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Tariffs impact the NY north country

April 12, 2025

A lot of us have been watching the market headlines more often than we usually do, as Trump’s imposition of tariffs on US trading partners set off a global market sell off, resulting in trillions of dollars in losses in markets at home and around the world. The S&P 500 has shed over 12% of its value since its peak in mid-February. Trump’s advisors took to the media ramparts defending his new policies in the face of the market’s own obvious assessment. Economists and market analysts attempted to make sense of it all, or more accurately, tried to make sense of Trump’s new tariff policy which, according to most experts outside the White House, had no grounding in basic macroeconomic principles. Trump refers to his new tariffs as reciprocal and stated that the calculation of the newly assessed tariffs would be based upon the trade imbalance that we had with each country. The proposed tariffs to be assessed have varied from 10% to 25% for most countries, with harsher assessments of over 100% for China. As of this writing most 25% levies have been paused for ninety days, but the 10% assessment is being applied immediately. Trump refers to these “trade deficits” with trading partners as inherently bad for the United States’ economy. The rest of the world is trying to figure out what he is talking about while the stock market renders its own assessment, which is decidedly negative. If you want to explore the rabbit hole of global trade policy, I encourage you to spend five minutes with a (free) white paper prepared by Paul Krugman, who has strong feelings about these things, all rebutting Trump’s assertions. Dr. Krugman specializes in the economics of global trade and has a Nobel for his efforts. He also wrote the textbooks that SUNY among others use in their macroeconomics courses. I have read his columns regularly for over twenty five years.

Trade deficits are not inherently bad, or finagled with nefarious intent. If a country enjoys a “comparative advantage”, economic speak for “we can grow bananas better than you can” that country can, and should, sell you their bananas and charge you the market rate for their product. That argument would also include coffee from Columbia or Ethiopia, or agricultural fertilizers that are more abundant in Canada than they are here. These countries are not “picking our pocket”, or “taking unfair advantage of US customers” as Trump repeatedly states. This is why free trade zones were established in the first place. Most countries have a comparative advantage at producing something, and other countries need these products. Adding a tariff to the price makes no sense in the vast majority of circumstances. The only exception is if we need to protect a specific product or industry that is being unfairly targeted by another country. Trump’s tariffs are not targeted or specific. They are being assessed across the board against all of our trading partners (with notable exceptions for Russia and Belarus) and calculated using the US “trade deficit” with each country. It makes absolutely no sense.

My exploration this week is even harder to explain than the economics of this story. I am trying to understand how someone can achieve and maintain a position where they can orchestrate a global economic meltdown with impunity, all based on an economic policy based upon a completely fallacious assumption – that trade deficits are inherently bad and must be offset with a (penalizing) tariff. His “advisers” all went along with the charade, although Elon Musk did break with the President last weekend when he said that the US and Europe should have a free trade zone with no tariffs. Congress has the final say on the imposition of tariffs, but they have ceded authority to the Executive Branch in cases of national emergency. Trump can simply “declare an emergency” all evidence to the contrary, and do whatever he wants as long as Congress continues to sit on their hands and watch the US economy implode. (More on this later.)

It is very hard to predict with any degree of confidence how the President will act, because the obvious, easy solution to this problem would be for Trump to do something that he has never done: admit he was wrong. You have never heard this man say he made a mistake, or apologize for anything, or say he was wrong. This is the man who famously stated that he has never asked God for forgiveness because he has never done anything that required forgiveness. (Too much to unpack there to even comment.) I have no idea how the man makes decisions, so I have no idea how he will back himself out of this obvious corner that he has backed himself into. He will need to be pushed, or dragged kicking and screaming. This is all compounded by the fact that he has very purposefully surrounded himself with advisers and confidents that will not tell him that he is wrong, and that he has, in fact, painted himself into a corner.

The ancient Greeks described hubris, or excessive pride, as the most severe of all character flaws, inviting downfall and punishment from the gods. Considered the deadliest of the capital sins and the root of all other sins, hubris is the opposite of humility. You can see where this is heading.

When someone is elected president, the first thing that you are supposed to do is surround yourself with really smart people who have, importantly, differing opinions that are not necessarily aligned with yours. I would want to hear someone like liberal Tom Friedman’s (NYT) fight it out with conservative Gerry Baker (WSJ). You would want them both in the same room to offer opinions on a question and ask them to poke holes in each other’s arguments. You would expect them to tell you, respectfully, when they thought you were wrong about something. The president then takes it all under advisement and makes a final decision. That process includes a lot of assumptions. The president needs to have the humility to surround himself with experts who hopefully know more about the subject than he does. It requires the intellectual curiosity to pursue perhaps unfamiliar academic arguments, including reading the briefs and possibly a few books on the subject. They then must have the courage to act on the information and make the final decision, alone.

None of this is happening, especially the “books” part. This President, who never served in the military, says that he “knows more than his generals.” During his first administration, during the Covid epidemic he said he knew more than his medical advisors (although this time with RFK running HHS he might, unfortunately, be right.)

Alternatively, President Trump has surrounded himself with a collection of sycophants, none of whom are offering a different or, God forbid, dissenting opinion on any of his initiatives. That reality was glaringly apparent in this past week’s tariff story.

There should have been a dozen people in the room with Trump who knew the flawed logic of the White House tariff calculations based upon Trump’s argument that we were “subsidizing” another country’s trade deficit. There had to be advisors who knew that, but they were afraid or unwilling to speak out. They are not stupid, just cowards. Trump publicizes these “deliberations” on national TV, televising cabinet meetings like some reality TV show. Why would you do that? This is not what you do if you want an honest and frank discussion of the pros and cons of anything. Who is going to criticize the President’s policy or point out flaws in someone’s argument if it is all playing out in real time on national TV? This is all deliberately orchestrated by the President to stifle any internal dissent, and to make it look like everyone thinks he is the stable genius he says he is. Spoiler, he isn’t.

After a little sleuthing, it turned out that the “formula” for calculating the penalizing tariff was based upon the offending (to Trump) trade deficit that we have with that country. Some journalists also quicky figured out that the actual tariff number was calculated by using the ChatGPT AI calculator, which could quickly be duplicated on line, which was further evidence of how much actual research went into this entire process—none. My limited understanding of the mechanics of the AI process is that the response is distilled from the collective data in the AI program’s LLM (large language model). In layperson’s language, it is basically the collective wisdom (or not) of the internet, distilled to a one-pager. When I first read the AI / tariff story I was very confused. How could the collective wisdom of the internet conclude that using a trade deficit to assess a penalizing tariff was a valid macroeconomic policy? Did a consensus of internet economists actually feel that this approach was valid? After reviewing the ChatGPT responses to the President’s tariff question, the answer was immediately apparent. The answer was not the problem; the wording of the question was. If you ask ChatGPT to calculate a tariff based upon the trade deficit, it will give you an answer, based upon your question, which included using the trade deficit. Garbage in, garbage out. If you ask ChatGPT to calculate how many gallons of breast milk will be required to paint your bedroom, it will suggest the formula (no pun intended) and calculate the answer. It will also suggest that you might consider using paint. (Seriously, I tried it. Results here.)

As the contagion of economic fallout continues to spread, observers are speculating on what might be done to right the ship. I think, “Oops, my bad” is off the table. If Trump admits he erred, I will buy lunch. He might (re)negotiate some existing trade agreement with one party, declare victory, and drop the tariffs to save face. Possible, but I think unlikely, as he seems to be doubling down on his bad bet. He has given himself, and the markets, and us, a 90 day reprieve, but he has not changed his thinking, or his intentions. The reason that the White House hit the pause button this week was attributed to the melt down in the bond market, not the stock market. Specifically, all eyes were on the 10 year US Treasury bond yield, which had spiked to new highs for this cycle. The reason for the focus on the 10 year Treasury is that banks use the 10 year’s yield to compute their mortgage rates, which also spiked last week to over 7%, a new high for this cycle. Trashing the national housing market is usually not received kindly by voters. When he did hit the pause button, and the stock market bounced positively that day to recoup 2800 of the 6800 points that the Dow has shed, Trump actually remarked that “no one has ever done that before!” Trump is the arsonist who puts out the house fire and then wants credit for saving the porch.

None of it makes much sense to economists and market analysts. One minute the White House says that the object of this tariff exercise is to create a new tariff based revenue stream to offset the current income tax. Republican’s proposed tax cuts include eliminating taxation of things like Social Security and tip income and also locking in the tax cuts from the 2017 Tax Act which expires at the end of this year. That would require these tariffs to remain in place to provide that income stream. In the next breath the White House says that this is all just a negotiating ploy to bring our trading partners to the negotiating table and extract concessions. On Tuesday night Trump said that numerous countries were calling to negotiate and “kissing my ass” (his words, not mine). You can’t have it both ways. Either you lock in the tariff revenue stream to finance your grand plan, or you use them to bludgeon our trading partners into submission, at which time he would drop the tariff (and lose the revenue stream). None of this makes any sense, and the result is a complete lack of confidence in what we will be dealing with in a week, or a month, or next year. Expansion plans are on hold. Factory building plans are being scuttled. Hiring plans are being scaled back. Consumers are putting off purchases. Consumer confidence is cratering, and that leading economic indicator is the singular most troublesome data point to me. Two thirds of the nation’s GDP is driven by consumer spending. Consumer confidence forecasts future consumer spending. Warning lights are flashing red, not yellow. On Wednesday morning, Walmart, the nation’s largest retailer, pulled their forward-looking guidance because, chaos— they have no idea what is coming. Neither does anyone else. Because of the uncertainty, Goldman, JP Morgan and others have raised the probability of a recession in their economic forecasts. I will be surprised if a global recession is not on the horizon. Regardless of how this tariff fiasco settles out, the damage has been done, and it is systemic and not reparable anytime soon. The United States is no longer regarded as a trustworthy trading partner. The consequences of that new reality will be severe.

Here in the north country of upstate New York, we are facing a one-two punch of exploding import prices along with a collapse of Canadian tourism, a very large component of our summer visitor season. I suspect that many local residents have no idea how many of the products we use every week are imported from Canada, most of which will be assessed a tariff with the inevitable rise in price. The tomatoes on my kitchen counter are from Quebec. The potatoes that we had for dinner last night were grown in Canada. The largest greenhouse complex in North America is on the northern shore of Lake Erie in Leamington, Ontario. The dimensional construction lumber at the local building supply store was most likely milled in and imported from Quebec. All these items, and many more, are about to rise significantly in price to compensate for the tariff.

The following is an excerpt from this week’s Atlantic magazine:

Last month, dairy farmer Nicholas Gilbert received a delivery of grain for the 1,400 cows he tends at his dairy farm in Potsdam, New York, 20 miles from the Ontario border. The feed came with a surprise tariff of $2,200 tacked on.⁠

“Gilbert cannot increase the price of the milk he sells, which is set by the local co-op,” Annie Lowrey writes. “He cannot feed his cows less food. He cannot buy feed from another supplier; there aren’t any nearby, and getting it from farther away would be more expensive. When he got the delivery, he stared at the tariff for a while. Shouldn’t his Canadian supplier have been responsible for paying it? ‘I’m not even sure it’s legal! We contracted for the price on delivery! If your price of fuel goes up or your truck breaks down, that’s not my problem! That’s what the contract’s for.’”⁠

⁠Gilbert “is one of tens of thousands of American business owners caught in a spiraling trade war,” Lowrey continues. And he “lives in one area of the United States that might already be tipping into a recession because of it. Businesses near the Canadian border are particularly vulnerable to the rising costs and falling revenue caused by tariffs, and are delaying projects, holding off on hiring, raising prices, letting workers go, or wondering how they are going to keep feeding their cows as a result.”⁠

⁠Trump’s tariffs “are capricious, haphazard, and weird,” Lowrey writes. They take into account only trade in goods, not services. They apply to nations that have long-standing free-trade agreements with Washington; countries that have trade surpluses with the U.S.; and unpopulated islands. “The nonsensical policy will nevertheless have real effects … Thousands of American firms, mostly small businesses, will go under. The United States risks collapsing into an astonishing voluntary recession, caused solely by a few powerful ideologues’ erroneous beliefs about trade.”⁠

⁠“If you want to understand where the American economy is heading,” Lowrey continues at the link in our bio, “head to the border.”

Davon Hamilton, the director of operations at North Hudson, New York’s Paradox Brewery, one of the largest employers in the region, told Mountain Lake PBS that they source all – 100% - of the malted barley integral to the brewing process from Canada. In addition, Paradox Brewery owner Paul Mrocka has cited the new tariffs, still levied at 25%, on the Canadian aluminum used in their canning operation as negatively impacting their product pricing. (This particular price increase is, for me, hitting a little too close to home.)

American consumers will bear the brunt of all of these tariffs. Contrary to the President’s false statements, our trading partners do not pay the tariff, US importers do, and then pass the assessment onto customers. Home Depot founder, Trump supporter, and Republican mega-donor Ken Langone properly assessed the new tariffs, using an econometric term that everyone can understand,“Bullshit”.

Former Treasury Secretary and National Economic Council Director Larry Summers tweeted this after Trump paused the escalation of tariffs to 25%, keeping most at 10%: “Even their new regime has tariffs near Smoot-Hawley levels and will cost middle class families close to $2,000 dollars. We are far from being out of the woods. Much credibility has been lost. Be afraid.”

Trade tariffs are the responsibility of Congress, and Congress could, if they wanted to, revoke the trade authority that they ceded to the White House, or – at least threaten to do that. The reason not to do that is apparent, any non-compliant Congressperson appearing before the President without bending the knee is subject to rebuke and retribution—and a primary in the next election. They are all scared of offending a president who uses revenge as a weapon against any and all who cross him.

One thing that has changed since the last time you read that about Trump are the Indivisible events of the last weekend. Last Saturday, millions of voters demonstrated in over one thousand cities around the country, including in bright red Congressional districts that have never seen anything like it in their backyard. These Congressional members may have feared being primaried, but now they are scared of an actual contest in the general election too, especially if they are in purple districts with uncomfortably close registration margins.

Recent polling is telling the story. If just a half dozen Republicans side with the Democrats to revoke tariff authority, it could happen. House Speaker Mike Johnson would still need to bring it to the floor, and he will no doubt be very reluctant to do that.

According to Puck News on 4/7/25, Senators Susan Collins, Lisa Murkowski, Mitch McConnell, and Rand Paul joined Democrats this week in voting for a resolution to block Trump’s tariffs on Canada. Seven Republican senators—Collins, Murkowski, McConnell, Jerry Moran, Todd Young, Thom Tillis, and co-sponsor Chuck Grassley have backed a bill that would require Congress to ratify any tariffs after 60 days. They only need six more Republicans to join all Democrats, and the willingness of a Senate leader to bring it up for a vote.

If a few scared Republicans side with Democrats, Speaker Johnson will have lots of time to go have drinks with former Speakers McCarthy and Ryan and Boehner.

Voters are very, very upset. When they see their next 401k statement, they are going to be even more upset.

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