Donald Copperfield

By Michael Every of Rabobank

“As I think I told you once before,” said I, “it is you who have been, in your greed and cunning, against all the world. It may be profitable to you to reflect, in future, that there never were greed and cunning in the world yet, that did not do too much, and overreach themselves. It is as certain as death.”

– David Copperfield, Charles Dickens

Following the initial 14 trade letters that US President Trump sent out yesterday significantly raising tariffs for the recipients, there was a pause. However, Trump underlined that 1 August is indeed the deadline for new rates to kick in –which should allow goods to arrive ahead of time and ensure no price hikes by Xmas, says Axios– and at least seven trade announcements would be made this morning US time.

Additionally, he shocked markets by threatening a 50% tariff on copper, seeing its New York price surge to new highs as well as a 200% tariff on pharmaceuticals after a year-long transition period, forcing firms to shift production rapidly. 

On the former, markets note that due to a serious mismatch between production of copper feedstock and smelting capacity, the US relies on imports for around 50% of its refined copper, which it now clearly sees as a national security risk. As such, while many past neo-mercantilists only tariffed value-added goods rather than raw materials, the US wants to shift copper production and smelting back home as it does steel and aluminium. On the latter, to say that there is a similar case for basic drugs to also be made in the US, just in case, is just common sense for anyone except markets.

Recall that these headlines are being seen as a Financial Times op-ed says China’s de facto control of all key global industrial production via its chokehold on the processing of rare earths is “a new kind of trade war.” Except it’s an old one, but nobody bothered to read economic history over quarterly earnings reports and GDP and CPI prints. As another China source puts it, the West had 15 years to plan for this kind of realpolitik trade shock —Beijing can literally decide whose factories can work and whose can’t— produced endless action plans and position papers, and then, “because markets”, did absolutely nothing. Meanwhile, the White House is also seeking to ban China from buying US farms, again over national security. Beijing rejects this allegation… but how many Chinese farms can US individuals own?

The US is now doing something on copper, steel, and aluminium which is then mirrored by all those saying it’s the wrong thing to do. It’s also working on rare earths, but that will take longer and require more short-term compromises, and counter-threats that all kinds of critics who did nothing during China’s build-out of its rare-earths monopoly now decry as unacceptable.

As an example, Financial Times Editor Martin Wolf follows yesterday’s promise to look at what should replace a failed Thatcherite revolution and a failed post-GFC political economy by saying “Not Trumpism.” Fair enough, of course. But that then leaves what alternative? Communism? Socialism? Libertarianism? More neoliberalism? Georgism? Which ideology, and what specific policy, would have prevented China gaining a chokehold on rare earths? Which could now unwind that active threat? How long can establishment ideology be “No, not that!” rather than “Yes, do this”? 

One needs new thinking. On which, a newspaper ideologically incapable of producing it, The Economist, shares research showing the better educated in the US (of course meaning the wealthier) have a less zero-sum view of life… until they get a PhD, when they see things the same way as the working class. This didn’t use to be the case Stateside, but if you have decades of globalisation and elite over-production, that’s what you get – zero-sum thinking, which is how geopolitics and geoeconomics has nearly always worked under the surface.

Indeed, Trump just stated Russian President Putin’s words are ultimately “meaningless,” and “We get a lot of bulls**t thrown at us.” As a result, the White House is weighing giving Ukraine another Patriot system, claims the Wall Street Journal, which given how highly sought these are would show serious commitment. Moreover, Trump now backs tough his Russia sanctions bill since it’s been tweaked to add presidential waiver authority, says Senator Graham – something which would have a vast market impact if ever used. 

Speaking of which, and staying zero-sum, in domestic politics, Trump said, “I would have done it differently, a little bit, maybe,” re DOGE. That’s as D.C. chatter is that the spending cuts allowed under the OBBB may be can-kicked while the spending isn’t. Ironically, that’s also as the Supreme Court allowed Trump to proceed with mass government lay-offs, and the Congressional GOP is talking about a second One Big Beautiful Bill later this year.

Elsewhere, ‘UK and France must save Europe, says Macron’ (Politico) – but who is going to save the UK and France? In the former, ‘Jury trials must be limited to save criminal justice system from collapse, inquiry finds’ (Guardian), where we see “radical proposals to clear the huge backlog in crown courts.” So much winning. Perhaps not in court though.

In markets, which are themselves inexorably going to become more zero sum, Trump called Fed Chair Powell a ‘Baby’ and said he should resign immediately if he misled Congress, to which everyone now just shrugs. Until the Congressional grilling begins and we see who the next Chair is going to be – the WSJ is today flagging it as a battle between two Kevins, Warsh and Hassett;

The RBA surprised everyone by not cutting rates yesterday: ‘A confused market struggles to understand the RBA’s new world’ as the local AFR puts it. The RBA’s Deputy Governor spoke today to try to clarify the situation and could only add that it will be “refreshing its research strategy, with a new set of priorities to identify the questions that need to be answered to support future policymaking.” This will include “an emphasis on small open-economy macroeconomics, with a particular role for the commodities and energy sectors, and the risks and opportunities from structural changes in the global economy should be a vital priority for research.” It’s frankly terrifying that they aren’t already: what *are* they looking at?;

One of the BOJ’s newest board members signalled a possible upward revision to its inflation view this month, keeping open the possibility of another rate hike this year; and the RBNZ is expected to hold at 3.25% today. 

In short, central banks are all over the place just like the rest of us. And why shouldn’t they be? In a zero-sum world, some are doing better than others, so need different monetary policy: for example, China just saw CPI come at 0.1% y-o-y vs -0.1% expected but PPI –which matters more– fall to -3.6% y-o-y vs. -3.2% consensus. Moreover, monetary policy isn’t just about CPI and unemployment anymore: whisper it, but it can even be about things like rare earths.

“The key is for the audience never to know, so I have a plan B for every illusion.” 

– David Copperfield