I was wrong about Trump's tariff masterplan

So. . China 67%.

That's tariff. China retaliating by slapping a 125% tariff on all American imports. I did a 90 day pause for the people that didn't retaliate.

Their plans contain math errors, serious math errors, and lots of serious and sober economists are now talking about the possibility of a recession. My last video about how that was actually a MAGA masterplan behind the tariff chaos we've seen so far was wrong because I failed to mention three crucial factors. But if we do add these three factors to the MAGA plan, the tariff menace we've seen starts to make sense again.

In fact, with these three factors in place, Trump even becomes, dare I say, somewhat predictable. Yes. That's right.

I'm still here to show that we can actually make some sense of Trump. A guy that imposed sky-high tariffs on islands inhabited only by penguins, used clumsy formulas seemingly written by ChatGPT, raised tariffs and lower tariffs while raising them against China by the end of the video. It will all fall into place somewhat.

You see, in my previous analysis, I focus too much on Trump's smartest advisers, Scott Bessent and Stephen Miran, and not enough on the power struggle between MAGA economists vying for Trump's attention like the carefully scheming dynamics, the aggressive trade warriors, the techno nationalists whispering about Cold War strategies, and finally, even the industrialists Republicans who want to learn from communist China to rebuild America's industry. But before we dive into the volatile politics of Trump world, let's quickly review which part of my previous analysis held up and what my three mistakes were, actually. In my previous video, I made the case that Trump's Extreme tariff actions are not completely mad.

They are primarily driven by this chart, which shows how manufacturing in the US has become far less important, especially under the neoliberal trading system designed by US President Ronald Reagan, under this system, China became the factory of the world. The previous Trump trade war and Biden's industrial policy did not stop this trend. So the Trump team now believes that drastic action is needed.

Now, I think that point about Trump's ultimate motivation still holds up pretty well, given that, according to a recent report by American journalist Tanner Greer, who interviewed over 30 prominent politicians and economists, the one thing they all agreed on is that America's commercial and financial relationship with China underwrote the rise of a powerful rival, well, undermining America's own industrial base. However, when it comes to that three step MAGA masterplan I presented, I now see that I made one small mistake and two big ones. But before getting into these, here's a quick overview of the plan I presented, which was based on speeches and papers by two key Trump aides, Scott Bessent and Stephen Miran.

In my presentation of their MAGA master plan, the first step was using tariffs as negotiating leverage. This step clearly held up as since then, Trump has hit pause on many of the tariffs. And as Scott Bessent has recently said, we are moving quickly with many of our most important trading partners.

So we had Vietnam in last week. We have Japanese in on Wednesday, South Korea next week. Second step I talked about was that the main aim of reciprocal tariffs would be leveling the playing field to counter both tariffs from other countries.

And as Trump himself said during the now infamous tariff announcement, currency manipulation and trade barriers. In fact, my previous video was recorded before this announcement. And because big picture, everything presented there was in line with my video, I decided to publish my video right after without changing anything.

This, I think, really shows that it made sense to study closely what Trump advisers like me, rather than Bessent has been telling us all along. However, when it comes to the details, the tariff announcement included two controversies that could not be explained by my analysis. First, if the MAGA masterminds were so smart, why did they calculate the tariff level in such a weird way?

By dividing the trade deficit in goods of a country over US total goods imported from that country, and then by randomly dividing that by two. Second, they applied this formula blindly, handing sky high tariffs to places like Lesotho or, bizarrely, islands with no people at all. This brings us to my first mistake, which I think is minor in hindsight.

In my video, I should have emphasized more that there is a huge, huge difference between having a plan and actually executing it well. A competent team would have spotted statistical outliers like the uninhabited islands, and filtered them out to focus on real trade threats like Vietnam or the European Union. So yes, penguin tariffs are a clear sign of bad execution, but they do not discredit the quality of the Bessent-Miran MAGA master plan itself.

However, then what about the formula? As economists, all of the world rightly noted, it seems extremely, extremely crude to just look at trade deficits in goods to determine if a country is manipulating trade with you. For example, Australia, as well as a few countries that actually exports more to China than it imports from them.

And we all know that Australia does not manipulate trade with China. It simply has a lot of natural resources that China uses to make goods. This same relationship probably holds true for many, many countries that have a deficit with the US.

And on top of that, many economists pointed out that the US is a major exporter of services. In fact, big American tech firms dominate certain service exports like advertisements in Europe. If this was taken into account, the so-called reciprocal tariffs with the EU would be far lower.

So if Bessent and Miran have such a well thought out plan, then why did they come up with this bad formula? The answer is they did not. Indeed, Bassett reasonably said that I didn't construct the actual tariff rates, the tariff rate and neither did Miran, who said that it was suggested by someone else in the administration.

This, I think, clearly illustrates my second mistake. I overemphasize the role of Miran Yes, they have a go ahead plan, but there are other people with other plans whispering in the ears of Trump. And when it comes to the weird reciprocal tariffs formula, Trump clearly ignored Miran in favor of other advisers.

So then does this mean that I was completely wrong to present the Bessent- Miran plan to you? No, I don't think so. In fact, Bessent and Miran and have recently become more prominent in the Trump administration.

As Trump increasingly got frustrated by his more aggressive advisers, such as Peter Navarro and Howard Lutnick. But what this does show is that an update is needed to understand the so-called MAGA master plan for the global economy. Sure.

To make sense of Trump's there, of course. I think we should not talk about the MAGA masterplan, but rather about. So what are the MAGA masterplans and how do we know which plan Trump is following right now?

To answer these questions, I think we need to return to the work by journalist Tanner Greer, who, based on his interviews with over 30 prominent MAGA thinkers, classifies MAGA economists in essentially four categories. The first category are the so-called industrialists, which include people like Vice President JD Vance. The MAGA industrialists believe that the US need to broadly re industrialize by employing the full might of the state, just as China does.

Yes, that means using tariffs, but it may also mean using more advanced industrial policy tools such as subsidies. Next, we have techno nationalists such as the folks over at Tech Defense firms like Palantir and Anduril, who believe broad based re industrialization is not realistic to guarantee national security. It is enough to get the upper hand in high tech manufacturing.

Tariffs can be used to achieve this, but so may other tools, such as the type of state investments the US made during the Cold War, third there are dynamists, who believe in a small state and who also believe high tech sectors being vital to national security. This faction includes a lot of those workers, like Vivek Ramaswamy, who suggested tariffs on high tech products are justified but was against a full scale trade war. Finally, there are trade warriors like Commerce Secretary Howard Lutnick and trade adviser Peter Navarro.

They believe in full scale industrialization and a limited state. Tariffs are the perfect tools to achieve these two aims because, unlike subsidies, tariffs need a small government bureaucracy to administer advisors from all of these factions have been, and still are whispering in Trump's ear. Some of them, like Bessent and Miran have complicated plans.

Others, like Navarro, Lutnick have relatively simple plans. But the one thing they all seem to agree, and that is Trump King. Trump ultimately decides Trump, a man who has been incredibly consistent on issues like trade but who is at the same time described as a pragmatist by people close to him.

He's well known that he likes having people with strong personalities under him fighting for attention. This way, he can act as a kingmaker and choose the ideas that he likes. A lot of the people around him have reported that he likes to purposefully keep people in the dark about what he will do next, to keep them guessing, such that it becomes difficult for them to respond to his moves, essentially confirming these reports.

He himself told the Wall Street Journal that he likes to make President XI think that he is crazy and can do anything. The strategy that US President Nixon reportedly used during the Cold War. This gets us, I believe, to a model that we can actually use to predict what Trump will do next.

The president essentially has a cohort of people with plans around him. He lets them compete for his attention, and he picks from the parts of the plans from those that are currently his favorite advisers. Until recently, these were trade warriors, like let they get Navarro, who may have suggested the simple reciprocal tax formula.

If all of that, we take into account that the Trump administration's execution can be pretty half baked. I think this model for how Trump's selects between MAGA master plans can explain almost everything we have seen from Trump so far. While in his first term he was still surrounded by mostly dynamists as well as old school neoliberals that love free trade.

This good administration consists almost exclusively of hardcore trade warriors like Navarro and more sophisticated dynamists like Miran. So it makes sense that he ended up picking a mixture of their plans in these last few weeks. However, there's still one thing that does not make sense.

Why did Trump back down from so many tariffs so quickly before negotiations really started making him look? Let's be honest week. This brings us to the third mistake I made in my previous analysis, which purely focusing on deindustrialization.

You see, on top of viewing deindustrialization as a mortal threat, both trade warriors and dynamists believe that U. S. government debt is unsustainable.

So while Trump no longer seems to care about the stock market, he does care about the bond market, which started freaking out after his sky-high tariffs or, as Trump reportedly said, bond markets were becoming a bit yippy. Yippy bond markets meant that the U. S.

would need to borrow at an ever increasing interest rate, making government debt unsustainable. So that is, in my opinion, the new master plan or selection of master plans. If we want to predict a triple the next, we first need to analyze the plans of all of his close advisors.

Right now is close. Advisors are trade warrior and dynamics, so we can expect tariffs to stick around in favor of subsidies. Second, we need to make an assessment of which advisors most likely to convince Trump.

Right now, the balance of power is shifting from trade warriors like the Navarro and Lutnick to dynamists like Miran and Bessent. If this remains the case, we can expect more negotiations and potentially even some alliances forming. Third, we need to take into account that Trump likes to keep us in the dark because he believes this makes him more effective, so we can never be completely sure.

Finally, fourth, we need to closely watch what is happening in the bond market. And as we get closer to the election, I think we need to start considering his polling numbers as well. So in the end, I think we are then back to the MAGA master plan presented in the previous video, with Bessent in the Miran and closer to Trump than ever.

Their plan is more likely than ever to be adopted. However, Trump is notorious for firing and hiring advisers, and even if Trump were completely transparent, it would still be hard to predict. Other world reacts to his trade moves and how he will then respond in turn.

So to truly know whether Trump trade war is heading next, I think we need to do a tactical analysis of who has the best cards right now, the US or China. On top of that, we need to get an idea of what the economics of the post neoliberal world order will actually look like. Indeed, these two, you guessed it, are my two upcoming videos.

So subscribe to the channel and hit that notification bell if you want to make sure you don't miss my next release. And if you want more content before that, I highly recommend you check out the following two articles from our advertising sponsor, The Economist. First, check out this super interesting article about geopolitical schools of thought in the MAGA movement, about how restrainers are trying to take over from primacists And then this article about how the bond market panic was not just about Trump.

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