Yesterday we heard the announcement of a dramatic pullback from Mr. Trump’s trade war with China, and markets had a major rally. Predictably, some fans of the “master negotiator” cheered the market’s reaction, even while saying they didn’t care about Wall Street when markets first corrected. China was told not to retaliate, or they’d regret it, and they retaliated and Mr. Trump just lowered their tariff. Who buckled? China or Mr. Trump? Clearly both sides knew that this mutually assured trade destruction wouldn’t work out well. We don’t have a deal yet, so it’s hard to assess the strategy at this point, but China can certainly use this for their own internal communications to suggest that Mr. Trump was the one who buckled.

Yes markets are now higher than liberation day, but that actually proved Adam Smith right once again: the key to wealth production is the division of labor and gains from specialization, and those are only limited by the extent of the size of the market. Shrinking the market results in less wealth production overall. Period. Markets have universally and clearly spoken and they have affirmed the wisdom of Adam Smith. Mr. Trump and Mr. Navarro’s fetish with tariffs are destructive toward wealth creation and cessation of the hostility is the only way forward to a more prosperous future. It is hard to imagine Mr. Trump coming back with harsher tariffs on China in 90 days, so markets seem to believe the worst is now over. Adam Smith 4, Donald Trump 0.

We can imagine a different counterfactual world, where Donald Trump had not declared trade wars on all our allies, and had instead worked with them to isolate a trade restructuring with China. Mr. Trump is right that China’s economy is in a tough spot, with youth unemployment already over 20% (which is why you see so many coming over our borders under Mr. Biden–they’re not all (probably not many) CCP agents). And he is right that China is a bad actor on trade, and there are legitimate national security issues with respect to China, in addition to their rampant intellectual property theft. Further, Europe (especially Germany) is very concerned about China’s drive to take over the EV market globally, as well as China’s attempt to bully any country that does business with Taiwan. Imagine how we might have been able to squeeze China (and Russia and Iran) with a united front. I think the result would have been decidedly different, and that option is not available because of the decisions made to date. This makes us weaker not stronger. And if the end result of this is a 10% across the board tariff rate, your taxes will be much higher than they were before. So yesterday’s action is really Make America Less Poor than We Would Have Been Again.