Self-Harm: a PS to Blarping the Trumpet
Digging further into the mess made by Trump’s tariff cauchemar reveals the following. Among the reasons for the US having so many billionaires is the ‘price-earnings multiple’ on the value of stocks and shares. US stocks get a much higher valuation than those on other stock markets because of what underlies (or until now underlay) the strength of the US economy: its reputation for being a low-risk environment for investment, with high levels of innovation, an entrepreneur-friendly tax regime, top-flight universities, consistency in policy, and the rule of law. Investors like predictability and good governance, and the US until a few weeks ago had both in spades. As a result the price-earnings ratio for stocks meant that $1 of profit made by a US company translated into a $28 increase in its stock value. In Germany the multiple yields a $16 increase in stock value for every $1 profit, in China $14 for every $1 profit. The multiple-multiplying advantages enjoyed by the US have now been undermined by Trump – flouting the rule of law, completely abandoning consistency, attacking universities and defunding their research programmes, etc. – with a consequent, and likely prolonged, downward re-rating pressure against the multiple on the value of US stocks. Their value has gone down in the tariff-induced crash and even with the reversal of the policy will stay down, the former multi-trillion dollar inflow of investment to the US in consequence reversing and flowing back out of the US, for example to the EU, whose indexed funds are seeing record inflows this week as a result.
A specific example was offered by Scott Galloway on CNN. If the US and South Korea impose equivalent tariffs on each other such that both Apple and Samsung each lose a $1 billion in revenues, then because Apple stock trades at a multiple of 8 times the company’s revenues, Samsung at 2 times, it’s Apple that loses by far the larger quantum of value. Whereas the US was formerly the big gainer in terms of stock asset wealth, it now stands to be the big loser. Stock wealth is not just old-rope money for fat cats, it is investment money, it is pension payouts, it is where savings retain or increase their value. A stock-market fall drags a lot of people and things down with it.
Hurting others ends up hurting oneself even more. Like a man swinging an axe at a log, Trump’s America has gashed its own leg sorely, maybe cut off one of its own feet.
The same applies on balance of trade and foreign exchange.
Trump claims the EU does ‘not taking anything’ from the US – ‘they don’t take our cars, they don’t take our food’. Why? Because the EU sets high standards on quality. You’ve heard of ‘chlorinated chicken’: Europeans quite rightly don’t want to eat it. Even so, the ‘they don’t take anything’ claim is of course straight out false. For a trifling example, there are Tesla owners in Europe, as Tesla owners in Europe are finding to their cost. But a few facts will help: in 2024 the US was the EU’s largest partner for the latter’s exported goods (20.6%) while being the US’s second largest partner for its exported goods (13.7%). Since the US exports so much to other markets besides the EU the appearance of a 6% differential in goods trade is misleading when it comes to the US’s trade balance with the world.
This is trade in goods, note; the US’s largest export by far is services – everything from movies to banking – which makes up over 75% of US export earnings. Total US-EU bilateral business in services was worth $746 billion in 2023, the US exporting $427 billion to the EU and the EU $319 billion to the US, a $109 billion surplus for the US. Trump seems to have heard only of the balance of trade (in goods) and not balance of payments (measured by inflow versus outflow of foreign exchange).
China is the superpower in trade in goods. It has a $1 trillion surplus with the rest of the world. It sells four times as many goods to the UK as the UK does to China, three times as many goods to the US than the US to China. A major reason is China’s deep-rooted competitive advantage, carefully constructed over decades: labour costs, government support, expertise, raw materials, the way it turns imported raw materials into finished product exports, its dominant control of key supply chains (its own rare earth supplies, minerals from Africa and Australia, etc.) and its dominance in key areas of technology (e.g. it manufactures 75% of the world’s lithium-ion batteries). That 75% figure applies also to the world’s vitamins, ingredients for pharmaceutical products, and household appliances. The rare earths point is big: China produces 90% of the world’s rare earth elements critically important for today’s advanced technologies all the way from defence to energy – and it has used this near-monopoly as a geopolitical tool, as Trump is trying to use tariffs to do, for example in withholding or threatening to withhold supplies to Japan and South Korea in times of dispute. China is now deploying them as a powerful threat to the US, whose tech industries are highly reliant on China for many ‘CRMs’ (Critical Raw Materials).
Even with 104% tariffs on goods from China, US buyers will not easily find alternative sources of supply for them. They will therefore have to pay twice for everything they can only buy in China if they wish to stay in business themselves. In fact they will have to pay more than twice: the bill to China, and a bit more than the same sum again to the US government. Then they will pass on the cost to consumers, only partially mitigating the higher prices by cutting their own costs (for which read: cutting quality and sacking employees). Nice.
Thus consequences ramify, US policy self-harm mounting further and further. It really is beyond stupid.