In the last few days we learned that the Trump Administration is now in the process of escalating another trade war. We already know that Trump is in the middle of a trade war with China, which was supposed to have been resolved several times already and just keeps getting an extension.  As I’ve said regarding that, it will drag out as long as possible until the stock market decides that it can’t be resolved favorably.  My guess is that by the time election day comes next year, we’ll still be talking about how well the talks are going, it’s the best deal ever, no one ever made a deal like this one that we have coming through, we won't believe how it will make America great, and so on.

But as we've learned, Trump is now preparing over $11 billion of new tariffs on the European Union over subsidies to Airbus.  Trump claims that the subsidies give the company an unfair advantage in the marketplace against American airplane manufacturer Boeing. Maybe he wants to shore up his votes in places like PA, SC, MO, and WA? Or maybe it’s a feeble attempt to bring some 28,000 manufacturing jobs back to America, jobs which Boeing has reduced over the last 5 years?

The new tariff proposal includes not just steel and aluminum which are already inclusive of tariffs from a year ago, and not just airplanes and parts, but also other products like cars, car parts, fish, wine, cheese, clothing, watches, olive oil, olives, citrus fruits, beer, essential oils and extracts used in food, soaps, lotions, and health/medical products. Here’s the link, and I’ll save you the pain of reading the legal portion of the document.  Skip to page 10 for the complete list of nearly 400 everyday products or raw materials used to make everyday products. And the tariff? Up to 100%!

I’ve spoken out against tariffs in the past because the loser in a tariff is one and only, the end user of the product or the raw materials being used for the product being tariffed. The EU has also declared their intent to impose tariffs on American goods that come to their side of the pond, and they’ll also lose out.

Beside the consumer being the biggest loser in a trade war, literally everyone else along the way loses.  That’s because of several factors including: business owners who sell the tariffed products will see a drop in business as people have less in their pockets to spend; citizens on government assistance like social security, as their living expenses will rise faster than the annual cost of living adjustments (COLA); the government itself will lose more in sales tax, business tax, and income tax than it gains in tariff collections; and the entire economy itself will become less efficient and less productive as some industries gain the illusory appearance of being more profitable than they really are, causing capital to be misdirected to inefficient allocations within the economy.

These additional tariffs on $11.2B of goods is just the beginning, and it will cause the appearance of inflation, just as the Fed thinks it’s time to lower interest rates again. They’ve painted themselves into another corner here, because when that time comes, the Fed will be damned if it raises rates to fight inflation, and damned if it lowers rates to help juice the economy. The long view is a weaker dollar and a higher cost of living for all Americans.

Americans have seen this show before, and like prior episodes, we’ll be the ones to walk away with grand disappointments in the end.