TARIFFS ARE THE SYMPTOM, NOT THE CAUSE

12 April 2025

A Legacy Moment: Trump on the Mount

This shows Trump at the end of his term, as a kind of modern Moses (I know, I know...). Shield in hand, he has held back the storm, tariffs being a temporary defence buying time for the deep reform the American economy so very much needs. Behind him is the old world of outsourced industry, financialisation and economic vulnerability. Ahead, the path of reform, passing by education, infrastructure, and innovation. Like Moses on Mount Nebo, he points forward to a future he won’t fully walk himself, leaving the real journey as his legacy, to his successors. He is not retreating, not Trump, this is his end-of-term "legacy moment": having led through crisis, he now gestures toward completion of the renewal program he will have initiated (we are still waiting, ok, ok).

Ray Dalio writes a powerful piece, warning of a debt-cycle turning moment. Dalio’s take on tariffs, productivity and the slow rot inside the American system isn't dramatic, it's not ideological either. It’s observation and advice, supported by fact and history. His advice is structural and strategic. It speaks directly to this moment where we’re building defensive walls round the economy, while the foundations crumble away. As always, the real battle isn’t "out there", it’s inside. This is what Trump has to see.

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The Real Problem Isn’t Tariffs

Ray Dalio, founder of Bridgewater Associates, warns that the focus on tariffs distracts from deeper issues. The U.S. faces structural problems: declining productivity, underinvestment in education and infrastructure, and political polarisation. Tariffs offer a stop-gap, but the root causes lie in internal decline - of the infrastructure (physical and digital), weakening  innovation (innovation is about turning ideas into productive outcomes, and requires capacity and commitment, instead we have misaligned incentives, underinvestment, and systemic neglect).

The U.S.-China Imbalance - the problem

Over the decades, China has strategically invested in infrastructure, technology, and education, strengthening its manufacturing base in a long-term drive. We have watched and known this for decades. What path did the US take? The U.S. outourced its manufacturing and shifted towards services and financialisation, leading to dependency on imports, especially from China. This has resulted in trade deficits and strategic vulnerabilities.

The Illusion of Tariffs as a Solution - the fake solution

Tariffs can only be a stopgap. They can protect domestic industries by taxing imports. They can even pay back some of the national debt. However, if foreign manufacturers don't feel disposed to "eat" the tariff by lowering their prices, they often lead to lower profits of home companies, higher consumer prices and production inefficiencies. Protected industries may now lack the incentive to innovate and compete, thus falling further and further behind global competitors. Tariffs can also provoke retaliatory measures, disrupting global supply chains.... a typical Trump tactic is "escalage to negotiate", but what happens when you cannot go that extra rung?

The Need for Internal Renewal - the real solution

Dalio emphasises that true strength comes from internal renewal: investing in education, infrastructure, and innovation. The U.S. must focus on long-term strategies to enhance productivity and competitiveness, rather than relying on short-term fixes like tariffs. Financialisation is not successful s long-term strategy - we've always known this but have been focused on our GDP and share prices.

Historical Lessons - the warning

History shows that protectionism can lead to economic decline. The Smoot-Hawley Tariff Act of the 1930s exacerbated the Great Depression. Conversely, post-World War II economic growth was driven by openness and cooperation, somethign we have sadly lost. The U.S. must learn from the past to navigate current challenges. This includes the utter futility of never-ending wars, which are the cause of much of the debt and distrust.

Conclusion

Addressing the U.S.'s economic challenges requires a focus on structural reforms and long-term investments. Tariffs may offer temporary relief but do not solve underlying issues. As Dalio suggests, building internal strength is essential for sustainable prosperity.

 See also Peter Schiff's take. He recommend gold mining companies rather than gold stocks or even physical gold. He explains the rise in gold prices by all the usual arguments, though his main argument is that people are moving out of dollars into gold. It takes oil to get the gold out of the ground.And the ratio of oil price to gold price has never been lower.

Dalio, piece by piece

RAY DALIO WARNS: U.S. LIKELY HEADING INTO A RECESSION | URGENT ECONOMIC OUTLOOK 2025

1. Introduction: The Danger of Misdiagnosis

• Most serious issues come not from ignorance but from applying the wrong solutions to problems we do recognise.

• Tariffs, in this case, are a reaction to real economic challenges — but a misguided one.

• Key idea: The solution must strengthen, not further weaken, a nation.

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2. The Global Economic Imbalance: Roots and Shifts

2.1 Long-Term Divergence Between the US and China

• Over 40 years, China pursued a state-directed, long-term strategy:

  • Infrastructure, tech, education, and currency management.

  • Built industrial and export strength.

• The US moved in the opposite direction:

  • Prioritised services, financial returns, and outsourced manufacturing.

2.2 Strategic Dependency and Its Consequences

• US now heavily reliant on imports from China — from cheap goods to advanced tech components.

• Trade deficits widened; domestic industry hollowed out.

• This is not only economic but a strategic vulnerability.

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3. The Financial Masking and its Expiry

3.1 The Old Model: Trade Deficits + Capital Recycling

• China financed US deficits via Treasury purchases, keeping US interest rates low.

• That game is ending — China is decoupling and focusing inward.

3.2 Structural, Not Cyclical Change

• China is building its own tech ecosystem and consumer base.

• The imbalance is now unsustainable without change.

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4. American Reaction: Legitimate Frustration, Poor Remedies

4.1 Asymmetric Globalisation

• US opened markets in the name of free trade. Others (like China) didn’t reciprocate.

• Subsidies and industrial policy abroad created unfair competition.

4.2 Fallout in the US

• Wage stagnation, regional inequality, political polarisation.

• Public sentiment: "The system doesn’t work for us anymore."

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5. Core of the Crisis: Competitiveness and Strategy

5.1 Productivity Determines National Strength

• Productivity is the foundation of prosperity — not tariffs or tax tweaks.

• US productivity has slowed due to:

  • Weak education systems.

  • Poor infrastructure.

  • Underinvestment in innovation.

5.2 Diverging Incentives and Rising Inequality

• Finance rewards capital, not labour.

• Education leads to debt, not opportunity.

• The result: polarisation, gridlock, reactive policy.

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6. The Mirage of Tariffs: Quick Fixes, Long-Term Damage

6.1 What Tariffs Actually Do

• Tariffs = tax on imports → Higher consumer prices, especially for inputs.

• Hurt businesses relying on global supply chains.

6.2 Innovation Suffers Under Protection

• Tariff-protected industries often lose efficiency and innovation pressure.

• Tariffs hide weakness — they don’t fix it.

6.3 Retaliation and Strategic Risk

• Tariffs provoke countermeasures.

• Trust in global supply chains erodes.

• Companies relocate, delay investment, and reduce efficiency.

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7. The Deeper Structural Crisis

7.1 Declining Internal Strengths

• Fragile growth, weak wage gains, vulnerable to shocks.

• US infrastructure and education in decline.

• Rising powers (like China) are:

  • Long-term oriented.

  • Strategic in investment.

  • Cohesive in policy.

7.2 Systemic Fragility

• US appears strong on the surface (market cap, GDP), but:

  • Many citizens aren’t benefiting.

  • Public resilience is low.

  • Internal polarisation undermines governance.

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8. Historical Patterns: Warnings from the Past

8.1 Repeating Cycles of Decline

• Every declining power follows a similar path:

  • Rising debt.

  • Polarisation.

  • Internal decay.

  • External rivals rising.

8.2 The Smoot-Hawley Lesson

• 1930s US tariffs → Collapse in global trade → Depression deepened.

• Global retaliation, economic fragmentation, prelude to WWII.

8.3 The Post-War Model of Global Trade

• Institutions (IMF, WTO) promoted open, rules-based trade.

• For decades, trade fostered peace and growth.

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9. The Real Work: What Actually Builds Strength

9.1 Long-Term, Coordinated Strategy

• Focus on building, not blocking:

  • Talent.

  • Infrastructure.

  • Innovation.

9.2 Education and Labour Productivity

• Update education to align with future industries (AI, biotech, advanced manufacturing).

• Close the skill gap → boost labour participation and real wages.

9.3 Infrastructure and Innovation

• Modern, efficient infrastructure is a growth multiplier.

• Public-private collaboration essential to lead in emerging tech sectors.

9.4 Strategic Capital Allocation

• Shift from financial engineering to:

  • R&D.

  • Skills training.

  • Long-term investment.

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10. Fiscal Prudence and External Relationships

10.1 Smart Spending, Not Austerity

• Align spending with productivity returns.

• Avoid burdening future generations with debt-driven consumption.

10.2 Alliances and Global Leverage

• Economic power also comes from global trust and cooperation.

• Isolated nations lose influence — they don’t gain it.

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11. Final Word: Strength Through Renewal, Not Reaction

• Tariffs are a blunt, emotional reaction to a complex challenge.

• Real strength = rebuilding national muscles, not building walls.

• History is clear:

  • Nations rise through internal renewal.

  • They fall through protectionism, division, and complacency.