Umair Haque, a London-based economist, is pessimistic about the direction of our economy., He wrote this a day before Trump announced that he was imposing 25% tariffs on Canada and Mexico, our neighbors and largest trading partners, and 10% tariffs on Europe and China. Haque predicts that the economic consequences for the U.S. will be devastating.
He wrote on his blog, The Issue:
Hi guys. I’m going to keep it short and sweet, because this one’s urgent. Friends, gather round, you will need to understand what I’m about to discuss.
Trump just announced tariffs of 25% on Canada and Mexico and a little less on China…
What’s going to happen?
Americans don’t have much experience with tariffs, with macroeconomic changes and transformations in general. So it’s OK not to know. And I’d expect the country to be wayyyyy more alarmed, but it isn’t, because it doesn’t understand what’s about to hit it, which is going to be…
Absolutely catastrophic.
See how people are already “shocked” and “surprised” by what’s happening (all over again)? They aren’t listening and learning. Please, take a second to understand all this, urgently and seriously. This is why I write these long essays. You are going to be affected, and I don’t want you and your loved ones to get hurt.
Chaosterity
What do tariffs of 25% mean?
They mean that everything that’s imported from Canada and Mexico is going to rise in price, many things by a lot more than 25%. What’s imported from there? Food, vegetables, fruit, lumber, all kinds of basics. Why will it rise, in some cases more than the tariff rate? Because of course distributors and the entire value chain needs to make money in order to operate.
So we are going to see a ruinous wave of inflation. When I say ruinous, I mean it. 25%? That’s an enormous rate for a tariff. Normally, if want to discourage trade or investment, we’d set that rate at maybe 5 or 10%. Not only do these guys have no idea what they’re doing, they have no idea what kind of ruin they’re about to unleash.
In short order, Americans are going to be catastrophically more for nearly everything on the shelves. They already can’t afford it, which we know because of course credit balances are skyrocketing and living standards are falling.
But that’s only sort of the small story. This isn’t just “about tariffs,” but an approach to the economy which also appears to include attempting to lay off the entire government.
I called it Chaosterity the other day. Tariffs hurt people, and the people they hurt the most are those who have the least. In this regard, while attempting to lay off the entire government is austerity, deciding you’re going to have 25% less stuff (which is another way to think about 25% tariffs, at an equivalent price level), is going to result in chaos, a kind which most living Americans have never really seen. We’re talking 1930s level consequences.
Because what all this does next is…what blunders like this do next…they accumulate and begin cascades, vicious spirals. Let me continue.
The best lens to understand what just happened is what Britain did to itself via Brexit.
What Brexit Did to Britain
Today, just 3 in 10 Brits think it was a good idea. Back then, when it happened, the nation was gripped by this weird mania.
Economists and intellectuals would try to warn people about the effects of tariffs. Of breaking up with your biggest trading partners. For a country that imports nearly everything.
Sound familiar?
What happened next to Britain? It suffered the longest, steepest, sharpest fall in living standards in history.
But even that’s not really the worst part. It’s economy is shrinking, and it will never recover. To what it was before Brexit. That is because of course now it has to reach a much smaller equilibrium, since it has less investment, capital of all kinds, whether financial or human, less trade, less commerce.
Sound familiar?
Today, British incomes have stagnated so long and hard that people wonder why they’re earning such pittances. The differences are stark, and almost unbelievable. The same jobs in America will pay 3 to 5 times as much, and in Europe, 2 to 3 times as much.
Britain turned itself into a much, much poorer country. It will never recover. The losses are now permanent.
Meanwhile, because it’s economy now has had to become much smaller, it’s once vaunted social contract is in tatters. The NHS is dying. The BBC is already dead. The streets are full of trash and crime, local authorities are bankrupt, and there’s a sense that nothing works, and there is no future.
There isn’t.
The government’s plan, to “kickstart growth”? To build…another runway at Heathrow. Go ahead and laugh. This is what’s left—this level of incompetence and this paucity of vision.
Brexit cost Britain everything. It destroyed its future so severely that we don’t have a wordfor “rich country that made itself poor and a pariah.”
Go to Paris, compared to London, and the streets are clean, people are happy, and things are generally flourishing. In London? People dress in modern-day rags, the pain and despair are etched on their faces, and the poverty is everywhere.
This is what happens next.
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