Chaos Is Bad for Business

Ignorance, megalomania and the economic future

Early this month Donald Trump announced that he was about to impose 25 percent tariffs on Canada and Mexico. Then he put them on pause for 30 days. So are they on again next week? Yesterday he insisted that they are. But will they really happen? Nobody knows.

Trump is also threatening a trade war with the European Union, which he says “was formed to screw the United States.” (It was actually created with America’s blessing, because we saw it as a force for peace and democracy.) Will he follow through on his threat? Nobody knows.

The legislation currently providing the federal government with the money it needs to stay open will expire on March 14, and it’s by no means clear that Republicans have the votes to continue that funding. So will the U.S. government shut down? Nobody knows (although betting markets say that there’s a better than even chance that it will.)

The real possibility of a general shutdown aside, will DOGE’s efforts to fire large numbers of federal workers — half the staff of the Social Security Administration! — cripple essential government services? Nobody knows.

Most alarming of all, if it’s real: People within the administration appear to be floating the idea of restructuring U.S. debt via a “Mar-a-Lago Accord” that would force investors holding Treasury bills — short-term debt — to exchange them for 100-year bonds. This would effectively be a default on U.S. debt. Since the whole world financial system rests on the perceived safety of U.S. Treasuries, which are universally accepted as collateral for many transactions, such a move would threaten global economic chaos. But is the administration serious about this idea? Nobody knows.

In short, there’s now an incredible amount of uncertainty about U.S. policies, policies that have a huge impact on both individual Americans and U.S. business. And this isn’t uncertainty about what will happen over the next few years, it’s acute uncertainty about what will happen in the next few weeks and months.

Where is this uncertainty coming from? That’s easy: The U.S. government is currently under the control of a deeply ignorant, vengeful megalomaniac with zero impulse control. And it’s not just Elon Musk: Trump shares the same characteristics.

If you don’t believe me about the ignorance, look at the way Trump is hyping the possibilities of U.S. investment in Russia. Even if there weren’t issues involved with doing business in a country where people who displease the dictator have a tendency to fall out of windows, does Trump realize that the European Union, which he is insulting and threatening with trade war, has 9 times Russia’s GDP? Which business relationship is more worth cultivating?

And if you think I’m overstating the megalomania thing, look, if you can stand it, at the AI-generated video about the future of Gaza Trump shared on Truth Social:

Still, why does the craziness and erratic behavior matter? Uncertainty is a fact of life; predictions are hard, especially about the future. But the radical policy uncertainty we’re now facing takes things to another level, making it increasingly impossible for consumers and businesses to make long-term or even medium-term plans.

And that can’t be good for the economy.

Imagine yourself as the CEO of a U.S. company considering a range of possible investments, whose likely profitability depends on future federal policy. For example, some factories will be worth building if America honors the free trade pact with Canada and Mexico Trump himself signed in 2020, a minor revision of a free trade pact that took effect in 1994.

But those factories won’t be worth building if Trump rips up that agreement and imposes high tariffs at both our northern and southern borders. Instead, you’ll want to make defensive investments, designed to limit the damage of being cut off from Mexican and Canadian customers and suppliers.

So which investments will you make? A likely answer is, “None of them.” The rational thing, surely, is to hold off on big spending until, one hopes, there’s more clarity about policy.

Just to be clear, I’m not predicting an imminent recession. I don’t have a good track record on that front; but then, nobody does. And I still think that the biggest risks from Trumponomics involve the inflationary impact of tariffs and deportations.

But both consumer and business surveys are showing increased anxiety about the economy’s trend. Both major surveys of consumer sentiment, from the University of Michigan and the Conference Board, have slumped. S&P Global’s latest business survey found that

Optimism about the coming year slumped to its lowest since December 2022, except for last September, when business was unsettled by uncertainty ahead of the Presidential election. The deterioration in February was primarily a reflection of increased uncertainty about the business environment, especially in relation to federal government policies …

And business economists like Neil Dutta are starting to take the possibility of recession seriously.

You should know that none of this will show up in “hard” economic data any time soon. Next week we’ll be getting employment numbers for February, but these data actually reflect the “employer pay period that includes the 12^th of the month” — that is, they will be data from early February, just a few weeks into Trump’s presidency, far too soon to show any effects of his policies. There are some indications that consumers are already pulling back, but we won’t see the effects of businesses cutting back on investments for at least a few months.

But having ignorant men with poor impulse control running things has to be bad for business. And you really have to question the judgment of people — including, alas, many voters — who imagined otherwise.

MUSICAL CODA