Could we be at the apex of the second Trump administration? The president is claiming victory on every front. Major trade deals with the E.U. and Japan, among others, were announced, with markets reaching new highs. Everyone is bending a knee to the master of the deal. Everyone knows because Donald Trump is on TV around the clock, telling us how great everything is going. To hear him tell it, there is almost too much winning.

Just under the surface, one can see some big rocks that the Administration is approaching. Both Japan and the E.U. imports are subject to a fifteen percent tariff. This rate seems stiff and protective of our manufacturing industries, such as the automotive sector, but a closer look reveals a different picture.

Reason’s economic and trade writer, Eric Boehm, points out that our domestic carmakers are dependent on inputs from Canada and Mexico, which are subject to a 25 percent levy. Using lower-cost parts and materials, Toyota could build autos completely in Japan, pay the tariff, and still undercut our auto manufacturers. The companies and the auto workers are already complaining about the disadvantage.

71% of Toyota cars sold in the U.S. are made here. This production supports hundreds of thousands of jobs in the U.S. With the price advantages afforded by the agreement to produce in Japan, these jobs are at risk.

If the 15% rate is suitable for Japan to produce at home, the E.U., subject to the same rate, will find itself in a similar position. European auto makers also employ a large number of people in the U.S. The Street put it this way, “The Big 3 now has a similar problem with EU competitors, as their 15% duties pale in comparison to the 25% duties U.S. manufacturers have to pay to get their cars from their Canadian and Mexican plants.” 

If domestic manufacturers lose jobs due to cheaper imports, we have a significant problem. I thought the idea was to increase domestic manufacturing jobs. I don’t see the art in this deal.

The Administration crowes about increased LNG imports from the U.S., but our exports of LNG to Europe have been expanding rapidly for years, and this acknowledges an existing trend.

Why are Japan and the E.U. whining over their pain? The person running a 3-card monte game doesn’t belittle the mark. Instead, he’s flattered to keep playing. I was going to use a Brer Rabbit and the briar patch analogy, but nobody knows about the cunning rabbit today.

If this wasn’t enough, the Appellate Court is now taking up a unanimous lower court decision that found the Administration overstepped its authority on tariffs. As I warned, it is likely to narrow the Presidential Tariff-making authority. The Washington Post’s George Will spells out the likelihood of the court upholding much, if not all, of the Court of International Trade’s decision.

How much it limits the Administration’s ability to levy tariffs will determine the extent of chaos that follows. The Administration is heralding the billions already taken from the tariffs. Thousands of American importers have sent those checks, and they may be entitled to a refund. Government refusals will only bring on more challenges.

Standing won’t be a problem; the importers have the receipts. One can only imagine the resulting confusion not only domestically but internationally. Where will this leave our trade with the rest of the world?

Ultimately, Congress will have to straighten out the mess, but that could be a long and contentious journey. Remember, tariffs aren’t popular.

Trump’s war on Jerome Powell, the Federal Reserve (FED) chief, generates a lot of noise, but it doesn’t yield any positive outcomes. If the Fed caves and drops the short-term rate three points, it will be highly stimulative. Trump keeps telling us how strong our economy is, so why throw another log on the fire? Rising inflation comes from overheated economies.

If inflation is on the horizon, longer-term bonds that the FED has little control over will command higher interest rates. These bonds set mortgage rates and would likely go up. The proof of this likelihood is that even after the recent FED cuts, the mortgage rate has remained high.

William L. Silber, the Author of “Volker: The Triumph of Persistence” and other books, cautions us in the Wall Street Journal, “not to rule out a rate hike.” Normally, hot economies mean rates going up, not down. If investors lose faith in the FED’s ability to act correctly under political pressure, U.S. debt will likely become less attractive. The Treasury Department’s new policy of not issuing longer-term debt until rates come down saves little while adding to the risk always associated with short-term debt financing long-range problems.

Oddly, longer-term rates are stable with the current short-term rates. This situation indicates that the short rates aren’t out of line with the market-determined longer ones. If anything, the lack of new, longer bonds supports the prices of longer issues, thus lowering rates.  

Foreign investors, already shaken by Trump’s tariffs, will have even more reason to question the Administration’s actions. The flood of foreign investment promised by Trump may prove to be a mirage. Investors don’t put big bucks in a confused situation.

The new book on why the New Deal failed to end the Great

Depression, “False Dawn ” by George Selgin, points to this fact as the primary reason for its failure. The book, which I highly recommend, makes clear that constant change and government interference discouraged the kind of investments needed to move the economy forward. Rather than being opposites, Franklin Roosevelt and Donald Trump share many similarities, but not in a good way.

The odd thing is, the courts may save us by severely restricting a President’s Tariff power without congressional approval. Replacing confusion and high-handedness with a clear delineation of powers gives investors here and abroad the clarity we lack now to make decisions. If the courts do this and the market soars, you’ll know I’m right.