Shorting the American Century
Tariffs, Nostalgia, and Cascading Risk
“One thing goes wrong, and there’s only a few compensatory pathways that can step in. They get overstressed. Fall out of balance. When the next one fails, there are even fewer paths, and then they’re more stressed. It’s a simple complex system.”
-Prax, The Expanse
I like to consider it my business to be an observer of macro trendlines, I’m a strategist and science fiction writer, after all. More than a particular stock or sector, I understand systems and how to break them. Looking at the chaos of the last few days, I could just write an article about why (most) tariffs are bad, but Matt Turpin has already done that quite well in his Substack. For those who don’t know Matt, he was the China Director at the National Security Council in the first Trump administration. He’s one of the two Matt’s still worth listening to from that period (the other being Pottinger.) His piece is a little more sympathetic than I’d be, but I also recognize the specific audience he’s trying to grab by the shoulders and violently shake back to reality in a very calm voice. In pop culture terms, we’re somewhere between The Big Short and The Ganymede Incident.
So rather than duplicating Matt’s work, I want to step back and talk about what I’m afraid comes next: cascading damage to multiple sectors of the American and global economy. As of now, I see three specific critical risks that can generate a cascading event: depletion of cash reserves of major institutions and funds, the price of money for the consumer and major player, and supply chain shockwaves. (Note: Nothing in this article should be considered financial or legal advice, simply a collection of observations.)
The American economy is a massive ecosystem. Like any ecosystem, there’s a safe threshold for pain and prosperity. Markets go up and down every day. If I dump a gallon of gasoline in the wetlands, I’m an asshole, but the wetlands will recover. If I set the wetlands on fire and slash the fire department’s tires when I was hired on the expectation that I’d preserve the wetlands and even grow more Mangrove trees…well, you see the problem.
The thing is, everyone was betting on the economy growing like its 2019. We really needed those Mangrove trees. Despite the fact that tariffs have been an obsession of POTUS since the 1980s, and policy analysts (myself included) have been warning that the backstops (like the Matt’s) in place during Trump I are not present in Trump II, people kept believing it was all woke hysteria. *gestures at the inverted red arrows on your computer screens* Not hysteria.
Wall Street fund managers and CEOs are losing their minds behind the scenes even more than they are on CNBC. Markets around the world are tanking. Of the biggest whales, it seems only Warren Buffett properly protected himself as best as anyone could. As of Friday, the market has lost at least $5 trillion in value and early looks at the Asian markets say that trend is going to continue. Of course, it’s also not just Wall Street. Your 401(k) is tanking too. Everyone is feeling pain with absolutely no clear path to prosperity.
It’s important to remember that despite some of the more effective industrial policy and legislation put into place under the Biden administration, there were already a few warning lights going off about the economy. People had jobs, but their credit cards were maxed out or delinquent, student loans came back online after being paused during the pandemic, car prices never really dropped after the pandemic, broader supply chain aftershocks from global conflict and Covid gunked up the works, the housing market is a proverbial crime, interest rates are up, and the tech companies that felt a second wind during Covid were coming back down to the reality of being multi-decade old bureaucratic corporations instead of being the new cool kid on the block. Inflation on a year to year basis was down by 2024, but the basic prices never came back down from pre-pandemic levels. In other words, we recovered from covid but came out wounded and every day we woke up staring at those scars and looking nostalgically back at 2019. This nostalgia put us at risk of ignoring the broader systemic risks in the ecosystem and now we face multiple paths to cascading calamity.
Cascade Path #1: Priced Out.
To quote a friend on Wall Street this past weekend:
“Dude, we were already pricing in perfection.”
This collective hope for a new booming economy in spite of all evidence to the contrary is central to my cascading thesis. America needed the economy to boom. To do nothing about the economy would be one thing, we could stroll along a little crippled but maybe heal on our own as long-term trendlines point up. But to unleash a new wave of uncertainty, and then overdose on tariffs against everyone including the world’s most adorable bird is a whole other story. And even when bad policies normally hit, Wall Street is pretty good at “pricing in” the risks of a policy or global event. In fact, I spent a fair amount of time in a former job trying to help people understand why decoupling from the PRC is the only way to “price in” a war over Taiwan. By all appearances (and through conversations I’ve had w/ folks on Wall Street and Capitol Hill) it seems the vast majority did not price in this wave of tariffs. They really did not think it would happen, and if it did, it would be minor hits against the PRC (which they would price in). What does this mean? It means that the pain to be felt from these tariffs (and market panic) is beyond the bounds of our healthy ecosystem. And so the real question for everyone is: a trillion here, a trillion there, when do we start talking real money? At what threshold do the safety barriers break, and major funds and banks are left exposed to real damage because they didn’t keep enough cash on hand for this typhoon of a rainy day. Here there are two threats: 1) the big tycoons of today run short on cash, leading to larger market slowdowns. 2) That those core financial institutions begin to bleed real blood and not only collapse their sectors, but bleed over into other sectors partially due to Cascade #2.
Cascade #2: The Price of Money
In order to manage inflation, the US Federal Reserve raised interest rates. All this means is that the “price of money” has essentially went up. You might have noticed this if you’ve tried to buy a car or home in the last few years. At the macroeconomic level, this impacts how corporations do business and conduct long-term planning because at its most simplistic it impacts the cost of expansion because it costs more to borrow from the banks. Sure the Fed could still lower rates to take some of the pressure off the costs of the tariffs, but it would also run the risk of inflation returning. The Fed at this stage is caught in the doldrums, and thereby so is the US economy. And that is where the pain returns to the consumer: either the price of *everything* goes up because tariffs impact everything or inflation returns and the cost of *everything* goes up by devaluing your hard earned dollar. Either way, if you’re one of millions of Americans with high credit card debt or student loans, you’re facing some very difficult decisions in the future. And that’s assuming that the tariffs and price of money didn’t force your employer to layoff large segments of their workforce or postpone expansion plans in order to stay afloat. And that’s how the price of money feeds into cascade #3.
Cascade #3: Supply Chains
Here comes the national security punch (you know, aside from setting the economy on fire and pissing off all of our allies): we need things from other places. Even our defense industrial base depends on raw materials from friendly and non-aligned actors. And even the things we do have here will be impacted by the prices of others. These are basic economic facts. We will see the first shockwaves from the tariffs in global supply chain as orders are paused or held in port to figure out what the hell is going on. These will compound as the entire conveyer belt of the global supply chain slinkies like rush hour traffic. This will drive additional costs for the consumer and corporation (see above) that will wreak havoc on a fragile economy. And these shockwaves, unlike the others, will come in iterations as longer term orders come due or contracts are renegotiated. For the US defense industrial base (and I assume other sectors), many contracts are fixed price contracts. This means that the prices pre-tariffs will be paid to companies for some amount of time, but those companies will still have to take the hit on costs immediately. Then when contracts come up for renewal, suddenly the cost of a missile is going to be a lot more. Defense budgets don’t take too kindly to bleeding economies in democracies if we’re not at war, and so it’s very likely that should these tariffs continue long term, you will see an even greater decline in US defense production. The US’ inability to respond to a crisis, both politically and militarily, will undoubtedly result in some country invading another. The worst case, and most likely at this point, is a war between the PRC and Taiwan that as I’ve detailed elsewhere, would go off like a nuke at the center of the world economy. So whatever we gain out of the minute amount of industry that returns to the US from these tariffs, we lose because the entire global economy, and perhaps the Pacific itself, is set aflame.
The Endgame:
So what happens if calamity cascades? Well, like Ganymede Station in The Expanse, we live in a fragile, artificial ecosystem: the market may be dead already and we not even know it yet. Personally, I don’t think we’re quite there yet, but it’s gonna get bloody. If the fallout from the tariffs starts to cascade down the paths I’ve described, not only may we be helpless to stop calamity, but we may drag the world with us. My outlook for 2025-2035 was never great, I wrote a whole book about it (which includes a great recession kicking off in 2025), but this is a nightmare I’d prefer not to endure. Should this continue (and I suspect it will) unemployment will rise significantly, the world economy will slow significantly into recession, US financial and political influence abroad will decline rapidly, PRC influence (if they don’t shoot themselves in the foot as they tend to do) will grow, and the US economic and political systems will continue to unravel if left unchecked. We’re all going to feel this pain.
It’s important to remember that the three cascades: risk pricing, the price of money, and supply chains don’t have to flow in one direction. They can all bleed over into others. Supply chain shockwaves can drive inflation thereby forcing the Fed to act and/or driving consumers and companies into debt. The price of money may drive a few corporations of billionaire tycoons into bankruptcy because they didn’t price in the risk of tariffs, crumbling corporate empires that may lead to huge changes in the employment landscape in the US and around the world.
Maybe tomorrow we’ll all wake up and tariffs will be illegal and the Fed will lower interest rates. I rate those odds at about 5%, because anything can happen. At best, we will see perpetual uncertainty as we bounce back and forth between high and low tariffs…but as Matt Turpin points, this administration is built upon the idea of a “trade independent” America even though that is a thing that cannot like, physically happen. The one permanent truth of globalization, no matter the policy, is that we don’t have everything. No one does. Mercantilism is on the ash heap of history because it doesn’t work and yet here we are. The only real advice I can give now is brace for impact.
If you liked this nightmare, check out my novel, EX SUPRA, about the world after the fall of Taiwan, an isolationist and hyper-partisan America, and World War III. It was nominated for a Prometheus Award for best science fiction novel and there’s a sequel in the works! If you have any suggestions for topics for future newsletters, please send them my way on BlueSky @tonystark.bsky.social. And don’t forget to subscribe!