April 22nd, 2025: Andrew Hilton’s continued mea culpa. Boy, did I get him wrong…
And yet, is there anything that can be said in his defence?
Not much, I am afraid. I am in the US at the moment – in that part where 90% of the (native-born) populace says ‘I told you so’, and the rest are already cowering in their bunkers. I was pleasantly surprised that my maintenance guy and pool guy are still in business, and haven’t been hauled back whence they came. Ditto that the local bodega hasn’t put the shutters up – yet. But there is a real feeling that They are out to get You – personally. Still, there is no doubt (at least in my mind) that illegal immigration was a genuine problem (even if very convenient for most of the locals) – and Trump has pretty much solved it (at least for now). Also DEI; I haven’t yet met anyone who was really prepared to die in the Trans ditch, though I guess there are a few. The fight with Harvard is interesting, however. The anti-Semitism bit is bullshit; like all the Ivies, Harvard is heavily Jewish –once about 20%, now estimated at c.10% – while I doubt Muslims make up more than 2%. But the attack on elitism is real; there aren’t many MAGAs (at least, beyond Trump’s own family and Cabinet) who went to one of the Ancient 8 (not even Cornell), and the temptation to poke Harvard in the eye with a long stick is pretty irresistible. Of course, what Harvard (and Yale and Princeton) should do is simply use their massive endowments (the income on which, in the case of Harvard, hit $6 billion in 2026, though it has fallen a bit since) to cover 100% of the, pretty trivial, cost of educating that elite – and then drop all the DEI/legacy nonsense in favour of a genuine world-wide talent drive. Wow, what a pull that would be – and what a boost to America’s much-battered soft power.
But it won’t happen. Sadly, Harvard will fight (and win) only to keep its right to pick-and-choose who gets the keys to the Kingdom on the basis of diversity, ‘legacy’, dumb luck and whatever criteria the liberal intelligentsia deem appropriate at any moment. But making a Harvard education ‘free’ is a really neat idea; I wish it well.
Meanwhile, what can one say about Trump’s tariff wars that hasn’t already seen said a thousand times? Again, not much...
One: Even with the 90-day ‘pause’ (and, remember, it is a ‘pause’, nothing more), the effective increase in the overall US external tariff is around ten-fold – from about 2.4% a year ago to around 22%. That compares with a six point increase as a result of Smoot-Hawley. So, even though markets breathed an audible sigh of relief when the ‘pause’ was announced, we are still in deep shit.
Two: We still don’t know what Trump really thinks – and maybe he doesn’t know either. It appears that the only reason the ‘pause’ was announced (and the only reason for the list of ‘exceptions’ that was revealed afterwards) was because Bessent and either Hassett or Lutnick (depending on what one reads/believes) caught Trump alone, while his ‘trade whisperer’, Peter Navarro, was in another meeting elsewhere in the West Wing. Does Trump now genuinely believe tariffs are just a negotiating ploy, and can be whittled away in return for some sort of ‘deal’, as he suggested to Meloni – for instance, a commitment to buy Boeing planes, or permission for Eric and Don Jr to build a Trump casino in Yangon or Manila? That is clearly what we are now being told. Or is there still a tiny bit of him that believes (as Navarro does) that tariffs are an alternative to taxes, that imports are inherently evil, and that the best economy is essentially an autarchic one that funds itself from the fees imposed on imports? Unfortunately, these two views (of tariffs) are mutually incompatible – though Trump seems to vacillate between them. Both approaches are bad, but we are encouraged to believe that the former is at least rational. That may be true, but it is also extraordinarily dangerous because it validates Trump’s belief that power is there to be used – and will atrophy if it isn’t used.
One other thing: I know Trump appears to have zero loyalty to anyone outside his immediate family, but it is worth remembering that Navarro (who is 75, and not independently wealthy), did four months in Federal stir on his behalf over January 6. That might count for something, even with a transactional son-of-a-bitch like Trump.
Three: As you probably know, Paul Krugman (America’s Martin Wolf, albeit with a Nobel) has quit (or was canned from) the NYT, and now runs his own (for profit) blog. Whatever one might think of him, he is a good trade economist – and he makes the very strong point that restricting what people can buy is more effective than restricting what they can sell – and that China has the whip hand, not least because the only way to hold down US inflation is to continue to import cheap Asian consumer goods, but because China’s restrictions on exports of so-called ‘rare earths’ (and the magnets of which they are a crucial component) is crippling to the US defence sector. Soybeans can be sourced from Brazil, but it would take years to build the mining and refining capacity that China already has in place. In the meantime, you can’t run a space programme on the Energizer bunny. (Actually, Trump – or someone in the White House – might have read that Krugman piece, since the next day Trump announced a ban on sales to China of the mid-range, ‘stripped-down’ Nvidea and AMD chips that power the DeepSeek AI model; however, these chips are well within China’s capability – albeit, I guess, it will take a bit of tooling up.)
Four: It’s the chaos that hurts, perhaps more than the tariffs themselves. It takes years to build even the most rudimentary, large-scale manufacturing facility from scratch – not least, because of all the permits one now has to get (and Trump hasn’t managed to address that yet). It takes even longer to train up a workforce that has the skills needed for the kind of production that Trump envisages. (And, in any case, who really wants to do the fiddly jobs that we, Europe as well as the US, outsourced to Asia in the first place?) But Trump doesn’t have that sort of time. Indeed, as I have said before, he isn’t even a one term President; he is a half-term President since the Democrats are very likely to win back control of the House (and thus power over spending) in 2026. Hence, all this sound and fury will simply do more damage to an already damaged US industrial base, by making it impossible for firms to make sensible investment decisions – and will, in the end, almost certainly accelerate the rise of Asia, at the expense of the US. As Trump will discover, you can’t put the toothpaste back in the tube. (For those who fear – or hanker after – a third Trump term, I would just refer back to what I have already said about the 22nd.and 12th Amendments; short of a military coup, which I still discount, the only way Trump could get a third term would be if he were elected Speaker of the House, and both the President and V-P were then to resign in his favour. Even though, surprisingly, the Speaker does not have to be a Member of Congress, that is utterly implausible. Oh, and he’ll be 82.)
In any case, tariffs aren’t the key issue this week.
Rather, what has everyone’s knickers in a twist is the fight that Trump appears to be picking with Fed Chairman Powell – who, it should be remembered, was appointed by Trump in the first place. He has even let it be known that he has interviewed Kevin Warsh – a former Fed Governor, now at the right-wing Hoover Institution – to step into Powell’s tasselled loafers. I have to say that I really don’t know what Trump is up to. I realise that (as a real estate developer) he has always favoured lower interest rates and a weaker dollar – and his attack on Powell for not giving him the former is certainly giving him the latter. Indeed, over the last two weeks, the dollar is down 4.1% on a trade-weighted basis – which may not sound like much, but it is. However, the price for that is a very nervous equity market – and a very, very nervous bond market. Over the last week (a short one, since markets were closed on Friday), the Dow was down 2.7%, or more than 8% ytd) , while Nasdaq was off 2.6% (or more than 15% ytd). Today (Monday) has added to the carnage, with the Dow and S&P off another 2.5% (despite the usual late afternoon rally) and Nasdaq down 2.8%. What will undoubtedly scare a lot of people is that today’s weakness in equity markets was not offset by a move into bonds. Indeed, the yield on the 10-year Treasury benchmark, which closed on Thursday a t 4.33%, closed today at 4.41%. That was the kind of scary ‘synchronicity’ that got Jamie Dimon and Larry Fink on the phone to the Oval Office the week before last –and may well get Trump’s attention again. When equities and bond prices are falling together, there is a real fear that Armageddon is just around the corner.
Maybe it won’t last. Maybe the bond market will correct tomorrow. After all, US Treasuries are the ultimate safe haven – even when the storm one is trying to shelter from is one that is caused by the US itself.
But the danger is that Trump’s attack on the Fed will scare holders of Treasury securities wherever they are – Europe, China, Canada and/or personal pension pots. If that starts to happen, things could get nasty very quickly. Ironically, it could also put Powell beyond Trump’s reach – regardless of whether Trump does or does not have the right to fire the Fed Chair. (He says he does; the Constitution says he doesn’t.) If it becomes clear that forcing him out could precipitate a major financial crisis, even Trump would have to bite his tongue. It mighty even guarantee Powell at least the offer of another term when this one expires in May next year.
In terms of the damage that Trump’s policies are doing to the US economy, I guess one must acknowledge that there isn’t much evidence so far. True, the WSJ’s quarterly survey of business economists now puts the chance of a recession within the next 12 months at 45%, up from 22% in January, but vehicle sales soared ahead of the tariffs and it does seem as though Americans went on a shopping spree in the first quarter. That said, the Philly Fed manufacturing index slumped in April from +12.5 to -26.4, and the new orders index was hit even harder, dropping from +8.7 to -34.2. It’s those forward-looking indicators that have really got economists worried – and rightly so.
Of course, it’s not just economics that causes sleepless nights. Indeed, one could argue that Trump’s approach to geopolitics is at least as big a threat.
Most attention last week was focused on Rubio’s warning that the US is prepared to ‘walk away’ from the Russo-Ukraine peace talks, since, after all, ‘it’s not our war’ – though, in fact, it is since Washington’s chicken-hawks armed and encouraged Kyiv to take on Moscow as a way to bleed Russia dry. Still, I can (almost) see his point – though what I can’t see is whether he and Trump are angrier with Zelenskiy (for not bowing more deeply) or with Putin (for reneging on the deal that I am pretty sure he agreed early in Trump’s term, or perhaps even before). If the former, we may have a real problem, in that the Europeans are in no position to pick up the slack, in terms of military or financial support, without at least six months’ notice. If the latter, Zelenskiy could suddenly find himself with the long-range weaponry he has been demanding – and permission to use it. Whatever, I still hold to my original position: that a deal is possible – and obvious. It would involve Kyiv giving up land that was always Russian-dominated, in return for the realistic prospect of EU membership – which is what the average Ukrainian wants, even if NATO membership appears out of reach, at least for now.
As for the Middle East, what is happening in Gaza is heart-breaking – though I have to say that I am encouraged by the fact that, even in East Hampton, I can find very few people who have a good word to say for Netanyahu. Trump (and most of the US Congress, to be fair) may be in Bibi’s pocket – thanks to Miriam Adelson’s millions and the efficacy of AIPAC and the ADL. But the revulsion at what Israel is up to in Gaza is real. Still, since a genuine peace would almost certainly end up landing Netanyahu in jail, one can’t yet rule out a US-led attack on Teheran. Indeed, I already hear nonsense talk that ‘Riyadh’ is demanding it; don’t believe it.
Meanwhile, the Spring Meetings of the IMF and World Bank began in Washington today.
I really don’t have much to say about them. The Fund’s Global Financial Stability Report comes out (I think) tomorrow, and the World Economic Outlook on Wednesday. Both are important – but it is the WEO that will attract more attention since MD Georgieva has already let it be known that the Fund will cut its forecast for global growth quite sharply, though it is not predicting recession. What will be interesting is whether the US shows any interest at all in a quota increase for the Fund; I would guess not. The White House is apparently finalizing its review of the multilaterals, and I can’t see Rubio et al. showing any inclination either to boost Fund resources or even to support the next IDA replenishment at the Bank. That obviously opens up an opportunity for China – and I can’t see Beijing missing an easy trick. It also opens up an equally obvious opportunity for India – and I note that Columbia’s Jeff Sachs (who has a background in development economics, even if, IMO, he has been wrong more often than he has been right) is bigging up India as a potential member of the G7 and all-round success story. Certainly, Modi wants a higher international profile, and Trump may give him the opportunity. After all, one of the other stories circulating this week is that the US State Department is to save money by downgrading Africa, and closing all its programmes there. Hmmm.
The other big issue that will come up ‘in the margins’ is obviously the role of the dollar – and whether there is any realistic alternative. Again, China could be key. It will be interesting to hear what its delegation has to say.
Looking at my pile of notes, I see I have (as always) missed a huge amount – including:
Bloomberg’s concerns about China’s new ‘Great Wall of Sand’ in the South China Sea, which could be the next geopolitical flashpoint;
An interview with the World Bank’s President Ajay Banga, which a normally sceptical Indian friend tells me was really quite impressive, and reasonable (I am inclined to see Banga as someone out of his depth, but I could be wrong);
Canada’s election on the 28th, which had been dominated by Trump’s bellicosity – though that has mysteriously, but conveniently for the Conservative leader Pierre Poillevre, gone quiet in the last week or so (my bet would be that Poilievre pulls it off, just); and, of course,
The facet that the ECB surprised no one by cutting its reference rates by 25 bp when it met last week.
Obviously, the ECB’s move was crucial. Inflation still seems to be falling in the Eurozone, and – even though there has been some improvement – the German ‘locomotive’ is still stuck on Platform 1. The next two CBs to meet are the BoJ on May 1 and the BoE on May 8. The pressure is on the BoJ to raise rates – which it has been reluctant to do, despite talk of ‘normalisation’. The pressure on the BoE will be to cut – and that may well prove irresistible this time round.
Anyway (if you got this far), thanks for reading. Back to Blighty next week.
Andrew Hilton
Andrew@economic-evaluation.com