The Nasdaq has recovered all its post-Liberation day losses, and then some. The stock market is unfazed by new tariffs or the threat of additional tariffs, such as a “100% tariff on imported chips” (the stock market actually gained on this news):
Does this sound familiar? Like the hockey-stick graph of Covid cases shared in early 2020, there were similar scary-looking hockey-stick-shaped charts of the size of the tariffs. I remember this chart being shared on social media in April by Richard Hanania and others:
This is not to say the tariffs are good either. I take the ‘3rd position’ that the tariffs were not a good idea, but are not nearly as bad as feared either. They are just ‘meh’–another overhyped thing that comes to pass as cooler heads prevail.
Yet again, like with Covid, I was right to buy the dip, and that things were not nearly as bad as feared. It’s remarkable how in the span in a month, similar to Covid also from April-May in 2020 instead of 2025, how sentiment shifted from dire fear to complacency or indifference.
Additional tariffs have been met with a muted response. It’s not even worth keeping track of it anymore. It’s not as if the tariff situation has gotten any better. It’s not as if Trump has relented, aside from the predictable delays. Nor are affected counties eager to enter into deals. But no one seems to care anymore, when just four months ago the economy was seemingly on the brink of death or its impending death.
The promised inflation surge never came to be. CPI remains low, GDP growing steadily, stocks keep going up. In short, nothing bad happened. Part of this was due to Trump whiffing, as I correctly predicted he would, but also because the tariffs were never a big deal to begin with.
Even the liberal media like the NYTs, CNN, and PBS were forced to concede that inflation is low or that the inflation fears may have been overblown, with the latter writing, “U.S. wholesale inflation cooled last month, despite worries that President Donald Trump’s tariffs would push prices higher.” This was on July 16 for June wholesale inflation data, a full three months after the tariffs went into effect.
The US economy is dominated by services. On July 30th, Wingstop stock surged 25% on blowout earning from hug consumer demand. This is where the growth is, such as the ‘professional middle class’ shelling out $30+ dollars on premium dining experiences, like pricey Chipotle burrito bowls or bread-laden Cava wraps. Or intangible tech, like Meta/Facebook and Microsoft.
The U.S. economy is driven by upper-middle class people with tons of disposable income who want to splurge on dining and other services. They are not going to be dissuaded by some tariffs. Moreover, imports are only a small percentage of the final price of a good. For a cup of coffee at Starbucks, for example, the cost of the raw beans is small relative to the marketing and labor. You’re paying for all the marketing and labor, not the raw good. Starbucks only pays $1.20/pound for the beans, yet a cup costs easily $4 or more.
Americans buying imported durable goods, such as appliances or electronics, is just a small part of the overall U.S. economy. From the excellent 2017 article How Much Do We Spend on Imports?:
Panel A shows that, as of 2017, the bulk of consumer spending went to services, followed by nondurable then durable goods. The panel also shows that the import share is highest, roughly one-third, for the consumption of durable goods, which includes cars and household electronics. Overall, the import share of U.S. personal consumer expenses only amounts to 10%.
As illustrated below, “imported durable goods” only accounts for 5% of U.S. personal consumption:
These ‘toy model’ Milton Friedman assumptions “tariffs are bad” fail to take into account the nuance, strength, and dynamics of the U.S. economy and the consumer. Those who heeded those useless models and sold their stocks at the bottom, missed out on the subsequent rally and are now looking stupid even if they sounded smart at the time. America is not an econ textbook or an econ lecture. Such models fail when applied “here” in the real world.