The Economy Is About to IMPLODE — and Trump’s Team Knows It! (w/ Joe Weisenthal)

And I can't really think of any other topic where there's just so much condemnation across different realms, from major hedge fund CEOs to the longshoremen to small businesses, etc. The number of people who are like really in support of this approach to trade policy mostly seems like MAGA influencers.

Thanks for having me. Psyched to finally be here. I've been, you know, monitoring your tweets since, I don't know, I was in short pants. Been a long time. I feel bad. Some people have over the last several weeks, they're like, 'Oh, I turned on alerts for your tweets.' And I'm like, 'Oh, shoot. Now I just can't tweet random stuff because, you know, I feel like every one of my tweets has to have some important data or a chart or something like that.' But thank you.

I know. Turn it off. It's not that important.

It is really weird, actually, because the amount of gloom from both investors and businesses and actually consumers — any survey that you look at right now of anyone. So what they call soft data, subjective data, is really dismal. Like we are talking survey measures at the lows either of the pits of COVID or in some cases the financial crisis in 2008. It's all dismal. Yesterday we got, you know, regional Fed survey from the Dallas Fed, manufacturers in the region. Terrible. All complaining about tariffs. They're talking about how they're going to have higher costs but not going to be able to pass it on. They're talking about how they're going to cut back on hiring, all cut back on capital plans. Everything screams recession right now by almost any traditional metric. And yet the market is hanging in there.

And it's really difficult for me to wrap my head around this because I do have this sort of, like, I don't know, I'm sort of cursed with this efficient markets brain where it's like I think everything is priced in all the time. And we can all see the drop-off in shipments from China and we can all see all these surveys, and yet I'm like, am I missing something? Is the market missing something? And so we are in this weird moment. You know, most of the quote hard data hasn't reflected much weakness yet. We haven't seen the big layoff wave that everyone is anticipating. So I think a lot of people are sort of scratching their heads, including me, saying like, what am I missing here? And I don't know what we're missing. I mean, if we did, that would be really helpful. You know, the market is down. Stocks are down on the year and they're down substantially from their highs in mid-February. But a lot of people are scratching their heads about why isn't the market down more given, you know, what we could plainly see in much of the evidence.

There's something to that. I mean, if you look at sort of speculative flows in the market that we would associate with institutional or sort of individual quote retail unquote investors, there are a lot of signs of that. Not just that they're holding tight, but that they're buying aggressively. And I, you know, one of the things I wonder about is that over the last several years, traders, individuals have been trained to buy the dip every time. Stocks go down a little bit, buy more. And what you see in a lot of the sort of speculative names, whether it's cryptocurrencies, shares of Tesla, shares of Robinhood, shares of IPOs and SPACs, not only are they doing well, they're actually well above their April 2nd highs. So I think one theory is, you know, that there is just a lot of flow from households still that are largely still employed, still have money, still perhaps have savings. And so that is going to the market.

I still, like, again, it still doesn't completely satisfy me because, again, my efficient markets brain, like, I still think there must be quote smart money that would sell more if stocks are like obviously disconnected from valuations. If it's so obvious that things are going to get really terrible, you think, okay, well, like large institutional holders, hedge fund managers, etc., could sell more. So I think there is evidence of Bessent's theory out there in the market. I'm just, it still doesn't totally sit right with me.

The one thing I'll say though is that markets don't always get it right. And, you know, my colleague Tracy, she wrote, you know, she pointed out yesterday how in February 2020 basically everyone should have in retrospect been able to see that this was truly going to be a global pandemic. And it didn't. It wasn't really until it hit New York that stocks started tanking in March. Another example that springs to my mind, I might write about it today, is that, you know, the famous Jim Cramer 'they know nothing' rant about, you know, some of the problems at the banks, that was August 2007, and markets continued to rise for several months after that, and then we didn't get the real crash until September or sort of late 2008. So sometimes you can have this big sort of wall of doom coming and everyone sort of savvy enough can see it, and it doesn't necessarily reflect in the market until it's right there. So, you know, maybe markets aren't as forward-looking as I like to think they are.

I think that's totally, totally possible. People just say like, and I just like, no, they're not really going to sort of completely try to box out China from the entire global trading system. We're not really going to raise the input costs for all these manufacturers at a time when we ostensibly want manufacturing to come back to the US. We're not really going to raise prices on all these things right after an election in which inflation was arguably the number one or number two issue for the electorate. So I do think there is still this belief of a blink or it can't really be as bad. You see these drop-offs in shipments from China to the US, and I do think there's still this sort of element of disbelief that actually they want to do what they say they're going to do.

But it's interesting, you know, and again, my colleague Tracy wrote about this, you know, in prior crises or prior big market events there was some, you know, there was some clear sense of what the goals were, right? So 2008 was this massive bank run and we didn't know whether authorities were going to step up to stop it in time. We didn't know if the stimulus would be large to sort of rebuild back employment and demand, but we sort of knew that that was the goal. And in 2020, you know, we knew that the goal was to sort of stop the spread of the virus, develop a vaccine, try to backstop households through checks and other measures to sort of stabilize the economy during this period of pandemic disruption.

I think what now is different is, you know, you don't even really know what a victory looks like policy-wise. And I think that's like a very different thing. We don't even know like what that state is, what that looks like where we say, 'Oh, we are happy with what's been achieved.' In part because the stated claims of the tariffs are, you know, different. Some days it's about restoring manufacturing. Some days it's about isolating China. Some days it's about replacing revenue for the government so that we can cut income taxes on anyone making, I don't know, $150,000 a year. So it's hard to know what victory or policy success looks like when there's so many different reasons stated for the policies being put into place.

I think there is this like aesthetic aspect of it, and coal in particular, because look, one of the most, you know, one of the real booming industries for the US, really like starting under the Obama administration, has been liquid natural gas. It's one of our big, or natural gas in general, and then liquid natural gas emerging as this major source of exports. But it's very interesting to see the emphasis on coal specifically because I think that sort of, it certainly gives off a sort of like cultural thing, men in a certain, you know, in West Virginia, like a Zoolander.

I believe that he is referring to sub-deals within the negotiations we're doing. And you know, Martha, if there are 180, but those aren't actual deals. In game theory, it's called strategic uncertainty. So you're not going to tell the person on the other side of the negotiation where you're going to end up. And nobody's better at creating this leverage than President Trump.

Well, what they know is that the China tariffs are unsustainable because the Chinese cannot sustain this. That if the business people, like the gentleman you interviewed, stop ordering, China has no business model. I don't know if President Trump has spoken with President Xi. I know they have a very good relationship and a lot of respect for each other. But again, I think that the Chinese will see that this high tariff level is unsustainable for their business.

Look, I'm not a traitor, but I have to say, like, so far having listened to now several Bessent interviews, it is hard for me to wrap my head around what it is about him specifically that is perceived to be the calming influence. You know, there's this funny thing where it's like people are saying like, oh, we really, you know, we want to buy on Bessent days and sell on Lutnick days. But if anything, you know, Lutnick has so far proven to be, in my opinion, the more reliable guide to what's going on in Trump's mind or what's going on in Trump's thinking. I feel sorry for all, you know, I kind of feel sorry for Lutnick, all of the people like criticizing him specifically when in fact he's been a pretty reliable measure.

But, you know, it's interesting that comment. He said a couple of times in different interviews that he regards the tariff level against the Chinese as unsustainable, but then he quickly says unsustainable from the Chinese perspective. And obviously, look, you know, that clip, it seemed unsustainable from the American perspective as well. And I think a lot of people feel that. But it's also interesting to think about what he, you know, he says China's business model, which to my mind represents a fairly outdated view of what China's business model actually is. Yes, they do a lot of sort of low-margin cheap manufacturing. But part of their goal over time has been to actually outsource that to other Asian countries while China pursues the more high-end advanced technological manufacturing that is the source of a lot of angst in the West. So I don't know when he says that these tariffs strike to the heart of China's business model, absolutely in part there's still a lot of that type of manufacturing in China, but I don't think, you know, that's certainly not my perception is that's not where they see the future of the Chinese economy.

This is really a tough one. And you know, like, because so much of the sort of information that we've gotten out of China over the last couple of years, or several years, has really been focused on China's efforts to move up the value chain. So obviously EVs are a big example and their big electric car companies are selling all over the world excluding the United States. Huawei, the biggest chip company, which is now perceived to be getting closer and closer to the cutting edge, closer to Nvidia, again very big player all around the world excluding, you know, perhaps the United States and elsewhere. So I think, you know, at least the stated view of what China wants the world to think is that their main focus is on these like hard, you know, really like difficult tech like batteries, other areas of energy, semiconductors, etc. I'm sure there is still a lot of employment tied up in the sort of low-end manufacturing like dog collars or strollers or umbrellas or whatever else. So I'm sure that is real pressure and growth in the Chinese economy has not been stellar over the last several years. But if anything, I get the impression, you know, I think the story is China itself wanting to leave those low-margin businesses in the past.

Yeah. This is the other part that's really hard to understand because if you remember on April 9th, that was the first of the Trump blinks on the original reciprocal tariffs and they announced that for all the non-China countries, there would just be the 10% tariff. They were going to temporarily for 90 days pause the reciprocal tariffs that were announced in that infamous or famous chart on April 2nd in the Rose Garden. But you would still think, and so then the theory is like, okay, we're going to form this sort of global ex-China trading block and the dream is you're going to get Japan in there and you're going to get Vietnam in there and you're going to get Cambodia, etc. But then it raises the question, why the sort of other forms of hostility towards the non-China countries? And this goes back to JD Vance's speech in Munich in February where he went to Europe and sort of insulted many of the European leaders there. Like, it's hard to square this idea of this global alliance that stands on the other side of the table from China with the sort of active efforts we've made to alienate, you know, our friends and neighbors, Canada being a good example there.

This is really important. We did an episode of our podcast last week with Anna Wong. She's the chief US economist here at Bloomberg and she made the point that this is happening right now. The holiday orders for all kinds of things, decorations, toys, etc., this is the period when they would be getting ordered and shipped and so forth. And so you can sort of like, you know, even if somehow there were a complete reversal, and I don't think anyone's really expecting a complete reversal, even the optimists, but even if there were a complete reversal, there would be a disruption in the short term. You know, you could imagine some of the really big retailers, okay, they're going to cut back and they're going to have, you know, she's predicting, you know, noticeably empty shelves with reduced variety coming up. But you could imagine, you know, some of the really, well, you know, the companies with a ton of money like Walmart continuing to place orders, taking the risk that maybe the trade environment or the tariff environment will be different later in the summer, etc. But if you're a small business person and you're, you know, you're in the dog collar business or the toy business specifically, that just might be too much of a risk. You probably have modest margins and you can't risk that when the good gets to the port and you have to pay that big tariff bill just to receive your goods. That could bankrupt you, depending on who you are.

So another element, yes, you're, you know, there's this sort of war on Christmas, which used to be this sort of obviously conservative trope because people were saying, you know, happy holidays and stuff like that, but you could imagine recognizing Kwanzaa, you know, exactly, assault on Santa Claus, right? And so you could imagine that not only is there just sort of less to go around, but also that you get this big distribution from small to big. So small businesses, which historically have been one of the most sort of reliable Republican, you know, Republican constituencies, really lose out to the giant retailers that can afford to take a gamble and can afford to take a hit.

Yeah, I think it's hard to, the drop in shipments coming into Los Angeles is starting now. So it's hard to believe that they wouldn't show up soon. Like, this is, you know, as you were saying in the very beginning, you sort of scratch your head and it's like, is there something I'm missing here? Is there something that, is there some way you can have a big drop in container shipments into the US without it fairly quickly showing up on shelves? It's hard to see. Not maybe, you know, what some of what's coming in now would be going into inventory and so it takes a while, but intuitively you would think like over the next couple of months.