Here we are beginning to consider some of the key conceptual ideas market participants need to understand going into the new tariff regime under the current administration. This post is neutral as is this site about the specific politics involved. Whether one agrees or disagrees with the new regime you need to understand conceptually what the model is that is being put into effect.
Point 1:
It is necessary to distinguish clearly the different ways in which liberal and conservatives view government. The argument on behalf of that regime is that these regulations protect citizens from predatory behavior by among others capitalists. Money flows to all those concerned with overseeing such regulations and then in turn is spent to help those who require it throughout the society with a very substantial amount going to the administrators and overseers of this system. Hence, assuming the regulations are required to genuinely protect citizens in this perspective the more regulation the better. If such regulation is not necessary, then this is simply a drain on resources and about control and power not the public good. Politicians later make money either by having an in with the regulators and going from being government overseers to being guides to the labyrinthine regulation world or through NGO’s that receive government sponsorship helping to run the regulatory schema in a broader sense. As such, they do not have in a general way nor would they even want in many cases a widely available free enterprise oriented career after politics but remain wedded to increasing regulations as the source of their power and the redistributing of wealth from the private sector to the needs of the public sector.
The right, on the other hand, after politics will often pursue careers heavily in the private sector and free enterprise system independent or even in opposition potentially of regulation and the public sector. In this view economic development created by the free enterprise system is the ultimate key to America’s success as a country and regulations although sometime. necessary are counterproductive for economic development. The capitalist world in a fuller sense for better and for worse is their world. They may still maintain government connections with the public sector, but at a much greater distance and in a different manner since their main concern is with the free enterprise world.. Their interests are in less not more regulations, and it is with the private not public sectors.They have a fundamental career, so to speak, outside of government, which those on the left do not or at least not to the same degree have available as they remain concerned with primarily only the public sector.
Now one can argue either way on which approach is correct and as I’ve said I am not advocating here a particular politics but am instead just showing you the broader models at work.
Point 2
The new administration’s tariff plan at an analytical level actually combines unique aspects of both approaches but in a new manner. The expanding regulatory regime changes fundamentally over to being deployed to a much greater extent against foreign political and economic rivals of the US not internally but through an extensive use of tariffs. The powerful regulatory regime shifts from being about domestic corporations as such and is instead deployed through tariffs against foreign capitalist competitors. Instead of increasingly regulating American enterprise this process is reversed and such regulation is significantly reduced while it instead becomes vastly expanded towards foreign competitors and those who try to escape the American regulatory umbrella through the vehicle of outsourcing. All goods or many goods in foreign countries now become regulated as they enter the US by having to pay more for such access to American markets. If you want to be a regulator expanding your power for whatever reason, the avenue of least resistance becomes about the expansion of foreign regulation only in this new tariff world. Whatever will to power regulators may have it gets directed increasingly externally not domestically.
Point 3
And here’s the kicker. While some are arguing that the new regime will use tariffs simply as a bargaining tool they don’t understand what that means. In fact, if you want to escape a constantly expanding regulatory regime of tariffs, you need to change your manufacturing to the US. The US becomes the unregulated space in an otherwise sea of red tape regulatory control of capital abroad. Want to escape the regulations, come to the US and open your businesses there. That’s the only way. As such tariffs, are not the means to an end–they are the end and a key component of the new policy initiatives of the new regime.
Point 4
Since the regulatory US state will change increasingly to the External Revenue Administration, there is no longer a need in this model for all those internal regulators in the US. Obviously if one believes that regulatory scheme protected citizens then you will have reservations with some of these changes. If you are a free marketeer you will feel otherwise and see this as a key positive for economic expansion. With this fundamental change many domestic regulators in the broadest sense of the word become unnecessary for the system. Hence DOGE and budget cuts become possible and part of the broader plan. Huge cuts to internal regulation and costs, a major contraction of current government bureaucracy, and a major increase in external regulation in the form of tariffs, which also raise substantial sums for the government from external rivals.
Point 5
All this hinges on the US as a whole going back to what the new regime sees as an earlier political model but also on the extensive expansion and funded expansion of government regulation into the cultural sphere going away. In place of various equality programs initiated by the left to increase diversity and inclusion and media control to prevent what the left sees as inappropriate speech there is a freedom from regulation and unfettered speech and thought emphasized and a meritocracy. In this new approach there is a requirement for the entire American model to change back to an earlier approach, which lacks heavy oversight systems for cultural behavior. The promise of AI as a supposed control mechanism also potentially allows a much looser cultural regulation given its increased sophistication and also its fuller acceptance by the general population, impossible if its seen as overly connected to power and the surbeillance state. The tech and AI companies are already changing their tune to reflect this new model . In this new model they no longer are tied to a regulatory control regime domestically but instead pursue a major competitive expansion including abroad. Their ascendency in the US with the new model leaves many of their foreign competitors still linked to heavy domestic cultural regulation often at the behest of socialist regimes potentially at a distinct competitive disadvantage globally with consumers. If you are a progressive then you will interpret this as a lack of regulation of uncivil speech and if you are of the right as a restoration of freedom of speech rights, but the point here is that you need either way to understand what is already starting to be heavily implemented.
Point 6
The freeing up of regulation over bitcoin and AI unleashes a key American advantage. It’s also back to foreign adversaries having to guard against the inherent appeal of a less regulated American society as an attractive alternative to their own more heavily regulated approaches at least for capitalists. AI requires for its rapid expansion incredible amounts of available energy so the clean energy model is increasingly rejected in this approach, and energy becomes relatively unregulated in this model. The right will welcome this as cutting the cost of energy and reducing inflation, the left will view it as unsustainable, but as I’ve suggested in earlier posts this shift by the elite in terms of energy sources is already in full swing and will continue extensively with the new regime. Even those on the left increasingly recognize it as inevitable given the expansion of AI. Some of those on the left will try to do this through an expansion of nuclear energy but as argued in earlier posts this will be difficult and contradicts the left’s earlier rejection of this source.
If you are still working in terms of the earlier public regulatory oversight model which many US competitors and even some domestic businesses will continue to be–i.e. the E.U., China or more authoritarian and heavily controlled Russia, you have a problem as your model is less encouraging of economic growth as the US radically sets free its capitalist enterprise system and it will be very hard to compete. If your model is outsourcing and heavily importing foreign products whether Walmart or for example Asian grocery stores to name obvious examples, you also have a problem as your regulatory regime through tariffs is radically expanding while everyone else’s in the US is contracting. You will have to insource for a change though in some cases this may be impossible.
Point 7
Preserving the tax cuts that are scheduled to run out and even increasing tax cuts is crucial for this model as it is part of this moving away from internal regulation and shifting power from the public sector to the private sector. These cuts are further aspects of the appeal to foreign capital of an increasingly less regulated US business world.
Point 8
If under the previous regime, what the US exported was the international organization approach and global governance with international foundations and the UN playing a key role, under this new model it’s back to an earlier cultural expansion of a less regulated cultural space and real-politique abroad. The left will seek autonomy from politics in such a setting so Abstract Expressionism as art is likely to reemerge and the culture more broadly is likely to go back to an earlier model of freedom from politics not social activism. As did a whole generation of WPA artists who were progressive there will be increasingly calls for a separation of culture from politics of all varieties in the cultural sphere including on the part of the left.
Point 9
If you are going to radically reduce internal regulation and expand external regulation you need, ultimately, very broad public support and a clear demarcation of citizenship. Gone is the global citizen model and it’s back to the national citizen model. As the US is increasingly the country with unmatched economic market development, open, extensive illegal immigration becomes impossible. A model that encourages legal immigration, however, is not inconsistent with this approach especially if merit based. The broader key point is for the model to work you need to make citizens greatly value their own citizenship and the premise of American exceptionalism and believe in a definite difference between the freer US as a less regulated, expanding, economic power center and the rest of the world under in many cases an extensive and over-regulated both culturally and economically alternative system .
All of which is to say that when you talk about the importance of tariffs for the markets, you cannot do so as many commentators incorrectly are separate from this much broader conceptual model which I will have much more to say about in later posts. They are no mere bargaining tool, they are a key part of the new building the new regime is constructing and at a higher level market participants need to understand this key point.
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