It’s been a month since “Liberation Day,” the day that President Donald J. Trump announced that we would emerge from the oppression of foreign manufacturing. For years, the President declared, we’ve been “ripped off” by the Chinese and others who have moved American jobs to their shores, producing the goods and products that you and I consume daily.
Liberation Day is a Grand Strategy, a “great big idea,” as President George HW Bush once said, an all-encompassing reordering of the existing world of commerce. But for most of us, what exactly are the implications of Liberation Day and the myriad of tariffs that will be used to implement it?
Wall Street has become a pretzel attempting to decipher what Liberation Day means. Stock Market volatility has been like nothing we’ve ever seen, down on the announcement of each import tax, up on any tariff relief.
The chief measure of market volatility, the VIX Index, which measures the volatility of the broadly based Standard & Poor’s 500 Index, reached an astronomical 60 just a week after Liberation Day was announced, one of its highest levels ever.
US Treasuries were equally volatile, showing price behavior rarely seen outside a major catastrophe such as a war or the recent Pandemic.
All this up-and-down, back-and-forth behavior on the Street is due to the level of “uncertainty,” a term rapidly becoming corporate America’s favorite. We do not know and cannot project the implications of the Trump tariffs.
For the past month, I’ve tried to determine which products I use daily will be impacted by tariffs. It’s a near-impossible task. For one thing, most consumer products no longer indicate where they are made. The old “Made in America” labels are long gone, much less the “Made in China” or “Made in Japan.” But even if we could determine where our favorite gadgets or essential items were “manufactured,” we still may find it impossible to decide what vital components go into that product and where those components are produced. Our task becomes a “rabbit hole” of interlocking raw material supply, component production, and ultimate assembly. A miasma of a supply chain and manufacturing process stretched across different countries and continents. Remember when Tim Cooke, the CEO of Apple, remarked that the iPhone wasn’t really “made” in China; it was just “assembled” there? I used to think he was being obtuse, but he’s right; the iPhone is a coordinated international assembly line that crosses borders and jurisdictions. Most recently, it saw its final “assembly” in the lower-tariff country of India.
It’s been a month since Liberation Day, April 2, about the time that it takes for the fastest container ships to sail from China to the ports of Los Angeles and Long Beach. These will be the first vessels to have tariffs applied to their cargo. Over the next three months, the rest of the Chinese and other Asian Ships will file in, all under the new tariff charges.
A vast army of truckers, distribution centers, and warehouses will move your goods from the ports, eventually ending up on your local store shelves. Depending upon how far you are from those West Coast ports, it may take another month before your local store shelves are stocked. Such is the tremendous complexity of the modern American Retail Sector.
So, while we’re likely to see the beginning of the tariff shock over the next week or two, it will take three to four more months before the full impact is apparent. It’s just the nature of trans-Pacific shipping.
While all this has been high drama, it’s been far removed from you and me. We have been isolated, in most regards, from the impact of Liberation Day. While it may have impacted our investment accounts, Wall Street’s gyrations have been epic, but our day-to-day lives have seen little change. Store shelves remain fully stocked, and prices remain relatively stable (except for the unrelated case of eggs). Whether that remains the case as tariffs now hit new imports remains to be seen.
But one thing is apparent: the financial challenge that began with President Trump’s announcement from the Rose Garden of the White House then moved to the Ports of China and Asia, was shipped to the US, has now come to us, the American consumer. The world is watching how we react to any potential shortage or price rise. From the long shoremen in Shanghai and Long Beach to the truckers in Mumbai and Omaha and the leaders in Beijing and Washington, all eyes are on you and me, the ordinary US Shopper – the most significant commercial force in the world.
How we manage our spending will, in one way or another, set the course of international trade for a generation.
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