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Atlantic
28-06-2025
- Business
- Atlantic
A Reboot for Capitalism's Operating System
The world economy is like a supercomputer that churns through trillions of calculations of prices and quantities, and spits out information on incomes, wealth, profits, and jobs. This is effectively how capitalism works—as a highly efficient information-processing system. To do that job, like any computer, capitalism runs on both hardware and software. The hardware is the markets, institutions, and regulatory regimes that make up the economy. The software is the governing economic ideas of the day—in essence, what society has decided the economy is for. Most of the time, the computer works quite well. But now and then, it crashes. Usually when that happens, the world economy just needs a software update—new ideas to address new problems. But sometimes it needs a major hardware modification as well. We are in one of those Control-Alt-Delete moments. Against the background of tariff wars, market angst about U.S. debt, tumbling consumer confidence, and a weakening dollar watched over by a heedless administration, globalization's American-led era of free trade and open societies is coming to a close. The global economy is getting a hardware refit and trying out a new operating system—in effect, a full reboot, the likes of which we have not seen in nearly a century. To understand why this is happening and what it means, we need to abandon any illusion that the worldwide turn toward right-wing populism and economic nationalism is merely a temporary error, and that everything will eventually snap back to the relatively benign world of the late 1990s and early 2000s. The computer's architecture is changing, but how this next version of capitalism will work depends a great deal on the software we choose to run on it. The governing ideas about the economy are in flux: We have to decide what the new economic order looks like and whose interests it will serve. The last such force-quit, hard-restart period was in the 1930s. In the United States, the huge liquidity crunch caused by the 1929 Wall Street crash combined with the Smoot-Hawley Tariff Act of 1930 to kill commercial activity and trigger the Great Depression. Bank failures swiftly turned into a mass failure of firms and industries; wages tumbled and unemployment shot up, in some areas to a quarter of the workforce. Despite the state interventions of Franklin D. Roosevelt's New Deal program, the economic situation stabilized and returned to sustained growth only in the '40s, when wartime re-armament delivered a huge industrial stimulus. The computer built for the postwar period was solving to avoid a repeat of the '30s. The software update was a new governing idea of full employment. Achieving that aim as the central raison d'être of the economy also entailed several hardware modifications. One was a policy of forcing wealth owners to use their capital locally by limiting their ability to move it out of the country. To maintain their profits, they were obliged to invest in technology that would increase productivity. In this virtuous cycle, high productivity allowed for high wages, which the state could then tax to fund social transfers. Combined with the government-spending power of revenues raised by high marginal taxes, America's welfare state was born. Labor unions were seen more as partners in business enterprises, and political parties needed to appeal to the median, middle-income voter. These changes produced a political system in which the two main parties competed over a centrist consensus so bipartisan that people struggled to see the difference between Democrats and Republicans. The New Deal did indeed avoid a repeat of the '30s, but its software had a bug. If full employment meant running the economy hot to keep unemployment down, then eventually employers' ability to keep their profits up by augmenting productivity would fail as workers' demand for higher wages outstripped firms' ability to pay them. By the mid-'70s, profits were falling as wages and inflation rose, so the U.S. investor class reached for the reboot switch. Holders of capital founded political-action committees, funded think tanks and media outlets to promote free enterprise, and helped get Ronald Reagan elected in 1980. Reagan busted unions and deregulated markets, accelerating the movement of capital from union strongholds to 'right to work' states, which was effectively an onshore tryout of offshoring. Simultaneously, the Federal Reserve under Paul Volcker raised interest rates to almost 20 percent to squeeze inflation, a measure that induced a harsh recession, which disciplined labor further by raising unemployment. As all of that implies, full employment ceased to be the governing economic idea. The software rewrite of this era instead made price stability, capital mobility, and the restoration of profits via globalization the new priorities. The hardware modification was to make central banks more independent—the better to enforce price stability and enable the recovery of profits. These new priorities were justified by Margaret Thatcher's famous nostrum that 'there is no alternative.' This reboot has come to be known as neoliberalism. The computer was humming along again when I arrived from Scotland to attend graduate school in New York in the summer of 1992. The U.S. had entered a period that Ben Bernanke, then a Federal Reserve governor (and later Fed chair), called the 'Great Moderation.' Globalization was good; finance was the future. Central banks had delivered sustainable prosperity, and the investor class saw its profits restored on a transnational scale. Once again, however, the system had a bug. The increase in profitability came not only as a result of improved domestic productivity but also at the expense of once-stable industrial regions of the U.S., as jobs, skills, and capital flowed out. Meanwhile, the authorities had presided over the deregulation of financial markets, which supplied the economy with copious credit. But one effect of this credit was to mask a chronic lack of wage growth and a rising level of inequality. That turned out to be a major hardware issue: Neoliberalism's financialized solutions to economic problems became liabilities when the next crash came, in 2008, as a tsunami of credit became an earthquake of debt. The hardware modification of the era—independent central banks—saved the system with colossal bailouts of the private sector, paid for by the public sector in the form of ever greater debt and more stringent fiscal policies. This liquidity dump enabled the economy to stagger on through the slowest-ever recovery from a recession—but only by pushing the bulk of the costs of those bailouts onto those least able to bear them. Signs of profound public disaffection in Western countries started to show in 2016: first with the Brexit vote in the United Kingdom, then with Donald Trump's rise in the U.S. Trump has acted as a catalyst for the next reboot. His hostile takeover of the Republican Party was leveraged by a new, more working-class electoral coalition based on a populist politics of resentment. His antipathy toward China may lack analysis, but by articulating a sense that American workers had lost out in the neoliberal era, it gave voice to authentic grievance. Trump's chaotic first term made only limited progress in forcing another reboot, but his second term seems likely to foreclose on the Biden administration's interim solution of keeping the neoliberal system running with a limited New Deal–like reindustrialization in new sectors such as renewable energy. The Inflation Reduction Act was a significant reinvention of industrial policy, something not seen for decades outside a national-security context, but Trump is abandoning this sort of intervention. Instead, he has chosen tariffs as his singular tool for reshoring industry. To the extent that the Trumpian approach coheres, the economy's new goal is to benefit native workers by restoring carbon-heavy industrial jobs while removing immigrants from the labor pool and encouraging women to have more children and become homemakers. This is not so much the building of a new computer system as the retrofitting of several old ones—a version of what a critic of Thatcherism once called ' regressive modernisation.' The MAGA economic ideal derives from a blend of the 1950s, which saw a huge expansion of manufacturing jobs for men, and the '40s, when women were pushed out of the wartime jobs and back into the home, and immigration was tightly restricted. This boost for the native labor force is in turn yoked to a 19th-century, mercantilist 'spheres of influence' foreign policy. This hodgepodge of historical impulses speaks to the unsettled nature of Trumponomics. No new economic order is discernible, because the governing idea is still contested. The national-conservative movement, which seeks to rebrand the GOP as a workers' party, has one vision, but other forces are also trying to shape this moment. The 'Dark Enlightenment' wing of the tech sector is a player, too. Overinvested in AI and keen to grab government funding that was earmarked for elite research universities, the Silicon Valley billionaires imagine an economy that runs not as a return to hard-hat industry's glorious past but as a posthuman future of automation and space exploration. The problem with such projects is that we cannot go back, any more than we can leap into the future; we can live only in the present. The populist-right reset will fail because tariffs may spur some reindustrialization, but robots will be the main producers, not working-class men on an assembly line. And little suggests that most women will relish the return to hearth and home that is planned for them. The techno-futurist update has nothing to offer the great mass of humanity and would benefit only the tech lords most invested in its realization. So we seem to be stuck, which is why this moment is so perplexing. The system upgrade is pending: The right is offering its regressive modernization as the update. The left has yet to figure out which one of three paths it wants to take. One possibility is to stay put with the gerontocracy of the Democratic Party and wait for Trumpism to implode. That might happen, and the Democrats' current position as the party of the institutionalist status quo makes this the most likely path. But this will be a losing proposition if no reversion to the mean of the pre-MAGA American politics occurs. The effort by Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders to rally an anti-oligarchy movement advocates for a second option, of left-wing populism. But whether this appeals to young men who have been drawn to Trump, as well as young women who poll as more progressive, and can create a broad-enough coalition remains to be seen. A third approach is the 'abundance' agenda, promoted recently by Ezra Klein and The Atlantic 's Derek Thompson, which proposes a progressive political program based on lower-regulation, pro-growth policies as a spark for renewed economic growth—though critics on the left accuse this approach of failing to confront corporate power. To develop an alternative to the regressive modernization underpinning Trump's reelection, the left must come up with a governing economic idea that can compete. Technocratic fixes of the old system look very unlikely to inspire a broad-enough coalition to defeat the potent, if unstable, electoral alliance that reelected Trump. The most promising avenue—one that could address the needs of millions of Americans who feel shut out of growth and prosperity and alienated from America's governing elite—might be a fusion of AOC/Bernie populism with a more political, less technocratic version of abundance. Regardless of whether such a project can materialize, we have to accept that a transformation is under way. A new economic order is forming—which means that it is not yet fixed and can still be shaped. But time is running out. As jumbled as the regressive modernization is, it could win the day if we do not come up with a different governing idea of what the economy is and whom it is for. And we need enough people in our democracy to agree that this new purpose is the right one. The ideas are there to be found. They just need politicians with the courage to try them.
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Business Standard
30-05-2025
- Business
- Business Standard
15% tariff for 150 days: Trump admin prepares 'Plan B' after court ruling
The Trump administration is preparing a legal 'Plan B' to maintain its sweeping tariffs after a US court ruled that the president overstepped his authority by using emergency economic powers to impose them. The new approach would rely on provisions under the Trade Act of 1974, starting with a temporary 15 per cent tariff for 150 days, followed by more targeted duties using a separate clause aimed at unfair trade practices, The Wall Street Journal reported on Friday. The backup plan comes after a federal appeals court on Thursday allowed the existing tariffs to remain in place while the administration challenges the lower court's ruling. However, because the legal basis for the policy is uncertain, officials are now looking at other ways to protect the president's trade agenda. Trump admin's 'Plan B' follows a two-step approach To do this, the Trump administration would need to apply a two-step approach. The first move would involve invoking a never-before-used provision: Section 122 of the Trade Act of 1974. This Act permits short-term tariffs of up to 15 per cent for 150 days to address trade imbalances. This stopgap would buy time to implement a longer-term solution under Section 301, which requires a more detailed process but is seen as more legally sound. Officially, no new announcement on tariffs has been made; however, White House officials have confirmed that alternatives are being considered. Press Secretary Karoline Leavitt said the administration is weighing other legal avenues as it appeals the court's decision, though she did not elaborate. Peter Navarro, senior trade adviser, appeared to confirm the two-pronged approach and also suggested the administration could explore other trade laws, including the Smoot-Hawley Tariff Act of 1930 and provisions linked to national security. 15 per cent tariffs for 150 days possible under US law Legal experts confirmed to The Wall Street Journal that the proposed Plan B is more 'defensible' than the existing approach, which was based on the International Emergency Economic Powers Act (IEEPA), a law never before used to impose tariffs. The US Court of International Trade on May 28 ruled that Trump's use of IEEPA to address trade deficits was unlawful. The court found that the law does not permit the president to levy wide-ranging import duties without congressional approval. However, on May 29, a federal appeals court allowed the tariffs to remain in place temporarily while the Trump administration appeals the decision. Despite the court setback, the administration believes shifting to other statutory tools could preserve tariff continuity and maintain leverage in ongoing trade negotiations. Some analysts say the court ruling might even open the door to a broader US–EU trade deal by removing one of the major points of tension.
Mint
30-05-2025
- Business
- Mint
Trump's team plots plan B for imposing tariffs
President Trump's trade team is readying its plan B. The administration's tariff strategy was undermined when a court this week found it was illegal for Trump to impose sweeping duties by using emergency economic powers. A federal appeals court on Thursday allowed his duties to stay in effect while the administration's appeal moves forward, but U.S. officials are weighing their options should they need to find a new legal authority to impose the president's steep tariffs, which he argues will help rebalance trade in America's favor. The potential pivot reflects the challenges to Trump's aggressive trade policy, which relied on a novel interpretation of trade law. Typically, tariffs are imposed using targeted authority delegated to the president by Congress, but Trump's team relied on little-used emergency powers to impose the bulk of his wide-ranging second-term tariffs quickly. With that strategy under threat, the president's team is weighing a twofold response, according to people familiar with the matter. First, the administration is considering a stopgap effort to impose tariffs on swaths of the global economy under a never-before-used provision of the Trade Act of 1974, which includes language allowing for tariffs of up to 15% for 150 days to address trade imbalances with other countries, the people said. That would then buy time for Trump to devise individualized tariffs for each major trading partner under a different provision of the same law, used to counter unfair foreign trade practices. That second step requires a lengthy notification and comment process, but is seen by administration officials as more legally defensible than the tariff policy that was found to be illegal this week. The alternative provision has been used many times in the past, including for Trump's first-term tariffs on China. Peter Navarro, senior counselor for trade and manufacturing, is floating alternative strategies. The conversations remained fluid, and the administration hadn't made a final decision, the people added. The administration could wait to implement any alternative plans after the federal appeals court allowed Trump's emergency tariffs to stay in place during the appeals process. The White House and the Office of the U.S. Trade Representative didn't respond to requests for comment. Karoline Leavitt, the White House press secretary, said Thursday that the administration is weighing other options to impose tariffs as it appeals the court rulings, but she didn't give specifics. Peter Navarro, senior counselor for trade and manufacturing, appeared to confirm that the administration is considering a twofold alternative tariff plan, which would first use Section 122 of the 1974 trade law, and then Section 301. 'Those are the kinds of thoughts" the economic team is considering, he said when asked about those provisions on Bloomberg TV. Navarro also suggested that the administration could use the Smoot-Hawley Tariff Act of 1930, which has a provision that allows for tariffs on nations that discriminate against America. The U.S. could also expand the use of tariffs imposed citing national-security concerns. All of the options under consideration now were discussed in the early weeks of the administration, but officials opted to instead impose tariffs under the International Emergency Economic Powers Act, also known as IEEPA. The law had never been used before to impose tariffs but allowed the administration to move quickly to impose levies on virtually every global trading partner. In its decision Wednesday, the U.S. Court of International Trade struck down Trump's use of IEEPA to address trade deficits. In doing so, the court pointed to Section 122, the measure Trump's team is now weighing as a stopgap policy, saying part of federal law already grants explicit authority to address 'large and serious balance-of-payments deficits." Pivoting to a different tariff authority could pose risks. If the administration moves to use a different law, that could be seen by courts as admitting defeat in ongoing appeals in the IEEPA case. 'The administration could quickly turn to other tariff authorities, but doing so while the ruling is under judicial review could be seen as a lack of confidence in the final decision," said Everett Eissenstat, who served as deputy director of the National Economic Council in Trump's first term. Trump's alternative plan would likely still face legal challenges, said Peter Harrell, who served as senior director for international economics on the Biden administration's National Security Council. But both elements are on firmer legal ground than the IEEPA tariffs, he said. The Court of International Trade 'seemed to indicate that Section 122 is how you'd address a trade deficit," Harrell said. Section 301, he added, has a long case law history, and action under that provision would likely be upheld as long as the Trump administration can point to unfair trade practices from each targeted nation. In all, the plan is 'certainly more defensible than the IEEPA tariffs," he said. Trump's potential alternative tariff plan has an advantage: Using another law to reimpose the tariffs could smooth over any interruptions in tariffs because of the court's ruling, preserving Trump's leverage in ongoing trade talks. In a filing asking for an emergency stay on the Court of International Trade's decision, the administration said the ruling 'jeopardizes ongoing negotiations with dozens of countries by severely constraining the President's leverage and undermining the premise of ongoing negotiations." That appeared to contradict National Economic Council Director Kevin Hassett, who insisted Thursday that trade negotiations will continue unabated and that three deals are close to being completed. Navarro similarly said that 'nothing has really changed." The ruling on Wednesday came days after the president threatened to impose 50% tariffs on the European Union and then quickly pulled back to allow for negotiations until July 9—a deadline now thrown into question. A rise in global stocks supports the EU's argument that tariffs aren't good for anyone, Spanish Minister of Economy Carlos Cuerpo said Thursday. He said the bloc is taking 'a constructive approach to reaching an agreement and, if possible, even reducing barriers" below pretariff dispute levels. Some analysts said the ruling could ease the path for a trade deal between the U.S. and EU by removing, if the decision survives Trump's appeal, a key sticking point from the negotiations. Ignacio García Bercero, a former EU trade official, said that removing the U.S.'s 10% tariff on European imports and the threat of further across-the-board tariffs would allow trade negotiators to focus instead on the U.S.'s sectoral tariffs on such industries as steel and automobiles. Those were implemented on national-security grounds, not using the economic-powers law, and will be unaffected by the continuing court battle. 'If there's a more pragmatic attitude from the United States and also, of course, from the European Union, one would have the opportunity to try to use this to find a more balanced type of agreement that is in the interest of both sides," he said. Write to Gavin Bade at and Kim Mackrael at
Forbes
30-04-2025
- Business
- Forbes
How Trump's Trade Policies Are Redefining Portfolio Risk For Investors
WASHINGTON, DC - APRIL 02: U.S. President Donald Trump holds up a chart while speaking during a ... More 'Make America Wealthy Again' trade announcement event in the Rose Garden at the White House on April 2, 2025 in Washington, DC. Touting the event as 'Liberation Day', Trump is expected to announce additional tariffs targeting goods imported to the U.S. (Photo by) April 2025 emerged as a pivotal moment for financial markets, fundamentally reshaping how investors perceive and manage portfolio risk. Marked by unprecedented policy shifts, soaring volatility, and a rare synchronized plunge in stocks and bonds, the month rivaled the chaos of the 2008 global financial crisis and the 2020 COVID-19 crash. From a historic VIX spike to gold's unexpected resilience, these events exposed vulnerabilities in traditional diversification strategies and hinted at a potential secular shift in global markets. Here's a detailed look at what unfolded, why it mattered, and how it redefined risk for investors moving forward. The turmoil began on April 2, 2025, dubbed 'Liberation Day,' when President Donald Trump unveiled an ambitious tariff plan with rates as high as 125% on imports from countries like China, as reported by The Associated Press. The proposal, one of the most aggressive trade policies since the Smoot-Hawley Tariff Act of 1930, promised to reshape global trade dynamics. Volatility surged as Wall Street's 'fear index,' the VIX, soared to levels unseen since the 2008 crisis and 2020 pandemic crash, according to Investopedia, peaking on April 8, 2025. The S&P 500 plummeted 18.9% from its February 2025 high by April 8, while the tech-heavy Nasdaq entered bear market territory, dropping 26.7% from its December 2024 peak by April 7. This rare breakdown in the negative correlation between equities and fixed income upended the risk-mitigation assumptions of diversified portfolios, leaving investors exposed to unprecedented losses. Compounding the challenge, bonds—typically a safe haven during equity market turmoil—failed to provide relief. The aggressive tariff plan fueled fears of inflation and reduced global demand for U.S. Treasuries, as foreign investors anticipated trade disruptions and higher borrowing costs. This drove yields on the 10-year Treasury note from 4.01% on April 4 to 4.48% by April 11, causing bond prices to plummet and eroding their role as a hedge, before yields settled at 4.23% by April 28. Why did bonds falter? Foreign governments and central banks, wary of U.S. economic nationalism, appeared to reassess their reliance on U.S. Treasuries. While foreign holdings of U.S. debt rose from $8.527 trillion in January 2025 to $8.817 trillion in February, according to U.S. Treasury Department data, some countries—like China and Russia—accelerated diversification into assets like gold, signaling caution. Amid the chaos, gold shone as a bright spot. Rallying since November 2024, the precious metal peaked at just over $3,500 on April 22. Driven by demand from institutional investors and central banks, gold's rally underscored its value as a non-correlated asset that thrives amid geopolitical and economic uncertainty. For portfolios battered by stock and bond losses, gold offered a critical hedge, highlighting its growing relevance in risk-conscious strategies. The events of April 2025 raise profound questions about the U.S. economy and its role in global markets. The synchronized decline in stocks and bonds has challenged the traditional 60/40 portfolio, forcing investors to rethink diversification. The possibility of reduced global reliance on U.S. assets, evidenced by central bank gold purchases, introduces risks to the dollar's status as the world's reserve currency. As markets head into the typically quieter summer months, uncertainty persists, with tariff implementation details, retaliatory trade measures, and Federal Reserve policy decisions poised to drive volatility. To navigate this new risk environment, investors should consider reallocating to assets less tied to U.S. markets, such as gold for its stability, commodities for inflation protection, or select emerging market equities in countries less exposed to tariff fallout. Hedging currency risk and prioritizing liquidity will also be key as global trade dynamics evolve. April 2025 will stand as a defining chapter in financial history, not only for its market turmoil but for its profound impact on portfolio risk management. The synchronized collapse of stocks and bonds, coupled with gold's rise and questions about the dollar's dominance, has upended conventional investment wisdom. As uncertainties linger—driven by trade policies, central bank maneuvers, and geopolitical shifts—investors must adapt to a new risk landscape. Diversifying into assets like gold, commodities, or select emerging markets, while closely tracking global developments, will be critical. Whether April's upheaval marks the dawn of a broader secular shift remains uncertain, but it has undeniably redefined how investors approach risk in an unpredictable world.
Yahoo
27-04-2025
- Business
- Yahoo
Letters to the Editor: What history can teach us about President Trump's tariffs
To the editor: Contributor Veronique de Rugy's essay on the parallels between President Trump's tariff idiocy and the economic calamity that followed the Smoot-Hawley Tariff Act of 1930 was brilliant and apposite ('Economic nostalgia woos voters, but it leads to terrible policies,' April 24). As ever, we learn nothing from history. Imposing tariffs is a game two can — and will — play. She could have added that more than 1,000 economists signed a petition warning President Hoover of the dangers of the act, imploring him to veto it. Henry Ford made a personal visit to the White House, calling the bill "economic stupidity." J.P. Morgan's chief executive, Thomas Lamont, wrote that he 'almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot Tariff.' While Hoover himself called the bill "vicious, extortionate and obnoxious," he signed it anyway, saying it was his duty to the Republican Party. It didn't take long for other countries to retaliate with their own tariffs, turning a recession into the Great Depression and victimizing the very people it was supposed to protect. Sound familiar? Spencer Grant, Laguna Niguel This story originally appeared in Los Angeles Times.
