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Yes, the April 2 Liberation Day announcement was poorly handled.  Yes, there is an unfitting dishonesty in painting trade deficits as an economic problem.

Hopefully, important lessons were learned here, most especially that taxing trade deficits is not the correct instrument to grow reciprocal trade.  In addition, President Trump’s emergency power to set tariffs reaches only so far.  For stable, long-term commitments, the optimal tariff regime is a job committed by the Constitution to Congress.  No reason to swap first principles for expediency. 

Now for the good news. 

For those who like inside baseball, Peter Navarro is in way over his head.  He wrongly favors permanent tariffs.  In an unforgivable error, the April 2 tariffs were overstated by a factor of four due to misapplication of the underlying economic formula.  He will be sidelined in favor of much sounder advisers, especially Treasury secretary Bessent, who has emerged as the best trade adviser.

For the rest of us, the key news is that economic growth may slow, but not nearly as much as initially feared.  Not only are alarmists likely to be proven wrong about a 2025 recession, but look for overall U.S. GDP to hit 1.5–2.0% in 2025 and rise thereafter. 

Relatedly, the Democrats’ wish for a market meltdown will not be realized.  At its maximum, on the April 2 schedule, the tariffs approximated a $10-trillion after-tax perpetuity cost to the U.S.  At the newly paused rates, tariffs are roughly two thirds lower than initially announced, or 10% versus an estimated 30% average tariff rate on April 2.  That brings the expected cost down to $3 trillion. 

But even that estimate is too high.  Many if not most countries will make material concessions in exchange for no tariffs.  How ironic if President Trump does more for free trade than achieved by any free-trader in U.S. history.

In any event, the tariff regime negotiated under President Trump’s emergency powers will ultimately be superseded, or codified, by Congress and hence will not last in perpetuity as a cost.  Tariff costs will be offset over time by increased U.S. investment and expanded exports.  And from a stock market perspective, the tax will be shared between importers and consumers, further limiting its impact on equities.

In all, the tariffs regime will likely have a present value cost of less than $1 trillion.  That compares to the market value of all U.S. equities at the beginning of 2025 approximating $62 trillion.

Geopolitically, in place of a global trade war, President Trump has refocused exactly where we need to be: a cold war with China.  Trump has majority support from all Americans to take on China.  It unites Trump voters and expands the Republican base materially going forward. 

Notwithstanding congressional power over imports and exports, the president has unique responsibility for foreign affairs and the defense of the United States.  That applies most directly to China.  The extraordinary tariffs imposed on China are constitutionally justified as the proper exercise of presidential powers. 

Individual companies that rely on China for parts and supplies that cannot be sourced elsewhere will be harmed.  Consumers may not see items they have come to expect.  In the past two years, Dollar General’s stock has declined from $220 to $88.  And critical shortages could occur tied to rare earth metals, pharmaceuticals, health care, and key technology markets.  So yes, it will be challenging.  It will produce shock headlines.  But over time, both countries will adapt.

In 2000, China exported $100 billion of goods to the U.S., growing to a peak of $539 billion in 2018 and falling to $439 billion in 2024.  As companies accelerate their exit from China, imports to the U.S. will drop significantly over the next several years, perhaps to the $200 billion range.  China can manage, as the U.S. currently represents only 15% of exports.  The U.S. can manage, as Chinese imports, while significant, are immaterial to a $30-trillion economy and too small to be a systematic inflation risk, notwithstanding widespread hand-wringing to the contrary.

The 90-day pause will work out great.  This is best understood by examining a specific country, Vietnam, and a specific good, footwear. 

The U.S. consumes approximately 2 billion pair of shoes annually, or approximately 6 pairs of shoes per capita, of which some 1.8 billion pairs are made overseas ($21 billion in revenue) and 0.2 billion pairs ($2 billion in revenue) domestically.  Some 90% of overseas production comes from 4 countries:  China (1.1B pairs), Vietnam (357M), Indonesia (112M), and Cambodia (60M).

Vietnam has been hit unexpectedly hard by the tariffs, at 46%.  For perspective, Vietnam GDP approximates $500 billion, of which it exports $137 billion to the U.S., especially communications equipment and footwear.  Vietnam cannot afford such a monstrous hit to its export-dependent economy.  Nor is Vietnam taking advantage of the United States.  To the contrary, it has built the complex infrastructure, labor, and capital to produce top-quality footwear, at the demanding performance standards, cost, and health and welfare demanded by the likes of Nike and Adidas. 

In anticipation, Vietnam has been in steady communication with the Trump administration, proactively promising to drop all tariffs while encouraging more U.S. purchases.  It will also need to end Chinese transshipments.  On April 4, Trump posted on Truth Social that he held a “very productive call” with head of state, To Lam, and was looking forward to another meeting “in the near future.”

So what will happen in footwear?  Over time, production will and should move from China.  Vietnam will be the major beneficiary, along with its Southeast Asian neighbors.  If Nike and other importers are wise, they will announce new U.S. plants.  Vietnam will eliminate all tariffs on U.S. goods and increase its auto and equipment purchases from the U.S.  In exchange, Trump will sharply lower tariffs on Vietnam, hopefully to zero.  Separately, U.S. shoe production will rise, and Nike will do just fine.  Look for similar results across most of the 70 countries now in direct negotiations.

Finally, perhaps the best news is the return of focus to all that President Trump is accomplishing: a profoundly sane energy policy, sealing the border, re-establishing control over the administrative state, systematically identifying fraud and abuse and corruption, promoting safe elections, returning education to state and local government, eliminating DIE, abolishing USAID, withholding funds from universities.  The list goes on — or, as justly said, promises made, promises kept. 

There is, however, one problem that is not going away: out-of-control spending and the spiraling U.S debt.  Legal challenges are thwarting every advance.  It will take the Supreme Court years to sort out the ability of the president to reshape spending.  In the end, Congress is the only party that can cut spending permanently to save this country.  Democrats refuse to allow even the most sensible savings, and, sad to say, the current Republican Senate barely seems up to the task.  Ultimately, this country needs a filibuster-proof majority to eliminate $2 trillion in annual spending and solve the entitlement crisis. 

There will be dislocations due to the President Trump’s stand against China.  But the reset is long overdue, vital to U.S. national security interests, and well worth the cost of a restructured relationship.  Iran must give up its nuclear arsenal, by agreement or force.  Taiwan remains a concern.  And inevitably there will be some turbulence in the economy.

But tariffs are not an issue.  Ignore the legacy media.  Ignore the Democrats.  Let the stock market gyrate.  It will head upward over time.