Any minute now I'm expecting all hell to break loose
People are crazy and times are strange
I'm locked in tight, I'm out of range
I used to care, but things have changed.
– Bob Dylan, Things Have Changed, Wonder Boys
Maine revolver pehli baar uthaya hai…lekin itna jaanta hoon ki trigger dabane se goli chalti hai.
– Salim-Javed, Amitabh Bachchan, Majboor
Imagine how much harder physics would be if electrons had feelings.
– Richard Feynman
“All is well,” they assure us – those smooth-talking custodians of other people’s money or, as I like to call them, the ever-optimistic OPM wallahs.
So, it was hardly surprising when late last week, an OPM wallah – who hasn’t exactly enjoyed glowing headlines of late in the business press – reassured an audience, of which I was a part of, that there was very little cause for concern over the US President Donald Trump’s tariff tantrums. He said that the US goods imports from China were a very small part of the American economy.
In 2024, the US goods imports from China stood at around $440 billion or 1.5 percent of the American gross domestic product (GDP). GDP is a measure of the economic size of a country. The point the OPM wallah was trying to make was why would something smaller than two percent of the GDP matter so much. Obviously, the press was blowing this up, he said.
Well, if it didn’t matter, then why did Trump unleash these tariffs in the first place? If there are very few negative consequences of these tariffs, there would be no positive benefits either. Now, that is something the OPM wallah didn’t bother to explain and he immediately moved on to project himself as an expert on international politics.
The audience – comprising primarily of high net-worth individuals and people like me who didn’t have anything better to do on a Friday evening of a long weekend and who, over the years, have been primed at thinking in terms of first order effects, or the fact that all exams have questions with only one right answer – lapped it up.
But if only it were as simple as this.
1) On the flip side, in 2024, the Chinese goods exports to the US were at 2.3 percent of their GDP. That isn’t much either, if we just stick to this bit of data.
2) Let’s take the case of Apple, the most valuable company in the world as of Friday, April 11, 2025, which is deeply embedded into the Chinese manufacturing system. As per Evercore ISI, 80 percent of Apple’s production capacity is in China, with 90 percent of iPhones being assembled there.
Now, this is something that the Trump administration hopes to eliminate through tariffs. As the American Commerce Secretary Howard Lutnick put it recently: “The army of millions and millions of human beings screwing in little, little screws to make iPhones, that kind of thing is going to come to America.”
If that is the case, then why hasn’t Apple done this over the years? For the simple reason that it’s not cost effective. As Dan Ives, a tech analyst on Wall Street predicts, if Apple were to relocate production of iPhones totally to the US, an iPhone would cost $3,500.
Of course, cost is not the only reason that Apple manufactures in China. As Apple CEO Tim Cook has put it, the reason the firm manufactures in China is because of the quantity and the type of skill available in one location.
3) Over and above this, there is also the question of the current manufacturing capacity available in the US. Howard Marks, founder of Oaktree Capital Management explained this in a recent note: “There isn’t sufficient manufacturing capacity that can be switched on. For example, I doubt there’s a factory in the U.S. capable of producing flat screens for TVs or computers. It would take years to build enough capacity to satisfy a meaningful percentage of U.S. demand, meaning in the interim there would be shortages and/or selling prices would likely be at the old levels plus the tariffs.”
So, the mass availability of skill and the current manufacturing capacity in the US are both a problem.
4) It’s not that the Trump administration does not understand this. They clearly do. Which is why Lutnick in his interview also said that the production in the US is going to be automated, carried out by robots. And given that, how is the promised sharp rise in manufacturing jobs going to come from? Of course, details spoil the story that politicians usually try to sell.
5) The larger point here is that a lot of what US imports from China are items that people use in their everyday lives. They may not make up for a large proportion of the GDP, but they have absolutely top of the mind human recall. Any increase in prices of TVs, phones, laptops, batteries, motor vehicle parts, chairs, furniture, toys, water heaters and hair dryers, and even Make America Great Again caps, is going to get people talking. It’s going to be a big deal in their lives.
People don’t think in terms of the fact that what they consume is a very small proportion of the overall economy. If something impacts them negatively, that’s what they remember and that then has an impact on their money spend, the overall consumption in the economy, and hence, economic growth.
6) Steve Eisman, an investor who made money by going against what was the prevailing trend in the runup to the financial crisis of 2008, recently said that: “If everyone is rational, Trump should get most of what he wants.” This is something that has been going around WhatsApp University, amongst people who have a desperate need to hear that “all is well”.
Now, whether Trump comes out on top is something that only time will tell. But what Eisman is basically saying is that Trump’s irrationality will succeed because other countries will think rationally and in America’s favour, while dealing with the president’s irrationality.
But why would they do that? And even if they did engage with the US, as they should, wouldn’t they start hedging themselves as well? Why consider only one side of the equation? Because it makes for a great story? Because this is something that many people may want to hear?
Let’s take the case of Canada and Mexico, countries that the US shares its land borders with. The behaviour of the Trump administration with these countries has been nothing to write home about.
Typically, countries tend to trade the most with their neighbouring countries. The countries to which the US exports the most goods are Mexico ($396 billion) and Canada ($350 billion). Now, why would the leaders of these countries take lying down any barbs thrown by the US? While they might continue engaging with the US, they will also try and make other plans. Since we are talking about rationality, it will be very rational for them to do that. And this might hurt American exports over the years.
Also, it is worth remembering that many goods cross American borders multiple times before the final product gets made. What happens to such products and their price, if both sides apply tariffs?
The point being that this is not a straightforward linear situation, where an action can be used to predict a reaction.
6) Understanding the first order effects in economics is simple. But the real skill lies in the ability to figure out second order and third order effects. And several such effects are playing out now. The easiest one to identify is the boycott of Tesla across Europe, given how closely Elon Musk is identified with the Trump administration.
Further, the number of foreign flyers into the US is collapsing. That impacts tourism in particular and the overall economy in general.
In the medium to long-term, this would lead to many rich people across the world thinking carefully about whether they want to send their children to the US for higher education, particularly at the undergrad level which is a huge money spinner for private American universities.
If this continues, it would also lead to the smartest of the lot not aspiring to studying in the US and doing cutting edge work there. These factors will impact America’s ability to compete.
Of course, if the American stock market continues to fall, as it has after hitting an all time high in February, it could trigger the negative wealth effect by making people feel poorer, which might lead them to cutting back on spending, thereby slowing down consumer demand and overall economic growth in the US and across the world.
Finally, on Saturday, Trump and his administration announced that smartphones, computers, and certain other electronic devices imported from China were excluded from reciprocal tariffs of 125 percent.
Some people said that this was Trump being practical – after all, he was the author of The Art of the Deal. Some others said that this was Trump capitulating. The data settled the argument. A Fortune report points out that in 2024, the US imports from China of smartphones, laptops and the components needed to make them amounted to $174 billion. This works out to around 40 percent of their overall goods imports from China.
On Sunday, it was announced that this tariff reprieve on China will be short-lived, with Trump announcing on the social media platform Truth Social that “there was no Tariff ‘exception’ announced on Friday”, but that the products “are just moving to a different Tariff ‘bucket’”.
This left everyone even more confused.
To conclude, dear reader, let me tell you a small story which is perhaps apocryphal, given that with age my memory has started playing tricks and mixing things up. But it really drives home the point I am trying to make. And my apologies in advance to the former Indian fast bowler Debashish Mohanty.
Anyone who grew up in the 1980s and in the early to mid 1990s would know that India regularly lost cricket matches against Pakistan. The tide started to change in 1996, when India beat Pakistan in the 50-over World Cup quarterfinal match in what was then Bangalore. Ajay Jadeja took Waqar Younis to the cleaners.
But the real turnaround came in a five-match series in Toronto in 1997. India won the series 4-1. A major reason for this was that the Pakistani opener Saeed Anwar, who was a superb 50-over batter, got out cheaply in four out of the five matches. He didn’t play the fifth match.
In the first three matches, Anwar got out to a young fast bowler called Debashish Mohanty. Anwar simply couldn’t figure Mohanty out. He had no idea whether Mohanty’s ball would swing in or swing out after pitching.
Now, the story goes that Anwar approached a famous Indian batter and asked what he should do to figure out Mohanty’s bowling. His specific question was – what should he do to know whether the ball, after leaving Mohanty’s hand and hitting the pitch, would swing in or swing out?
The batter apparently told Anwar that even Mohanty himself didn’t know whether the ball would swing in or out. So the idea that Anwar could predict it didn’t even arise.
So, like Mohanty, Trump doesn’t really know which way the ball will swing after he has thrown it – not bowled it, since Americans play baseball and not cricket. He doesn’t know what he is doing though he thinks he does. He is making it up as he goes along. And what he does on a given day perhaps depends on which side of the bed he gets up from on that day.
When someone like me does something like this, the consequences are mostly limited to myself and maybe a handful of people around me. But when the most powerful man in the world does it, the world ends up playing cricket with a ball that swings both ways, and even mid-air, and off the pitch, and sometimes straight into its own face.
Meanwhile, many Indian and American OPM wallahs cheer from the pavilion, possibly sipping shinkanji or champagne or both, and insisting it’s all part of the plan.
Spoiler alert: There is no plan.
Vivek Kaul is an economic commentator and a writer.
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