Friday, was not kind to Mr. Trump, but Adam Smith will have his day. And so will our Founding Fathers. As we predicted, Mr. Trump’s tariff’s did not pass legal muster at the Supreme Court, just as they did not in the lower court processes. His preferred path was to use the International Emergency Economic Powers Act (IEEPA). Mr. Trump does have long-standing, widely recognized powers to implement tariffs through other sections of the U.S. code (e.g., Trade Act of 1974). Yet those are much more limited in terms of time they are allowed, the ability to legally justify, and/or require some level of congressional oversight. Hence Mr. Trump’s great desire to use the IEEPA. Nevertheless, as also expected, Mr. Trump is doubling down as he quite firmly believes tariffs are a great thing. Give him credit for not blowing in the wind; he has a long-standing view that tariffs are the answer to other countries “rigging the game.” It doesn’t matter that the American people are not behind him on this–he’s doing well on several so-called 80/20 issues (e.g., border control, men in women’s sports) but this is not one of them. Overall the president is not doing too well, as seen in this Washington Post-ABC News-Ipsos poll:

Further, on the specific question of tariffs, roughly 60% of the country is against him according to a Pew Research poll from earlier this month:

As a note, it shows the partisan world we live in. Republicans historically are in favor of free trade, with Democrats hostile to it, yet now that Mr. Trump is in favor of them, 70% of Democrats strongly disapprove of his tariffs. Note that they didn’t reverse his first term tariffs (by and large) and Bernie Sanders and Mr. Trump are in lockstep on this. Much of the country is simply Trump for, me for, or me against. Sad, sad, sad. If you look further into the polls, much of Mr. Trump’s surprising strength among young men and minorities is slipping significantly, and most of this is due to the economy. The Trump Administration can rail against Federal Reserve economists all they want, and threaten them with discipline for reporting their analysis (analysis that is pretty much in line with everybody else’s on tariffs), but that is not going to change peoples opinions. When you repeatedly and vociferously argue for what people don’t see, pretty soon they tune you out. The American people tuned Mr. Biden out shortly after the Afghanistan debacle, and they’re not currently paying attention to Mr. Trump’s comments on the economy. This is very important, as the politicos continue to say Mr. Trump needs to message on the economy more and better. On the economy, it is most certainly not a messaging issue, it is simply a pocketbook issue. Either Mr. Trump gets that done, or he does not.

But the tariff result was not the only bad news for Mr. Trump. His stated emergency for trying to use the IEEPA was fentanyl and the trade deficit. We just got the trade deficit numbers for 2025, and ….. they were virtually unchanged from 2024. So Mr. Trump’s unilateral attempt to restructure the world economy has had no impact on what he called a national emergency. Now Bereans understand the trade deficit is a meaningless concept, because a trade deficit is always balanced by a capital account surplus, something Mr. Trump very much likes (when foreigners invest in America). All previous trade deficits were balanced by capital inflows, the only difference is that Mr. Trump is demanding to have a say in where these investments go. Because the government always knows best where investment should go? Hmmm….maybe we have a word for that. Maybe it begins with S, followed by an O.

And then there was the Q4 GDP report, badly missing expectations. For sure the government shutdown had a role, but it’s not like the expectations were not aware we had a government shutdown. With the OBBBA and the Fed’s recent quantitative easing, we have very loose fiscal and monetary policy (which is why I don’t see much of a possibility of a recession this year). This is the advance estimate, so it could change, but right now Mr. Trump’s first year GDP was 2.4%, whereas Mr. Biden’s last year was 2.8%. Not good for Team Trump. And then the PCE (inflation index # used by the Fed) also spiked, hammering the Trump Administration’s narrative that costs are coming down. All in all, this is not the news that Mr. Trump wanted rolling into a State of the Union week. All he can do now, which he continually does, is blame others (those terrible judges I put in, those partisan Fed economists, those dastardly Democrats). Many of you that are Trump supporters may likewise cling to this. But most Americans are rationally ignorant (certainly those that are going to determine the mid-terms). They’re not on Team Trump, and they don’t have Trump Derangement Syndrome. They don’t care what the government statistic says. They primarily care about their own personal situation, and the cost of groceries and everything else is their metric. The polls are telling us their current assessment. Not only is it bad for Republicans, but the trend is, if anything, getting worse.

As of now the Republicans will lose the House. Mr. Trump will be impeached (again) and it will go nowhere in the Senate. The only question is can the Republicans keep the Senate to have the possibility of more conservative judges. A Democratic takeover is now in play, if still not likely IMHO. Can this change? Yes. As we’ve repeatedly said, tariffs do not cause inflation–they change relative prices such that it is a one-time effect on the price level. And as Mr. Trump’s deregulatory agenda and energy push gets going, we could see costs come down. Further, the Democratic party is controlled by the hard-core left, and we’re still a center-right country. They aren’t going to abandon DEI, LGBTQ++, men in women’s sports, open borders, tax the rich and regulate everything, etc. The fact that Jasmine Crockett may be the Texas senate nominee has to encourage Republicans, just as the potential nomination of Ken Paxton heartens Democrats.

If the Republicans lose the election, there is certainly a silver lining. That is, once again, politicians will be reminded that they are elected to do the people’s agenda and not their own. Mr. Biden didn’t do that, and was thrown out, and Mr. Trump has stubbornly followed that pattern. Very few Americans were demanding a complete restructuring of the economy, and that is what he has made his #1 economic priority. So for, it’s not playing out so well. Maybe he should move to Australia.

* If Mr. Paxton wins the Republican nomination and Crockett is his opponent, I can see the bumper stickers: Vote for the Crook, it’s important! Older political junkies may see deja vu all over again.