How Much Do Tariffs Matter?

This editorial is from last week's edition of the Week in Review newsletter. Subscribe to the weekly newsletter to get the editorial the second it's finished.

Last week, as markets wobbled and crypto Twitter (CT) raged about the role of Trump's tariffs in the downturn, I found myself pondering.

This editorial is from last week’s edition of the Week in Review newsletter. Subscribe to the weekly newsletter to get the editorial the second it’s finished.

As equity and crypto markets went down this week, the amount of attention and anger directed at Trump’s tariffs increased. Ostensibly this makes sense, since the various Trump tariff announcements have roughly coincided with declines.

It’s a safe bet that tariffs have had some effect on markets, but I question whether their effect is as pronounced as the attention and level of ire on CT would indicate.

This week on the always good Bits + Bips podcast, I found myself agreeing with this week’s guest Travis Kling’s assessment that much of the decline could be explained by general Trump uncertainty, which tariffs are certainly a part of, but not the whole story.

I also agreed with his view that the Trump admin is likely trying to frontload economic austerity, or give the economy “medicine” as it’s being called. The rationale is that you administer the medicine now while you can still reasonably blame Biden. The hope is the economy will be better by midterms.

That Trump medicine made price action rough this week, but there still were positive news stories. Ukraine agreed to a 30-day ceasefire with Russia after diplomatic efforts in Saudi Arabia led by the U.S. February Consumer Price Index—a key measure of inflation—eased to 2.8%, coming in slightly under the anticipated 2.9%.

There were also positive stories specifically about crypto. I stated on this week’s episode of Token Narratives the famous quote, “people overestimate developments in the short term, and underestimate them in the long term.” Developments like the ones below are long term bullish.

The U.S. Congress overturned the IRS Broker Rule, easing compliance burdens on crypto entities and preventing regulations that critics say stifled innovation and pushed development overseas. The Senate Banking Committee has advanced two bills on stablecoin regulations and financial fairness.

Caution and patience are still advisable right now. Arthur Hayes predicts Bitcoin may bottom at $70k before its next rally, citing short-term volatility caused by the Trump admin's medicine basically engineering a recession, or getting close enough to one. I largely agree with his thesis, which he shared with me in an interview this week.