Photo-Illustration: Intelligencer; Photo: Getty Images
Markets around the world plunged on Thursday after President Trump imposed harsh across-the-board tariffs, igniting a probable global trade war. And if there were any hopes that Trump’s tariffs were merely a negotiating tactic, the White House attempted to squash them. Amid the chaos, I spoke with Dan Ives, the global head of technology research at Wedbush Securities and a longtime prominent tech-sector analyst. Among other things, we discussed why Trump’s tariff numbers are so nonsensical and why Wall Street has been caught off guard by a seemingly predictable development.
In a note to investors, you wrote that “if a ninth-grader in high school presented this tariff chart to a teacher in a basic economics class, the teacher would laugh and say, ‘Sit down and work on the assignment.’” Have you seen any credible defense of what’s going on here?
The calculations on tariffs are befuddling, insane, and absurd. It just takes away credibility on day one on what the actual numbers are, because this goes against every basic economic theory in the last hundred years. The view on Wall Street is that it’s a laughable calculation at best.
In other words, the rules of the game from day one make no sense. How do negotiations start when you’re going off of a number that makes no sense, at least on earth? I’ve talked to executives around the world the last 24 hours, and everyone’s saying the same thing. It’s created such chaos and the numbers are so absurd that you have to assume it’s just a negotiation point. Otherwise, it’s an economic Armageddon, and it guarantees a recession, and there’s really no debate about that.
Could you briefly explain why these numbers are so laughable?
Tariffs by definition are a charge that consumers or companies pay to sell into a country. The calculation the White House came up with on the tariff chart is based on the import-export imbalance that’s converted into a tariff. Cambodia is never going to buy almost any goods from the U.S., but the U.S. will buy from Cambodia. That’s why they have a ridiculous tariff, just like Vietnam. Those are not tariffs. It’s the nature of global trade in modern-day society to convert an import-export trade deficit into a tariff percentage — again, if that were presented in high school, the teacher would laugh and tell you to sit down.
It actually does remind me of a famous scene from Ferris Bueller’s Day Off.
No, but that’s what it’s like. The average American doesn’t fully comprehend how bad this category-five hurricane is going to be until they start to see it over the coming weeks and months at grocery stores, on Amazon, in electronic stores, and in anything they’re buying on a daily basis. What I’m trying to explain is that people want to believe, “Let’s make America better. Let’s build in America.” But that’s so far from reality.
In my understanding, there are two extremely large barriers to that reality. One is the length of time it would take to bring manufacturing back to America in a serious way.
Four to five years to build a factory.
But the other one is very much related to this policy, which is uncertainty. How do companies even know what’s going to be happening in a month? They certainly don’t feel like things are stable enough to go, “Okay, we’re going all in on America now,” because this might change in three days.
And the problem is uncertainty almost guarantees negative GDP growth for Q2 and raises the odds of a recession to likely over 50 percent. And once the snowball starts going downhill, you can’t just stop it. That’s part of the problem — the numbers are so absurd, and the calculation is so head-scratching, that investors don’t even know where to start. Look, I’ve covered tech stocks for 25 years on Wall Street, seen everything from the dot-com bubble to the financial crisis to COVID and everything in between this. This one tops the list in terms of a self-inflicted economic Armageddon.
Let’s talk absolute best-case scenario here. This won’t happen, but let’s say these tariffs totally disappear in a few days. Even in that scenario, how much damage would be done, and how difficult would it be to repair that damage?
Already there’s damage with trade partners, friends of the U.S. and companies are in a tailspin, and it’s created natural uncertainty. And I believe many companies are not going to give guidance on their conference calls for Q1 in late April, because right now they’re playing darts blindfolded.
The impact on inflation is obviously not going to be good, but how bad do you see it getting?
This is the biggest inflationary move a president’s ever made. So to say that this is going to force the Fed to cut rates, you just made the biggest inflationary and uncertain move in modern-day history. It goes against the whole thesis that the Fed could cut. Now, they might have to cut if things get so bad, but inflation was coming down until this.
And the Fed was already under the gun from Trump.
The Fed is stuck between a rock and a hard place. You just basically created a tariff torpedo that’s going to result in massive inflation. There’s no debate about it. There’s one person that pays the tariff: the U.S. consumer. And I don’t think that’s a debate.
You’ve been talking to a lot of executives. I assume that the mood is just panic right now?
It’s panic and anxiety, and they don’t even know where to turn because you can’t all of a sudden just change your supply-chain trading partners. And there’s a lot of things you can’t even get in the U.S. So what are you going to do, wait four years to build a factory?
One thing that has puzzled me is that Trump has been warning about doing this for months. And he’s had these firm beliefs about tariffs since the ’80s. In his first term, the tariffs weren’t so dramatic, but now he’s only surrounded by sycophants, not people like Gary Cohn. So could everyone be so shocked about this? The markets supposedly had it priced in, but it turns out they didn’t.
It’s panic and anxiety, and they don’t even know where to turn because you can’t all of a sudden just change your supply-chain trading partners. And there’s a lot of things you can’t even get in the U.S. So what are you going to do, wait four years to build a factory?
So in other words, it’s somewhat defensible that the market didn’t build this in, because it was so unimaginable.
Reciprocal tariffs, baseline tariffs, hard-line stands — the market understood that. But the numbers, they’re basically created out of thin air to build a narrative. That’s the problem.
This interview has been edited for length and clarity.
