Tag Archives: Tariffs

Analysis: The World Ahead In 2026 – The Economist

The Economist The World Ahead 2026 (November 13, 2025):

This is Donald Trump’s world—we’re all just living in it. The disruptor-in-chief was the biggest factor shaping global affairs in 2025, and that will be the case for as long as he remains in the White House. His norm-shattering approach has caused turmoil in some areas (as in trade) but has also delivered diplomatic results (as in Gaza) and forced necessary change (as with European defence spending). As the Trumpnado spins on in 2026, here are ten trends and themes to watch in the coming year.

1. America’s 250th.

Expect to hear wildly diverging accounts of America’s past, present and future, as Republicans and Democrats describe the same country in irreconcilably different terms to mark the 250th anniversary of its founding. Voters will then give their verdict on America’s future in the midterm elections in November. But even if the Democrats take the House, Mr Trump’s rule by bullying, tariffs and executive orders will go on.

2. Geopolitical drift.

Foreign-policy analysts are divided: is the world in a new cold war, between blocs led by America and China, or will a Trumpian deal divide the planet into American, Russian and Chinese “spheres of influence”, in which each can do as they please? Don’t count on either. Mr Trump prefers a transactional approach based on instinct, not grand geopolitical paradigms. The old global rules-based order will drift and decay further. But “coalitions of the willing” will strike new deals in areas such as defence, trade and climate.

3. War or peace? Yes.

With luck, the fragile peace in Gaza will hold. But conflicts will grind on in Ukraine, Sudan and Myanmar. Russia and China will test America’s commitment to its allies with “grey-zone” provocations in northern Europe and the South China Sea. As the line between war and peace becomes ever more blurred, tensions will rise in the Arctic, in orbit, on the sea floor and in cyberspace.

4. Problems for Europe.

All this poses a particular test for Europe. It must increase defence spending, keep America on side, boost economic growth and deal with huge deficits, even though austerity risks stoking support for hard-right parties. It also wants to remain a leading advocate for free trade and greenery. It cannot do all of these at once. A splurge on defence spending may lift growth, but only slightly.

5. China’s opportunity.

China has its own problems, with deflation, slowing growth and an industrial glut, but Mr Trump’s “America First” policy opens up new opportunities for China to boost its global influence. It will present itself as a more reliable partner, particularly in the global south, where it is striking a string of trade agreements. It is happy to do tactical deals with Mr Trump on soyabeans or chips. The trick will be to keep relations with America transactional, not confrontational.With rich countries living beyond their means, the risk of a bond-market crisis is growing

6. Economic worries.

So far America’s economy is proving more resilient than many expected to Mr Trump’s tariffs, but they will dampen global growth. And with rich countries living beyond their means, the risk of a bond-market crisis is growing. Much will depend on the replacement of Jerome Powell as chair of the Federal Reserve in May; politicising the Fed could trigger a market showdown.

7. Concerns over AI.

Rampant spending on infrastructure for artificial intelligence may also be concealing economic weakness in America. Will the bubble burst? As with railways, electricity and the internet, a crash would not mean that the technology does not have real value. But it could have wide economic impact. Either way, concern about AI’s impact on jobs, particularly those of graduates, will deepen.

8. A mixed climate picture.

Limiting warming to 1.5°C is off the table, and Mr Trump hates renewables. But global emissions have probably peaked, clean tech is booming across the global south and firms will meet or exceed their climate targets—but will keep quiet about it to avoid Mr Trump’s ire. Geothermal energy is worth watching.

9. Sporting values.

Sport can always be relied upon to provide a break from politics, right? Well, maybe not in 2026. The football World Cup is being jointly hosted by America, Canada and Mexico, whose relations are strained. Fans may stay away. But the Enhanced Games, in Las Vegas, may be even more controversial: athletes can use performance-enhancing drugs. Is it cheating—or just different?

10. Ozempic, but better.

Better, cheaper GLP-1 weight-loss drugs are coming, and in pill form, too. That will expand access. But is taking them cheating? GLP-1s extend the debate about the ethics of performance-enhancing drugs to a far wider group than athletes or bodybuilders. Few people compete in the Olympics. But anyone can take part in the Ozempic games.

The Fiscal Fantasies Of A “For-Profit” Government

BY INTELLICUREAN, JULY 21, 2025:

In the summer of 2025, former President Donald Trump and Commerce Secretary Howard Lutnick unveiled a bold proposal: the creation of an External Revenue Service (ERS), a federal agency designed to collect tariffs, fees, and other payments from foreign entities. Framed as a patriotic pivot toward self-sufficiency, the ERS would transform the U.S. government from a tax-funded service provider into a revenue-generating enterprise, capable of offsetting domestic tax burdens through external extraction. The idea, while politically magnetic, raises profound questions: Can the U.S. federal government become a “for-profit” entity? And if so, can the ERS be a legitimate mechanism for such a transformation?

This essay argues that while the concept of external revenue generation is not unprecedented, the rebranding of the U.S. government as a profit-seeking enterprise risks undermining its foundational principles. The ERS proposal conflates revenue with legitimacy, and profit with power, leading to a fundamental misunderstanding of the government’s role in society. We explore the constitutional, economic, and geopolitical dimensions of the ERS proposal, drawing on recent analyses from the Peterson Institute for International Economics, The Diplomat, and The New Yorker, to assess its fiscal viability, strategic risks, and national security implications.

Constitutional Foundations: Can a Republic Seek Profit?

The U.S. Constitution grants Congress the power to “lay and collect Taxes, Duties, Imposts and Excises” and to “regulate Commerce with foreign Nations” (Article I, Section 8). These provisions clearly authorize the federal government to generate revenue through tariffs and fees. Historically, tariffs served as a primary source of federal income, funding everything from infrastructure to military expansion during the 19th century.

However, the Constitution does not envision the government as a profit-maximizing entity. Its purpose, as articulated in the Preamble, is to “establish Justice, ensure domestic Tranquility, provide for the common defence, [and] promote the general Welfare.” These are public goods, not commercial outputs. The government’s legitimacy is grounded in its service to the people—not in its ability to generate surplus revenue.

The Federal Reserve offers a useful analogy here. While not a for-profit institution, the Fed earns more than it spends through its monetary operations—primarily interest on government securities—and remits excess income to the Treasury. Between 2011 and 2021, these remittances totaled over $920 billion. But this is not “profit” in the corporate sense. The Fed’s primary mandate is macroeconomic stability, not shareholder returns. Even during economic stress (as seen in 2022–2025), the Fed may run negative remittances, underscoring its non-commercial orientation.

In contrast, the ERS is framed as a profit center—an entity designed to extract wealth from foreign actors to reduce domestic tax burdens. This shift raises critical questions: Who are the “customers” of the ERS? What are the “products” it offers? And what happens when profit motives collide with diplomatic or humanitarian priorities?

Economic Modeling: Revenue vs. Net Gain

A rigorous analysis of Trump’s proposed tariffs comes from Chad P. Bown and Melina Kolb at the Peterson Institute for International Economics. In their April 2025 briefing, they use a global economic model to estimate the gross and net revenue generated by tariffs of 10%, 15%, and 20% on all imported goods.

Their findings are sobering:

  • A 15% universal tariff could generate $3.9 trillion in gross revenue over a decade (2025–2034), assuming no foreign retaliation.
  • However, after accounting for slower growth, reduced investment, and lower tax receipts from households and businesses, the net gain drops to $3.2 trillion.
  • If foreign countries retaliate with reciprocal tariffs, the net gain falls further to $1.5 trillion.
  • A 20% tariff results in the lowest net gain ($791 billion), due to intensified economic drag and retaliation.

These findings underscore a crucial distinction: tariffs are not free money. They impose costs on consumers, disrupt supply chains, and invite countermeasures. The ERS may collect billions, but its net contribution to fiscal health is far more modest—and potentially negative if retaliation escalates.

Additionally, tariff revenue is volatile and politically contingent. Tariffs can be reversed by executive order, invalidated by courts, or rendered moot by trade realignment. In short, the ERS lacks the predictability and stability necessary for a legitimate fiscal foundation. Tariffs are a risky and politically charged mechanism for revenue generation—making them an unreliable cornerstone for the country’s fiscal health.

Strategic Blowback: Reverse Friendshoring and Supply Chain Drift

Beyond economics, the ERS proposal carries significant geopolitical risks. In The Diplomat, Thiago de Aragao warns of a phenomenon he calls reverse friendshoring—where companies, instead of relocating supply chains away from China, move closer to it in response to U.S. tariffs.

The logic is simple: If exporting to the U.S. becomes prohibitively expensive, firms may pivot to serving Asian markets, leveraging China’s mature infrastructure and consumer base. This could undermine the strategic goal of decoupling from Chinese influence, potentially strengthening Beijing’s economic hand.

Examples abound:

  • A firm that invested in Mexico to reduce exposure to China redirected its exports to Latin America after Mexico was hit with new tariffs.
  • Another company shifted operations to Canada to avoid compounded U.S. duties—only to face new levies there as well.

This unpredictability erodes trust in U.S. trade policy and incentivizes supply chain diversification away from the U.S. As Aragao notes, “Protectionism may offer a temporary illusion of control, but in the long run, it risks pushing businesses away.”

The ERS, by monetizing tariffs, could accelerate this trend. If foreign firms perceive the U.S. as a hostile or unstable market, they will seek alternatives. And if allies are treated as adversaries, the strategic architecture of friendshoring collapses, leaving the U.S. economically isolated and diplomatically weakened.

National Security Costs: Alienating Allies

Perhaps the most damning critique of the ERS comes from Cullen Hendrix at the Peterson Institute, who argues that imposing tariffs on U.S. allies undermines national security. The U.S. alliance network spans over 60 countries, accounting for 38% of global GDP. These partnerships enhance deterrence, enable forward basing, and create markets for U.S. defense exports.

Tariffs—especially those framed as revenue tools—erode alliance cohesion. They signal that economic extraction trumps strategic cooperation. Hendrix warns that “treating alliance partners like trade adversaries will further increase intra-alliance frictions, weaken collective deterrence, and invite potential adversaries—none better positioned than China—to exploit these divisions.”

Moreover, the ERS’s indiscriminate approach—levying duties on both allies and rivals—blurs the line between economic policy and coercive diplomacy. It transforms trade into a zero-sum game, where even friends are fair targets. This undermines the credibility of U.S. commitments and may prompt allies to seek alternative trade and security arrangements.

Lutnick’s Barber Economics: Rhetoric vs. Reality

The ERS proposal is not merely a policy—it’s a performance. Nowhere is this clearer than in Howard Lutnick’s keynote at the Hill and Valley Forum, as reported in The New Yorker on July 21, 2025. Addressing a room of venture capitalists, defense contractors, and policymakers, Lutnick attempted to explain trade deficits using personal analogies: “I have a trade deficit with my barber,” he said. “I have a trade deficit with my grocery store. Right? I just buy stuff from them. That’s ridiculous.”

The crowd, described as “sophisticated tech and finance attendees,” was visibly uncomfortable. Lutnick’s analogies, while populist in tone, misread the room and revealed a deeper disconnect between economic complexity and simplistic transactionalism. As one attendee noted, “It’s obvious why Lutnick’s affect appeals to Trump. But it’s Bessent’s presence in the Administration that reassures us there is someone smart looking out for us.”

This contrast between Lutnick and Treasury Secretary Scott Bessent is telling. Bessent, who reportedly flew to Mar-a-Lago to urge Trump to pause the tariffs, represents the limits of ideological fervor when confronted with institutional complexity. Lutnick, by contrast, champions the ERS as a populist vessel—a way to turn deficits into dues, relationships into revenue, and governance into a business plan.

The ERS, then, is not just a fiscal experiment—it’s a philosophical battleground. Lutnick’s vision of government as a money-making enterprise may resonate with populist frustration, but it risks trivializing the structural and diplomatic intricacies of global trade. His “barber economics” may play well on cable news, but it falters under scrutiny from economists, allies, and institutional stewards.

Conclusion: Profit Is Not Purpose

The idea of a “for-profit” U.S. government, embodied in the External Revenue Service, is seductive in its simplicity. It promises fiscal relief without domestic taxation, strategic leverage through economic pressure, and a reassertion of American dominance in global trade. But beneath the surface lies a tangle of contradictions.

Constitutionally, the federal government is designed to serve—not to sell. Its legitimacy flows from the consent of the governed, not the extraction of foreign wealth. Economically, tariffs may generate gross revenue, but their net contribution is constrained by retaliation, inflation, and supply chain disruption. Strategically, the ERS risks alienating allies, incentivizing reverse friendshoring, and weakening collective security.

With Howard Lutnick as the plan’s leading voice—offering anecdotes like the barber and grocery store as proxies for international trade—the ERS becomes more than a revenue mechanism; it becomes a prism for reflecting the Administration’s governing style: transactional, simplified, and rhetorically appealing, yet divorced from systemic nuance. His “barber economics” may evoke applause from certain circles, but in the forums that shape long-term policy, it has landed with discomfort and disbelief.

The comparison between Lutnick and Treasury Secretary Scott Bessent, as reported in The New Yorker, captures this divide. Bessent, attempting to temper Trump’s protectionist instincts, represents the limits of ideological fervor when confronted with institutional complexity. Lutnick, by contrast, champions the ERS as a populist vessel—a way to turn deficits into dues, relationships into revenue, and governance into a business plan.

Yet governance is not a business, and the nation’s global responsibilities cannot be monetized like a corporate balance sheet. If America begins to treat its allies as clients, its rivals as profit centers, and its global footprint as a monetizable asset, it risks transforming foreign policy into a ledger—and leadership into a transaction.

The External Revenue Service, in its current form, fails to reconcile profit with purpose. It monetizes strength but neglects stewardship. It harvests dollars but undermines trust. And in doing so, it invites a broader reckoning—not just about trade and taxation, but about what kind of republic America wishes to be. For now, the ERS remains an emblem of ambition unmoored from architecture, where the dream of profit collides with the duty to govern.

THIS ESSAY WAS WRITTEN AND EDITED BY INTELLICUREAN USING AI

The Trump Tariffs: Why McKinley Dumped Them

The Wall Street Journal (February 4, 2025): President Donald Trump often cites the 25th President, William McKinley, as an inspiration for tariffs.

Chapters: 0:00 Trump’s tariff idol 0:50 Revenue 3:30 Restriction 5:02 Reciprocity 7:17 Trump today

The ‘McKinley Tariffs’ were some of the largest hikes in U.S. history, but in his second term, McKinley changed his mind, and argued for more free international trade as a way of helping the U.S. economy. WSJ explores how McKinley used tariffs, how Trump is following a similar playbook and why McKinley. Actually came to speak out against them.

#Trump #Tariffs #WSJ

Essay: ‘Despite Fears Of A Global Tax War, Trump Has A Chance To Make Peace’

THE ECONOMIST MAGAZINE (February 3, 2025): That Donald Trump may unleash a global trade war is a frightening but familiar risk. Less well understood is the danger that he may also provoke a tax war. One of his first actions on returning to the White House was to warn other countries that if they adopt tax policies America dislikes, he may double tax rates on their companies and even their citizens.

READ MORE

Analysis: The Effects Of Chinese Tariff’s Of Up To 212% On Australian Wine

China imposed tariffs of up to 212% on Australian wine, prompting politicians around the world to criticize what they call Beijing’s “bullying.” WSJ visits a winemaker who hopes global attention will help the industry. Photo: Lisa Maree Williams/Getty Images

Global Economics: “The Trade War Explained” (The Economist Video)

America and China are edging closer to signing a deal in the trade war. But that won’t mark the end—the issues at the heart of the conflict will be very difficult to resolve.

The world’s leading superpowers are locking horns. Over the past 16 months America and China have been trading blows through tariffs on goods. The impact is being felt on industries worldwide. But what is the story behind the America-China trade war? So the trade war, what have you guys been looking at? The US doesn’t like that China is growing so fast and set to overtake America as the biggest economy in the world if it hasn’t already by certain measures. Basically China and the US are caught in this race of imposing tariffs on each other so the US slaps a high tariff on certain products then China retaliates.

Read more here: https://econ.st/2qQItl6