Trump tariffs = repetition of Smoot-Hawley Act

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What is the Smoot-Hawley Act?

The Smoot-Hawley Tariff Act (officially: Tariff Act of 1930) was a U.S. law that raised tariffs on thousands of imported goods.

• Sponsored by: Senator Reed Smoot and Representative Willis C. Hawley

• Signed into law: June 17, 1930, by President Herbert Hoover

• Goal: To protect American farmers and manufacturers by making foreign goods more expensive (and less competitive) during the Great Depression.

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What did it do?

• Increased U.S. tariffs on over 20,000 imported goods to record levels.

• For example, tariffs on some agricultural goods were doubled.

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What happened as a result?

• Other countries retaliated by raising their own tariffs.

• This led to a collapse in international trade, deepening the global economic crisis.

• It is widely blamed for worsening the Great Depression worldwide.

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Legacy:

The Smoot-Hawley Act is now often cited as a warning against protectionism in times of economic stress. Many economists and historians consider it one of the worst policy decisions of the era.

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Let me know if you want it explained in even simpler terms or with an example!

Foreign investment in the us in t-bills but also real estate will plummet as a result of the new very high tariffs on goods since the dollar surplus of exporting countries like china, Japan and germany will decrease significantly. This could bring the us treasury and us real estate into crisis territory. Please comment

You're absolutely right to point out the potential ripple effects of high tariffs on global capital flows, particularly when it comes to countries like China, Japan, and Germany that have traditionally run large trade surpluses with the U.S. and recycled those dollar surpluses into U.S. assets such as Treasury securities and real estate.

Here's a breakdown of the mechanism and the potential consequences:

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1. Tariffs Reduce U.S. Imports → Lower Dollar Surpluses for Exporters

High tariffs on goods aim to reduce U.S. imports by making them more expensive. If successful, this will reduce the volume of goods exported to the U.S. by countries like China, Japan, and Germany. Fewer exports = fewer dollars earned.

2. Fewer Dollars Earned → Lower Foreign Demand for U.S. Assets

Exporting countries accumulate U.S. dollars through trade surpluses. These dollars are often reinvested in:

• U.S. Treasuries: Seen as a safe, liquid store of value.

• Real Estate and Equities: For diversification and yield.

If trade surpluses shrink, so does the pool of dollars available for such reinvestment.

3. Consequences for the U.S. Treasury Market

• Decreased foreign demand for Treasuries could push yields higher (prices lower), increasing borrowing costs for the U.S. government.

• The U.S. is running large fiscal deficits, so reduced demand from major foreign buyers like China and Japan could be especially painful.

• If the Fed steps in to fill the gap (via bond-buying), it could stoke inflation fears and weaken the dollar.

4. Consequences for U.S. Real Estate

• Foreign buyers—especially from China—have been significant players in U.S. residential and commercial real estate, especially in cities like New York, San Francisco, and Los Angeles.

• A reduced flow of capital could depress property values, especially in high-end markets already vulnerable to rising interest rates.

5. Feedback Loop Risk

A weaker real estate and bond market could hurt consumer confidence and financial sector stability, potentially triggering a broader economic slowdown. In turn, this could undermine the very manufacturing base the tariffs were intended to protect.

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In Short

Yes, there is a real risk that aggressive tariff policies, if not balanced with broader macroeconomic strategy, could backfire by destabilizing key pillars of the U.S. financial system. This is a classic case of unintended consequences—solving one perceived problem (trade imbalances) by potentially creating a larger one (capital flight and asset price instability).

Would you like a more detailed model or visual on how these flows interact?

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A dollar devaluation is also a likely consequence of these aggressive us import tariffs. This will make it even tougher for importers into the us to do business. Maybe Trump is aiming for a repetition of the plaza accord of 1985 which led to a revaluation of the japanese yen with large negative longterm consequences for the japanese economy. Please comment.

Absolutely—your observation touches on a deeper and historically resonant dynamic: the intersection of tariff policy, currency valuation, and geopolitical strategy. Let's unpack this in light of current and past events:

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1. Aggressive Tariffs → Lower Dollar Demand → Dollar Devaluation

When the U.S. imposes steep tariffs:

• Imports decline, which reduces the volume of dollars that foreign exporters earn.

• Those exporters in turn demand fewer dollars, which puts downward pressure on the dollar's exchange rate.

• If foreign capital flows (e.g. into Treasuries or real estate) also shrink, the demand side weakens further.

A weaker dollar increases the cost of foreign goods, acting as a secondary, implicit tariff, further amplifying the protective effect on U.S. manufacturers—but at the cost of inflation and disruption to import-dependent sectors.

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2. Repeating the Plaza Accord Playbook?

The Plaza Accord of 1985 was a coordinated move by the G5 nations to devalue the U.S. dollar—particularly against the Japanese yen and German Deutsche Mark. The goal was to:

• Correct massive U.S. trade deficits.

• Reduce political tensions related to those deficits.

Result for Japan:

• The yen appreciated drastically.

• Japanese exporters were hit hard.

• In response, Japan enacted ultra-loose monetary policy to stimulate domestic demand.

• That policy led to asset bubbles in real estate and equities, which eventually collapsed in the early 1990s, triggering Japan's "Lost Decade."

Parallels to 2025?

• Trump's trade stance may be attempting to coerce a dollar realignment via unilateral tariffs rather than multilateral diplomacy.

• This could force trade partners like China or Germany into choosing between letting their currencies appreciate (hurting their exports) or engaging in defensive monetary easing (risking asset bubbles).

• In a sense, this is a de facto Plaza Accord, but without the accord.

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3. Strategic but Risky

If a dollar devaluation happens:

• U.S. exports become more competitive, which is politically popular.

• But imported inflation becomes a real concern, especially in sectors dependent on foreign goods (energy, electronics, etc.).

• It may disrupt global markets, provoke retaliation from trade partners, and undermine confidence in the dollar as the global reserve currency.

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Conclusion

It's plausible that Trump is aiming for a Plaza Accord 2.0 by force—using tariffs as leverage to realign currency values. But doing this unilaterally and in a much more complex global economy risks unintended consequences, both domestically and abroad. The outcome might indeed mirror Japan's experience if foreign economies react with capital misallocation and asset inflation.

Would you be interested in an economic scenario analysis or historical comparison model to explore potential future outcomes in more depth?

Yes

Great — here's a structured scenario analysis comparing the current (2025) U.S. tariff strategy with the 1985 Plaza Accord, along with potential economic trajectories in the short and long term. I'll break it down into key dimensions:

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I. Historical Comparison: Plaza Accord vs. Trump Tariffs

Factor	Plaza Accord (1985)	Trump Tariff Policy (2025)
Strategy	Coordinated, multilateral agreement to devalue the dollar	Unilateral, aggressive tariff escalation aimed at reducing imports
Target	Mainly Japan and West Germany	China, Germany, Japan, Vietnam, and others
Currency Impact	Rapid appreciation of the yen and Deutsche mark	Indirect pressure on dollar via reduced capital inflows and trade imbalance manipulation
Follow-on Policy	Japan responded with loose monetary policy → asset bubbles	Potential for similar response in 2025 by China or others to cushion export losses
Outcome	Short-term correction of imbalances; long-term damage to Japanese economy	TBD, but risks mirror Japan's: asset bubbles, stagnation, and currency instability

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II. Scenario Matrix: Potential Outcomes (2025–2030)

1. Base Case: Mild Dollar Devaluation & Modest Trade Realignment

• Dollar weakens gradually (~10%).

• Imports decline slightly; U.S. manufacturing sees temporary gains.

• Trade partners absorb some currency appreciation without major intervention.

• Inflation rises moderately in the U.S.; Treasury yields edge up.

• Result: Manageable turbulence, but no global crisis.

Likelihood: Medium

Impact: Moderate

Historical Parallel: Soft landing version of Plaza Accord

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2. Adverse Case: Sharp Dollar Devaluation & Capital Flight

• Dollar drops 20%+ as foreign investors pull out of Treasuries and real estate.

• Inflation accelerates (especially import-driven).

• Fed forced into difficult position: raise rates to support dollar or cut to support economy.

• China, Japan, Germany resort to currency manipulation or QE-style policies.

• Result: Volatility, trade retaliation, asset sell-offs.

Likelihood: Medium-High

Impact: High

Historical Parallel: Plaza Accord + 1990s Japan bubble-burst scenario

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3. Crisis Case: Global Trade Breakdown & U.S. Asset Crash

• Tariffs provoke full-scale trade wars.

• Severe dollar devaluation triggers inflation shock in the U.S.

• Massive drop in foreign Treasury demand = bond crisis.

• Real estate markets collapse in cities with high foreign ownership.

• Global recession as supply chains fracture.

• China & others launch alternative currency initiatives to challenge USD hegemony.

Likelihood: Low-Medium

Impact: Severe

Historical Parallel: Great Depression-style decoupling, with modern financial exposure

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III. Key Variables to Watch

• 10-Year Treasury Yields: Spike = declining confidence in U.S. fiscal sustainability.

• Capital Account Trends: Falling net inflows = reduced foreign demand.

• Real Effective Exchange Rate (REER): Sudden drops could signal devaluation shock.

• CPI Inflation / Wage Growth: To gauge domestic pain from dollar devaluation.

• Trade Retaliation Measures: Especially from EU, China, and Japan.

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IV. Strategic Insights

• The Trump approach may achieve short-term political wins by stimulating U.S. manufacturing and weakening the dollar.

• But without global coordination or monetary discipline, it risks repeating Japan's fate: inflation abroad, bubbles at home, and long-term stagnation.

• A key difference from 1985 is the size and importance of China in global trade—its response will be crucial.

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Would you like a visual chart (timeline or scenario tree), or a summary you could use in a presentation or memo?

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