Won Battle. Lost War.

I didn’t get a chance to more fully discuss why I have believed that we “won the battle but lost the war,” because of the busy data cycle. For those of you who want the executive summary, we won the BATTLE, in that we will probably gain from some combination of: (1) tariff income on imports, (2) foreign investments in the US, (3) lower tariffs on our exports, (4) lower non-tariff barriers on our exports and (5) some other concessions. But we lost the WAR in that we’ve alienated a lot of our customers (foreign purchasers, travelers and investors), for AT LEAST the next 3.5 years while Trump is in power. It doesn’t matter if US goods are 10-20% cheaper to foreigners when you have offended your customers to the point where they refuse to give you 100% of their business - whether this is destocking US liquor, boycotting Coca Cola products, refusing to travel to the US, or even investing in US assets. This is probably why Polymarket odds of a recession THIS YEAR are still at 57% despite Trump walking back some China tariffs and some preliminary deal frameworks allegedly having been agreed to.

Long-time readers of the CA know what I think of Trump’s negotiation skills. The executive summary is that if you think about it, almost his entire negotiation history is against people who were in a less advantageous position (banks who lent him too much money, underpaid government workers, labor unions, hookers, etc). Trump is basically Cosmo Kramer, who is the master of the (kid’s) dojo and incessantly bragging about it. In these situations, it could be perfectly fine to take hardball tactics. But really, when you are fighting kids, you can do just about do anything and still “win.”

This leads me to the current situation we are in. Trump went hard without fully thinking though the ramifications. He had “Concepts of a Plan,” but as you have seen the past few months, he hasn’t thought things out. Thinking is hard. It’s not for everybody. Unfortunately, he surrounded himself with “yes” men (and women), rather than qualified thinkers, which is making the current situation even more difficult.

The other Trump characteristic that is coming to bite us is his penchant to “grab ‘em by the p*ssy.” He basically goes big or goes home. I have no idea what all the Greenland, Canada 51^st state, and Ukraine berating was all about. But these Trump “grab ‘em” moments have further hurt our attractiveness in the eyes of foreign customers. If he actually wanted to acquire Greenland or a discontented Alberta, that is not how you go about it. Try wining and dining instead of going for the grab on the first date.

From all of the above, Trump has managed to alienate not only the Democrats, but most of the world against us. The key mistake is not in realizing that the world is our customer. You can’t push for free trade and remove barriers from other countries to buy our products at the same time you are making it repulsive for those customers to do so. It’s like grabbing a bunch of people Trump style and then asking them to shop at your store.

Maybe Trump will put in some minimum purchase requirements in the trade deals, so that his offensive behavior won’t matter as much. However, given that Trump has been backtracking quickly on his trade demands and seems to be going to Cosmo Kramer coffee deals, we may have just crushed our international sales, visitor traffic and investments for minimal gains.

So even with all the “positive” trade news lately, recession probabilities remain elevated. While a softer Trump on trade removes some of the downside from overly-aggressive tariff policies, we still have the large probability of an international customer revolt for YEARS. We also have the uncertainty involved over the months-to-years-long process of negotiating the trade deal. I would expect Trump to dial down most of the aggressive tariff rhetoric after the summer, so that he can focus more on his “tax reduction and growth” agenda. However, you would expect occasional tariff outbursts if negotiations are stalling.

We finally got a relatively “quiet” week while I was away! I will retire the Vacation alert going forward.