The Nuclear Option
- MAC10
- Apr 1
- 4 min read
The big "Liberation Day" is only one day away now and the most recent indications are that Trump is about to reach for the nuclear trade option - a universal tariff on every country at the same time. Under this scenario Trump would be starting a massive trade war of unprecedented magnitude against every country in the world. And of course he believes he can "win" this trade war against all other countries at the same time. Needless to say this scenario is not priced into any Wall Street economic model for 2025. So in this post I will discuss the potential implications for markets and the economy.
Late on Sunday, the Wall Street Journal dropped a bomb on markets by reporting that Trump was leaning towards an across the board universal tariff of 20%. It's clear that this information was purposely leaked ahead of Wednesday to gauge market reaction. The overnight S&P futures fell -60 points and the Monday low was -90 points but the Dow was green by lunch time and the S&P green at the close. The Nasdaq closed the day slightly negative. Needless to say it wasn't the type of market reaction that would deter Trump from moving ahead with his plan.
We should have seen this coming. Mid last week, Trump imposed a massive universal 25% tariff on all car imports. The markets shrugged if off on Thursday. In retrospect we now know that was their trial balloon for what is likely coming this week. Over the weekend Trump was asked what will happen if car prices go up. Trump mistakenly thought the question was about imported car prices so he responded that he couldn't care less if (import) prices go up. The question was actually about ALL car prices which he effectively dodged.
Anyone who wants to fully understand how this trade debate has evolved must read this morning's article in the Wall Street Journal which does an excellent job of explaining how we got here:
"The debate behind closed doors highlighted the conflicting priorities of the president. The biggest one: He wants to both raise revenue with tariffs and use them as leverage to get other nations to lower their own duties, or make other policy changes. But if tariffs are subject to negotiation, and could be lowered over time, that would raise doubts about how much revenue could ultimately be expected from their imposition"
I think that what tilted the president in favor of the nuclear option is that Elon Musk's "DOGE" deficit cutting program - for all its sound and fury - has been a bust. For weeks we have been hearing about massive fraud inside the Federal government, but despite the talk, the actual SAVINGS will likely prove to be only a tiny fraction of the gargantuan deficit. Trump knows this already, even if he won't admit it. Which means he needs revenue to fund his promised tax cut and he plans to get it from the rest of the world. Already Trump is saying the car tariff will generate $100 billion in revenue and now he is eying another $500 billion per year by levying a universal tariff.
Let's begin with the economic impacts of a universal tariff:
From the Wall Street Journal Editorial Board:
“The message is that tariffs are tax cuts.”
George Orwell, call your office. In the real economic world, a tariff is a tax. If you raise $600 billion more a year in revenue for the federal government, you are taking that amount away from individuals and businesses in the private economy"
First off, there was a way to do this over a longer period of time that would have given time for companies to re-shore their plants in the U.S. in order to avoid the tariff altogether. For example over a three year period. However, if the goal all along is merely to raise Federal revenue, then we end up with an immediate tariff (tax) increase. Not only a tax increase but an increase that disproportionately impacts low income people the most. A worker making $20/hour, which is $40k/year full time, is paying 7% Federal tax. So it's easy to see that even if their income taxes go to zero, the tariffs could easily outweigh the tax reduction. Then there is the timing of each policy - the tariffs would come into effect in 2025, but the tax cut would likely only be felt in 2026 at refund time. In the meantime, the worker is feeling the full effect of the tariff every day. Senior citizens living on a meager pension would be decimated by a universal tariff, because many of them already pay no taxes and would get no refund at the end of the year.
This approach would basically guarantee a recession in 2025.
Then there are the market effects which will disproportionately implode the wealthy. Needless to say this scenario is in no way priced into markets. Especially global markets. This tariff would hurt Emerging Markets the most, many of which are already teetering on collapse. Many global companies likely can't afford to pay a 20% tariff because their profit margins are too small, so many companies would just abandon the U.S. market altogether. This of course would have a highly contractionary effect on their economies. The ones that did continue to produce would do so at a highly reduced profit margin and likely reduced output.
Emerging Markets would become the locus of collapse.

In summary, taking into account Trump's contractionary fiscal strategy, the contractionary monetary policy due to tariff inflation, the consumption reduction from tariffs and imploding investment due to the collapsing AI bubble - under the nuclear scenario we would likely witness the fastest contraction in U.S. GDP since 1930.
That said, I don't know what will happen on Wednesday, maybe Trump will back down and go for some middle ground approach that keeps this trade war in an ongoing muddle mode. That would be a better economic solution, but it would also keep markets in this perpetual mode of uncertainty they've been in since January.
Either way, buckle up.
