These FUCKING Courts

“These FUCKING courts”

That’s what Donald Trump said yesterday after courts ruled to strike down the tariffs. The court found that the constitutional right to impose tariffs belongs exclusively to Congress, and the president cannot use IEEPA to tax imports.

“This case brilliantly demonstrates the essence of the Anglo-Saxon legal system, where precedent plays a central role — decisions of the US Supreme Court and 13 federal judicial districts plus appellate court rulings. It’s very good that somewhere the judiciary truly remains separate from the executive, giving courts the power to overturn presidential or congressional orders. The principle of judicial review.”

Said my lawyer

I support the courts’ decision and categorically stand for free trade. In this short Saturday longread I’d like to explain in plain terms how trade wars work, and why they always ultimately hurt all sides — and the consumer always ends up losing.

How Trump and His Administration Think

Whoever controls access to the largest market sets the terms. If a country or company depends on access to the US market, you can raise tariffs and force concessions. Is this the right logic? Partly — but it’s a negotiator’s thinking, not an economist’s.

In his view, if manufacturing is overseas = the country is vulnerable. So production must come back, even at the cost of higher prices. The bet is that companies won’t abandon the US market, suppliers will adapt, some production will return, and the budget will get additional revenue.

How Tariffs Actually Work

Short-term:

A tariff is a tax on imports. Formally it’s paid by the importer, but in practice:

• Part is passed on in price — meaning the consumer pays
• Part eats into margins — meaning the company pays

In the US, studies of past tariffs showed that the bulk of the burden fell on American importers and consumers.

Companies directly dependent on imports have to raise their floor price — otherwise selling at old prices simply isn’t profitable. At the same time, domestic producers get “Umbrella Pricing.”

When a tariff is imposed on imports, imported goods get more expensive. This creates an “umbrella” under which domestic producers can raise prices — even if their own costs haven’t increased. A tariff doesn’t automatically make the domestic producer more efficient. It simply reduces competitive pressure.

Mid-term:

Many companies are forced to find alternatives and move some or all of their production to other countries — often not back home to the country that imposed the tariffs, but simply somewhere cheaper. This raises costs and capital expenditures while reducing efficiency. And who pays for that? The end consumer.

Yes, new factories will emerge domestically during this period — but they’re often globally less efficient (higher labor costs, potentially higher energy costs, smaller production scale). And for those factories to survive, they need either permanent tariff protection or government subsidies.

Long-term:

Overall economic productivity declines, because instead of each country producing what it does best and most efficiently, production returns to where it’s less efficient and resources are used worse.

Because domestic production became more expensive — inflation established a new, higher price baseline. Other countries introduce countermeasures — and get the same problems.

But If It’s All So Bad, Does Trump Not Understand?

Of course he understands perfectly well that this reduces economic efficiency, but simultaneously increases control and autonomy — which is the core instrument of Donnie’s politics.

Ray Dalio stated that he views tariffs as the beginning of the end of the integrated global economy and a transition to a system of competing blocs.

So here’s my advice: drink your coffee, eat your cookies, and go long on gold.

© Seal