Lap

Geopolitically, nothing matters more than winning AI. These tariffs, as constructed, essentially guarantee that America will lose “AI” by making America the most expensive place on earth to build AI datacenters. The semiconductor exemption was irrelevant for AI. Datacenter semiconductors come into America in finished goods from Taiwan and other Asian countries: servers, storage systems and networking switches. By the time we have developed the capacity to domestically produce these systems, we will have lost the AI race. Outside of this dynamic, the assumption - or wild gamble - that other large countries would not retaliate and instead come meekly to the negotiating table was erroneous. That was the off ramp and Bessent did his best to encourage the world to take it. China, understanding how awesome all of this is for them, did not take the off ramp. Epic win for China. Best outcome from here - that is in the realm of the possible - would be to quickly cut “deals” with friendly Asian countries - Japan, Taiwan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, etc. Something like a 10% tariff plus true reciprocal tariffs (which would quickly go to zero) would be reasonable. I say all of this as someone who was open-minded to tariffs that were thoughtfully constructed, gradually phased in and accompanied by massive deregulation. Ideal outcome would have been some combination of reshoring, revenue generation and seeing our largest trading partners lower their barriers to American goods. It is a fact that until yesterday we generally had much lower tariff rates than other countries. My sense is that is where Bessent was, but he clearly lost an internal battle. Hopefully the market helps the President realize that a course correction is needed and the necessary changes are made relatively quickly. The sooner, the better. As a sidenote, I can only imagine how Bessent felt when he understood the way the reciprocal tariffs were calculated, that an LLM had generated the tariffs and that islands inhabited only by Penguins were being tariffed as a result.