothering to flatter now largely irrelevant British politicians.
The article rightly argues that tariffs alone are ineffective in re-shoring production to the U.S., but their broader impact lies in accelerating supply chain diversification—not localisation. Historical and recent examples underscore this. During the U.S.-China trade war under Trump, tariffs prompted companies like Apple and Samsung to shift some production to Vietnam and Mexico, not the U.S., to avoid costs while maintaining global competitiveness. Similarly, the Biden administration’s CHIPS Act, which emphasised subsidies over tariffs, successfully spurred domestic semiconductor investment (e.g., TSMC’s Arizona plant), highlighting that strategic incentives—not punitive tariffs—drive re-shoring.
Moreover, tariffs can backfire by inflating domestic costs; which has been predicted by many. Trump’s steel tariffs raised prices for U.S. manufacturers by 40%, hurting industries like automotive and construction without reviving steel jobs. Harley-Davidson even moved EU-bound production overseas to circumvent retaliatory tariffs. These cases illustrate that tariffs are a blunt tool, often redirecting trade flows rather than reversing them.U.S. Policymakers should focus on targeted investments and partnerships, as seen in the U.S.-Mexico-Canada Agreement (USMCA), which reshaped regional supply chains without relying on tariffs. Ultimately, global capital seeks efficiency, not patriotism—a lesson tariffs fail to teach and lesson Trump has failed to understand.
Good afternoon
There’s been stories this week of Britain’s JCB and multinationals from other countries announcing plans to increase production in their US plants.
Does this go against your statement that “no US corporation possessed of the slightest degree of economic insight is going to react to Donald Trump‘s demand that they invest in new productive capacity”
If they already have US plant that make sense.
By definition most exporters to the US do not have productive capacity there.
Tariff Tyranny sent the Markets spinning downwards; was this done to help Trump and his friends, along with rich investors, to make a pile of dosh? Then sell when Tariff Trump changes his mind?
They could have shorted markets. They knew what was going to happen.