Is There a Tariff End Game?

Paul Krugman: “On May 12 Donald Trump suddenly reduced the tariff on China from 145 percent to 30 percent. This may seem like a big reduction. But while the higher rate would have completely cut off trade with China, even the lower tariff rate, by my estimates, would cut U.S.-China trade by two-thirds. It wasn’t clear that much had changed.”

“But many retail investors, engaging in wishful thinking, interpreted the apparent climb-down as proof of concept for TACO — Trump always chickens out. So the stock market began behaving as if Trump would soon find an off-ramp out of his whole tariff obsession. Notably, however, the bond and currency markets, dominated by pros, didn’t let up on the “sell America” trade — the dollar continued to fall while interest rates continued to rise.”

“So I’m not convinced that the worst is over.”