MARTIN ARMSTRONG: The real solution lies in reducing trade barriers and not relying on tariffs to increase the demand for domestically made goods

Thank you to Martin Armstrong's "Why the FED Cannot Reduce Rates to Offset Tariffs," @ Armstrong Economics.

President Donald Trump is urging the Fed to cut interest rates to offset the inflation that will be caused by tariffs. “The Fed would be MUCH better off CUTTING RATES as U.S. tariffs start to transition (ease!) their way into the economy,” Trump wrote. “Do the right thing. April 2nd is Liberation Day in America!!!” Reducing interest rates will NOT offset inflation caused by tariffs because the two variables are not directly related.

Tariffs increase costs due to supply, while interest rates influence demand. When tariffs are imposed, the cost of imported goods rise, increasing prices for consumers and businesses. This cannot be offset by lowering interest rates, as rate cuts stimulate borrowing and investment rather than addressing price increases caused by trade barriers. In fact, lower interest rates can exacerbate the problem by weakening the currency, making imports even more expensive, further fueling inflation.

Historically, tariffs have led to stagflation—rising prices combined with economic stagnation—rather than the demand-driven inflation central banks typically target. The Smoot-Hawley Tariff of the 1930s, for example, severely disrupted global trade and worsened the Great Depression. Similarly, Trump’s trade war with China during his first term did not lead to any economic boom but instead forced businesses to adjust supply chains, raising costs for consumers.

Lowering interest rates in this environment offsets capital flows, decreasing confidence and weakening the purchasing power of the currency. The result is a cycle in which consumers face higher costs while the central bank loses the little control it has to manage inflation. The idea that the Fed could actually control inflation is based on outdated Keynesian economics concepts that were drafted when the US had a balanced budget. Now, most demand comes from the government itself, the largest borrower and creator of debt. This is why Jerome Powell spoke out against Joe Biden for creating the largest spending package in US history and multiplying the public sector. The government will never pay off its debts, and the interest payments on that debt alone have been astronomical.

Relying on rate cuts to counter tariff inflation ignores the root cause of the issue. The real solution lies in reducing trade barriers and not relying on tariffs to increase the demand for domestically made goods.

#Trump2024 is arguably even more popular than he was in 2016, despite a four-year term during which the establishment got everything it wanted – including the #Covid #lockdowns.

Why do his supporters still consider him a threat to the establishment?https://t.co/rW8Rp10HFV

— Tom Mullen (@ThomasMullen) March 18, 2024

Manufacturing jobs never ever made up more than 30% of all jobs.  In fact, it was always lower than that, much lower and more into the 20%, 25%, 27% range except during WWII when they were just making bombs to blow up.  Now this didn't make anybody richer; it temporarily made the people who were unemployed . . . they got money but that was all inflation and taxation.  None of this was real.  It was the same thing Hitler did.  So apart from all the death camps and all the evil crap that Hitler did, he also sent everybody to work making bombs and stuff and then claimed he had solved unemployment.  Manufacturing never made up that large of a percentage of the population.  In other words, at its very peak, manufacturing jobs, 70% of the population was doing something else.  So I think people have this idea that Trump is going to put on tariffs, and people are going to stop importing manufactured goods and like 80% of the population is going to work in manufacturing.  No.  It was never the case at the height of American manufacturing employment, and it wouldn't be the case any time no matter how many tariffs you put on.  So it really is just completely a retarded idea.  Be that as it may, he didn't even follow through on that.  Okay?  His advisors, a few of his loyal advisors, the people who really believed in him, were saying, "Don't back away," but all the other ones, whom people call RINOs, some even call Libertarians although that's kind of a laugh that anyone in Washington DC at all is a Libertarian other than Thomas Massie and Rand Paul, two of them, two people.  His advisors tell him, "We're going to have a recession, you're going to lose the next election."  So he backed off.  

16:37  He made a deal in early 2020.  It was signed, and manufacturing immediately rebounded by the way.  So if you trace the IMS Manufacturing Index to see when it was in recession and when it came back, it locks in step completely with those tariffs and their removal.  So he didn't do that.  I keep wanting to think that his supporters are really antiwar.  I actually think Trump is sincere about not fighting at least as many wars.  And I always wondered is it just because he says that that his supporters go along with that when all they really care about is immigration and tariffs?  Or is there a critical mass of people who are sick of this crap?  If there is and if the antiwar part of his message is at all part of the reason why people want to reelect him, well, he didn't do that either.  He promised in 2018 he would be out of Afghanistan with all the troops home by Christmas, and then he sent more troops, and then he never left.  Then he made some deal, "Oh, we're going to get out, but you have to elect me again first."  No.  No, sorry, Donald.  We've heard that too many times.  The fact that it was Joe Biden that got the troops out of Afghanistan is just a travesty.  As despicable a person as Joe Biden is and as warmonger as he's shown that he is and corrupt, and everything else, to allow him to be the one to end the Afghanistan War is just inexcusable to me.

18:43  He bombed Syria twice.  Now there's some murmurings that he bombed empty buildings, and if that's true, that's good, I'm glad.  That was an intentional thing, "Look, I'm going to do this bombing to get all of these people off my back, but I'm not going to kill anybody."  I hope that's the case.  And when he refused to bomb Iran over them shooting down the drone, I give him full kudos for that too.  In fact, he came out and said, "Listen, I'm not killing 150 Iranians over an unmanned drone.  I'm just not going to do it."  I don't think I've ever heard a president say in my lifetime anything that sensible.  So that's good for him.  But we got to remember that the whole Iran thing was his high-pressure campaign that he let John Bolton run.  How'd he think that was going to turn out?  He almost got us into a war while he was saying he didn't want one.  He did that and he funded Ukraine.  Now he tried to hold up the funding pending an investigation into his chief political opponent.  Boy, that was a bad precedent to set, wasn't it, Donald?  But I think he was always going to send it.  And he still talks about Putin like a Neocon now.  A lot of the foreign policy, the positive parts, have faded away during this campaign and I don't exactly know why that is.  Now, he's still saying some