Trump has once again ascended to the presidency, leading the Republican Party not only to win the election and win both houses of Congress, but also to occupy six seats in the Supreme Court. This also means that Trump’s power is not only reflected in administrative management, but also has influence on the Congress and the Supreme Court. The separation of powers that Americans have been engaged in for three hundred years was unified by Trump at this moment, which also makes it the most powerful president of the United States in the last 40 years. It’s hard to say whether the United States Congress will become the American Empire, but in the next four years, the United States will definitely take on the surname Trump. Four years ago, Trump raised the banner of America First and disrupted the global economic order by imposing tariffs, withdrawing groups, and collecting protection fees. The subsequent US inflation and global supply chain chaos were actually the aftermath left by Trump. Now that Trump has returned to the international arena, he not only has no intention of stopping, but also wants to double the bet. The next four years may be higher tariffs, more stimulating diplomatic games, and even more unlimited currency releases. That’s the question, what new tricks will Trump 2.0 bring? Is his genius logic a panacea for the US economy or a global economic nuclear bomb? What direction will Trump’s economics take the world?

01

Let’s first talk about the issue of indiscriminate tariff increases. According to Trump’s logic, increasing tariffs on imported goods is beneficial for American people and businesses to reduce their dependence on overseas goods. When foreign goods become expensive, they naturally have to seek alternatives domestically, which is equivalent to stimulating the US manufacturing industry and job market in reverse. The last time was a localized precision strike, which included traditional allies such as the European Union, Canada, and Mexico. The United States imposed tariffs of 10% to 25% on imported steel and aluminum, and later expanded to include China’s electronic products, household goods, clothing equipment, and almost all of China’s major import categories. But what was the outcome? American companies were unable to find alternative suppliers for a while, resulting in soaring manufacturing costs for domestic companies. Automotive giants like Ford and General Motors had to cut expenses, lay off employees significantly, and some even moved their production lines to Mexico and Canada. Trump’s wave of actions not only failed to tie down businesses, but also made them run faster. This time when Trump came back, he said he would impose a comprehensive tariff of 10% or 20% on all imported goods, and give special consideration to imported products from China, adding an additional 60% on the original basis. The behavior is simple and crude, basically an indiscriminate attack on major economies around the world, but ultimately, Trump is a businessman’s mindset, and his essence is still to use tax increases to suppress imports and force American companies to return home and build factories. This may seem scary, but upon careful consideration, I realize there’s something wrong with it. You should know that the manufacturing industry is not like renting a building like the Internet to buy a few computers to carry out business. First, enterprises need to select sites to build factories, then integrate local suppliers, design production lines, purchase production equipment, and finally, workers need to be trained for various government and industry association certifications. After a set of processes, before the company starts production, Trump may no longer be online.

The most typical example is TSMC, which announced the construction of a factory in the United States in 2020 and invested 65 billion US dollars, but has not officially started production until today. According to TSMC’s own statement, the first factory will start producing chips in early 2025, the second wafer fab will be completed in 2026, and the third factory will be directly scheduled for 2030. That is to say, even if the manufacturing industry returns to the United States, normal production will be postponed until three to five years later. A comprehensive increase in import tariffs would mean that consumer goods in American society would all increase in price by 10% to 20%. In addition, Trump’s plan to increase tariffs on Chinese imports by 60% is indeed putting significant pressure on domestic businesses. But a careful analysis reveals that in the years since Trump’s absence, Chinese companies have actively gone global, and the idea of global supply chain has long been opened up. For example, low-end manufacturing such as clothing processing has already spread to Southeast Asia, while high-end manufacturing such as automobiles, mobile phones, and batteries have also entered Europe, India, and Mexico. Although everyone has placed their production lines overseas, many supply chains still rely on the domestic market. Factories in Southeast Asia and Mexico are actually just labeling and then selling Chinese goods to the United States. The loss of enterprises is small. It is nothing more than to let the goods go through more processes. But the consumption experience of Americans is the same. If they want to buy things made in China, they have to go through more procedures from Southeast Asia or Mexico, which is equivalent to letting the middlemen eat the price difference for no reason. You should know that China’s manufacturing industry is too strong, and it is far from being able to offset the price advantage with tariffs of 10% or 20%. One third of American consumer goods come from overseas supply chains, including but not limited to electronic products, household goods, and daily food. A universal tariff of 10% would increase the annual expenses of ordinary households by $1500, while a tariff of 20% would be $3000. Trump’s indiscriminate tariff policy ultimately has to be paid by ordinary people. What would be Trump’s solution? According to his logic, the most likely outcome is to distribute money, reduce taxes, and defeat inflation with inflation. A few years ago, the US government creatively implemented a scam of giving money to the people in response to the pandemic. From Trump to Biden, three rounds of coin scattering have cost more than one trillion yuan, resulting in wage increases of more than 30% for Americans and doubling in many industries. Of course, wage inflation is bound to lead to social inflation. In recent years, the overall feeling of Americans is that there is a lot of money in the market. The U.S. stock market, U.S. debt, and Bitcoin industry are hitting new highs, but the real purchasing power of the U.S. dollar has dropped by about half. Of course, Trump’s way of giving money this time may be adjusted. During the campaign, he promised to lower interest rates for the Federal Reserve, significantly reduce taxes for businesses and individuals, and ensure that there is enough money in the market. If inflation occurs, he will use more money to defeat it.

02

In order to let Americans get more jobs, Trump also promised to deport illegal immigrants on a large scale. According to 2024 data, the number of illegal immigrants in the United States exceeds 10 million, accounting for approximately 3.3% of the total population. These illegal immigrants are mainly concentrated in industries such as agriculture, construction, and catering, which are both difficult and unprofitable. They have to some extent alleviated the problems of labor shortage and labor costs for businesses in the United States. If Trump really deports illegal immigrants on a large scale as he promised during the campaign, there will be a severe shortage in the labor market, and companies will have to significantly increase wage levels in order to maintain production, resulting in naturally higher prices for the goods produced. The employment rate and wage income of Americans may have increased, but the actual growth may not catch up with inflation, which means that one plus one minus effect is zero or even negative. The United States is a capital exporting country. If we don’t want to import goods, we have to manufacture and attract more immigrant labor ourselves; If you don’t want to immigrate, you have to lower tariffs to buy cheap goods from foreigners. Now Trump doesn’t want immigration or imported goods, which is not just an issue of inflation, but may even trigger stagflation. According to JPMorgan’s estimation, if tariffs are raised by 10%, the GDP of the United States in 2025 will decrease by 30%, and the inflation rate will increase by 1.5 to 2 percentage points. Some friends may ask, won’t the United States stop Trump from acting so recklessly? Not really. As mentioned at the beginning of the article, Trump’s victory this time is not just about obtaining a presidential title. His Republican Party has also won both houses of Congress and controlled the Supreme Court. Eight years ago, he was subjected to various pressures and tricks by Congress, courts, and old bureaucrats, and many policies could not leave the White House gate. But now it’s different. He returned to the White House with the MVP settlement team, and there are no more establishment factions who can prevent Trump from implementing laws domestically. Although he said during the campaign that he would launch missiles at Mexican drug dealers and use the military to strike the far left lunatics of the Democratic Party, it is unlikely that he will fulfill his promise, but raising tariffs and continuing tax cuts for businesses and individuals will definitely continue. If the Federal Reserve wants to tighten monetary policy to offset inflationary pressures, Trump may once again cyberstorm Powell and even arrange a shadow chairman to weaken the Fed’s power. Everyone can also understand it this way. In terms of justice, administration, and monetary policy, as long as the country’s foundation is not compromised, Trump can almost completely follow his own ideas.

03

It can be said that Trump is confident in his economic plan, mainly due to the high growth and low inflation achieved by the US economy in the first phase. However, this magic double may not continue according to his script, because the global economy is generally not optimistic, and people may not be able to make any further concessions in order to grab the cake. In the 2018 US China trade war, the EU and Japan could still watch the excitement, but this indiscriminate tax increase will only lead to more countries retaliating against the US with tariffs. The reason is also very simple. Although the United States has been calling for trade decoupling for several years, the industrial chain has become deeply globalized, and it is not something you can just say you want to decouple. The result of a collective trade war among multiple countries is a significant increase in prices for all goods, and the effects of global inflation will be transmitted to each country one after another. You should know that in recent years, everyone has been crazily printing money. Japan has given money to companies, and the United States has given money to individuals. The inflation in both countries can barely be suppressed, because Chinese goods are backing them up. If they had relied solely on their own production, inflation would have been high long ago. So the escalation of this trade war is not only a game between China and the United States, but traditional allies such as the European Union and Japan may also no longer support US unilateralism. After all, European companies also have huge interests in the US market, and they cannot watch their products being squeezed out of the North American market. Trump’s idea of using higher tariffs to force businesses to return to the United States, which would increase domestic employment and investment, is a good idea, but ultimately requires exchanging blood. In fact, as early as 2019, many American companies found that they did not have suitable alternative suppliers. For example, Apple’s chain was transferred to India for several years, but the production and quality still couldn’t keep up. In the end, we have to import Chinese components and take the finished products back to China for packaging. With all this back and forth, the extra costs are naturally passed on to consumers. There are also companies like Boeing, whose aircraft components come from over 20 countries. Once this complex supply chain is disrupted by tariffs, the company’s costs and risks will be infinitely magnified. According to the economic data for the third quarter of 2024, the inflation level in the United States remains above 4%, while the unemployment rate has shown a slight rebound. So it is not difficult to predict that once Trade War 2.0 breaks out, American companies will have to face both the sales decline caused by price increases and the cost pressure of rising employee wages. Even if some manufacturing companies are willing to build factories in the United States, it is difficult to fill the market impact caused by high tariffs and industrial chain disruptions in the short term. Trump may not look at history. The Smoot Hawley Tariff Act, which was enacted by the United States in the 1930s, was a rudimentary version of America First. The US government originally only wanted to crack down on imports and support its own economy, but it caused other countries to play with trade protectionism, ultimately leading to the epic Great Depression. Printing money, cutting interest rates, and raising tariff barriers are unprecedented operations, and no one can predict what will happen next. Previously, the United States has been suppressing inflation well, mainly because China’s production capacity is strong enough. No matter how they purchase goods on a curve, the result is that they dilute their currency with goods. If the United States prints money and China’s production model cannot continue, then the operation of the global economy will have to completely change its logic. Trump hopes for a significant depreciation of the US dollar so that their goods can be competitive in the international market, but the world’s factories are probably thinking the same way. Trump doubles, we double. Regardless of whether the Federal Reserve’s interest rate decreases or not, the interest rate of the Chinese yuan will definitely decrease. So don’t be too fixated on inflation plundering, because everyone will release water, and no investment is absolutely safe. If there is no new quality productivity that can lead everyone out of the bottleneck, then we can only crush our peers on the road of inflation, or be crushed by our peers.