Trump’s punishing new tariffs announced just after midnight are now on more than 90 countries and the consequences will leave even more Americans behind the financial 'eight ball'. And this was after a WSJ report last week (Aug. 2-3, p. C1) that 60 percent of us are now finding it difficult to afford groceries. One hopes those who voted Dotard are at least getting a little buyer's remorse. But what it means on the whole is that consumption - the primary support for GDP - will go down.
But wait, we have learned almost simultaneously the U.S.
economy has become almost 50 % dependent on spending binges by the richest
Americans. Indeed in one recent (Aug. 2-3) WSJ piece: One Rolex for Every
House: The Luxury Shoppers Who Buy in Multiples, we learn:
'When some ultra-affluent clients buy designer handbags, cashmere sweaters and $620 jeans, they don’t walk out with just one item. They get one for each of their houses."
"Every year, Lee Evans Lee buys herself a new long teddy coat from the Italian fashion brand Max Mara, a classic design that currently starts at $4,460. She keeps a few of them in each of her homes: her primary house in San Antonio, her vacation home in Aspen and her ranch in Texas. This means she doesn’t have to worry about taking them with her when she travels. “If I’m carrying three teddy coats on an airplane, that would take up one gigantic duffle bag,” she says.
For luxury shoppers willing to spend big, it’s possible to have it all. Many buy multiples of the pieces they love, from Loro Piana capes and Celine jeans to Rolex watches, so that every one of their homes has a reliable wardrobe of high-end essentials."
Well, we had better hope Lee Evans and her lot keep on their luxury spending ways, because the top 10 percent of earners now drive about half of spending, according to Moody’s, up from 36 percent three decades ago. These people will determine if the U.S. economy avoids a recession. These are households earning $250,000 or more, and they are largely doing just fine, buoyed by strong stock-market gains, mansions and rental properties that have shot up in value in recent years, and a rebound in business dealmaking. The wealthy continue to spend on lavish vacations, parties and events, and that masks the strain that many middle-class and moderate-income families are experiencing.
The “K-shaped” economy is back, where there’s a clear divergence between how the top and the bottom are faring. Businesses understand this. It’s why credit card companies have introduced even more exclusive credit cards this summer with higher fees, all-inclusive resorts are debuting $1,000-a-night experiences, and luxury car brands such as Porsche and Aston Martin have been among the first automakers to raise prices, because their clientele is less likely to push back. Any company that can is trying to go “upmarket” as much as possible in this environment.“
"In the near term, everything rests on what that top 10 percent decides to do or not to do. The rest of the income distribution is really not consequential from a macroeconomic perspective,” according to Mark Zandi, chief economist at Moody’s.
What's going on? The GDP is dependent - by nearly a 75% proportion - on consumption. It doesn't take a rocket scientist or Mensa math whiz to figure out the disposable income available to those with the lower incomes (less than $37,000/ yr.) would not entice them to spend on very many things - whether goods (e.g. new HDTVs, cars) or services (dining out). Hence, to avoid overstocked warehouses companies must cut production of higher-priced (i.e. tariff- affected) goods. This in turn leads to a problem with aggregate demand, which in turn can affect GDP.
Aggregate demand is composed of two parts: 1) demand generated by consumers for goods and services, and 2) the demand for investment goods. When the level of aggregate demand is high, both these components are generally equally high, and the levels of production and employment are high. On the other hand, when aggregate demand is low - or even one of the components (e.g. (1)) is very low, then levels of production plummet. This is what occurred during the pandemic.
However, an analogous effect is occurring now on account of Trump’s misbegotten tariffs, raised at midnight on 90 nations to between 15% and 41%. All of which borders on the insane. Is it any wonder lower earning consumers are pulling back? Of course not. But the GDP dependence on consumption persists which means a recession – or stagflation- is in the works if it falls too low, say below 50%.
Zandi finds that the top 20 percent of households continue to grow their spending, though they have pulled back somewhat amid so much uncertainty. Meanwhile, the bottom 80 percent of households are basically just treading water, keeping their spending growth in line with inflation. This is a notable shift from the “revenge spending” era from 2022 to 2024, and it is bound to get much worse - given there is no sign of Trump's deranged economics reaching reality.
So in the near and short terms, let's hope those richies keep on forking over mucho bucks to prop up our GDP - and economy. If low and middle earners can't handle the GDP lift, then the rich will have to. After all they are the biggest beneficiaries of Trump and the GOP's "Bi Beautiful Bill."
See Also:
U.S. Tariffs to Take Effect in Trump’s Trade War: Live Updates - The New York Times
And:
And:
by Robert Reich | April 14, 2025 - 5:24am | permalink
— from Robert Reich's Substack
As tens of millions of Americans hussle to pay their taxes, Trump has put the entire global economy into chaos. 401(k)s are tanking, savings are shrinking, treasury bonds are losing value, supply chains are convulsing.
Even America’s oligarchs are petrified. They contributed millions to Trump’s inauguration. Many invested heavily in his campaign. They lavished praise on the new president and have supported his every move — in order to benefit from his promised big tax cut.
But the chaos he’s unleashed on the world economy is causing many of them to go public with their worries.
“Obviously,” Jamie Dimon, JPMorgan Chase’s chief executive, said in a conference call with reporters, “the China stuff is significant. We don’t know the full effect.”
And:
by Jianlu Bi | April 9, 2025 - 4:57am | permalink
— from Foreign Policy In Focus
Following the U.S. implementation of new reciprocal tariffs on Chinese goods, China’s swift and decisive imposition of a 34 percent tariff on American imports, coupled with tightened export controls on rare earths and the blacklisting of U.S. companies, underscores Beijing’s resolve to defend its economic interests against what it perceives as unilateral bullying. The timing and scale of China’s response, just days after the United States unveiled its own reciprocal tariffs, sends a clear message: Beijing is prepared to play hardball.
The notion that China would meekly acquiesce to Washington’s demands, even with the dangling carrot of a TikTok deal, has been soundly rejected. Instead, China’s actions signal a new era of economic confrontation, where reciprocal measures and targeted sanctions are the weapons of choice. The 34 percent tariff, effective April 10, represents a substantial blow to American exporters, particularly those in the agricultural and industrial sectors, and the suspension of sorghum and poultry product exports demonstrates China’s willingness to leverage its market power.
And:
by John Feffer | August 7, 2025 - 4:56am | permalink
– from Foreign Policy In Focus
When an earthquake hits somewhere in the ocean, surrounding countries near and far brace for the big waves that inevitably follow. Donald Trump’s tariff announcements are just such a tectonic shift in U.S. policy. As with a tsunami, however, the impact varies from place to place and arrives after a certain delay. The better-prepared industries and countries put up their own protective walls. The rest take out their lifejackets and hope for the best.
In advance of the August 1 deadline set by Trump for a minimum 10 percent tariff imposed worldwide, many countries scrambled to make deals with the United States. The UK negotiated hard with the Trump administration and managed to negotiate that 10 percent tariff down to…10 percent—plus carveouts for exports like steel and beef, some of which didn’t end up in the agreement that Washington announced the following month.
