Well, that was surreal! The “discount tariff” rates felt like an AliExpress flash sale — hastily delivered in true all-in-one fashion, like a surprise appraisal and bonus announcement from the big boss during a weekly office town hall meeting.
Congratulations to John Thomas for another outstanding call on tariffs—his impeccable record remains intact. We’ll have more insights from John and his Nestpoint colleagues shortly. Now, on to the retaliatory tariffs to be announced against the U.S. in the coming days.
Question: If U.S. GDP growth were to fall to 0%, all else equal, what would be the appropriate Fed Funds rate?
Let’s call this r-prime (r′), in the same spirit as r-star (r*), though perhaps more useful for market participants today. Using the latest Goldman Sachs Research forecast—with a 12-month recession probability of 35%—we can begin to back out a distribution for r′. It makes for an interesting (interest) rate trading environment with many potential opportunities ahead.
Gleaning through the estimated figures for tariff revenues coming from various sources, it’s clear that the calculations fail to account for special exemptions. For example, Apple is unlikely to face tariffs on iPhones imported from China—yet many presume otherwise.
It wasn’t just the uncertainty around trade policies causing headaches, but the actual outcomes themselves. Uncertainty can delay decisions, but ‘bad' outcomes force consequences. So, please stop repeating talking points like mindless parrots.
For now, the only things ticking up this evening are tariffs and our subscriptions.
Updates
Unfortunately, I was on the go while Trump was announcing the tariffs, so I missed out on the entertaining visuals to go along with the audio. It was hard enough to contain myself just listening to it.
Trump mentioned something about making a foreign exchange adjustment to determine the appropriate “pre-discounted” tariff rates for each country. Naturally, we began pondering the “methodology” behind this so-called Trump Purchasing Parity (TPP) forex adjustment. Perhaps it's a glimpse into where his team of alt-economic advisers believe the US dollar should be trading relative to other currencies.
Fortunately, one of our members—a PhD student specializing in trade economics—spotted the following post on X, complete with a chart.
You really can’t make this stuff up…
As always, there are strong opinions on any topic that's even slightly politicized, yet few are willing to put in the work to argue their case beyond the usual headlines and heuristics. Expert opinion is either treated as gospel or completely dismissed—sometimes even contradicted for no reason other than a blanket hatred of ‘establishment elites.'
Regardless of the context, attempting to remedy past bad policies by simply mirroring them is also a flawed argument. An eye for an eye’ belongs in Sunday mass, not in policymaking.
Leaving aside the merits of Trumponomics for a moment—unless someone has original research or credible analysis to back their outlandish claims—it should be clear to most why publishing all the (reciprocal) tariff rates at once was not a strategically sound move by the Trump administration.
Almost every trade economics student in a so-called ‘adversary' nation is now likely optimizing for coordinated, rather than bilateral, retaliatory tariffs.
We’ve assigned some homework to better understand whether Trump’s special discount tariff offers are likely to widen or narrow U.S. terms of trade as they currently stand—assuming no reciprocal tariffs.
