Trump Folded, Uncertainty Remains

Uncertainty got the upper hand this weak. President Trump removed one certainty from the outlook — the U.S. economy would be wrecked by his de facto embargo of China — but we now are uncertain as to how bad a 30% Chinese tariff will be, and we also do not know what happens when the 90 day grace period is up. Meanwhile, the White House has indicated that he will start unilaterally imposing tariff rates within a week. Since Trump appears to get great satisfaction from changing tariff rates, and there is no sign that any country other than the U.K. is interested in his “deals,” he might as well go back to governing via posting tariff rate changes on social media.

Tariff Primer

Note: this unedited article may be used within a new chapter in my inflation primer.

The topic of tariffs became of extreme importance in 2025, courtesy of American President Trump’s trade war on the rest of the world. In the modern meaning, a tariff is a tax on imports or more rarely, exports. (In practice, “export taxes” seems to be used in the financial media.) The origin of the term is that it referred to tables, coming from the Arabic ta’rif (a notification or announcement, see reference by Paul Anthony Jones below). The tables were of fees paid by traders, and so the meaning of the word in European languages evolved to refer to fees. In English, the meaning became more specialised to just refer to import/export taxes.

Trump Trade "Deals"

Recent comments by Donald Trump seemed to confirm what he implied in his earlier remarks: the “90 trade deals in 90 days” he promised generally did not refer to formal trade treaties. Instead, they would be more informal negotiations about setting American tariff levels.

No Feedback

I have a primer in the pipeline, but I just want to comment on President’s Trump's statements/posts that hit yesterday. The problem with the current trajectory of the United States is that President Trump has effectively taken control of the economy, and it appears that he is getting no useful feedback on the consequences. We would need to go back to historically disastrous central planning episodes to find parallels.

Economic Phoney War

Although the advance estimate of U.S. real GDP shrank by 0.3% in the first quarter (link), I am unsure whether that contraction will stand up to revisions (as discussed below). I still feel that the U.S. economy is in the unenviable state of being an experiment in expectations: current economic activity is actually revved up courtesy of everyone trying to front-run tariffs, but activity is gone over the cliff Wile E. Coyote-style. Meanwhile expectations are caught in a bind — if the tariff policy were credible, everyone would expect gravity to kick in. However, the random nature of Trump’s policymaking still leaves people with the hope that the effective embargo on China will be quickly reversed since only an insane person would view the policy as a good idea.

Whither Treasury Yields?

Since I am allegedly writing about the intersection of the bond market and economics, I need to periodically check in with what is happening in the bond market itself. (Since I am not plugging financial forecasts, I do not have the pressing need to point out how brilliant my calls are — or why the markets are wrong — which is a constant source for articles for most other commentators.)

USD No Longer A Reserve Currency (And Why That Doesn't Matter)

There are two potential definitions of “reserve currency.” The first is quantitative and weak: do other countries hold official foreign exchange reserves in that currency? The second is qualitative and stronger: is the currency at the centre of global financial markets while other countries peg their currency to the reserve currency, necessitating large holdings of official reserves? That is, the stronger definition implies that the reserve status affects economic behaviour beyond a basic fixed income portfolio allocation decision.