U.S. Treasury Curve Comment

Happy Canada Day! I do not have a lot of time to look at new topics, but I saw an article about the Treasury curve that triggered a desire to drop a comment.

The above figure shows the slopes at the front end of the Treasury yield curve. Specifically, the black line shows the 2-year yield less the 3-month bill rate, and the red shows the 2-/10-year slope. The current situation is somewhat unusual in that the 3-month/2-year slope is mildly inverted, while the 2-/10-year slope is mildly positive.

The TACO Principle And Inflation Risk

At the time of writing, President Trump is waffling about the possibility of joining Israel in its attacks on Iran. This adds yet another possible inflation risk story: crude oil prices could spike in response to snowballing conflicts in the Middle East.

To recap, there are four main inflation risks lurking over the U.S. economy.

1. A large tax cut could help fuel demand.

2. Tariff wars are only in a ceasefire, and high tariff rates (particularly for Chinese goods) might resume after the ceasefires expire.

3. A widening of the war might result in a crude oil spike.

4. Widespread deportations are cutting off some industries from labourers, particularly the agricultural industry.

Justification For Tariffs: Part II

This article continues the discussion of “why would anyone want to impose tariffs” that was started in this article. The first article discussed a non-standard justification: tariffs as a source of revenue.

The standard justification for tariffs is to better control the development of your domestic economy (and/or to reduce the influence of perfidious foreigners). Although I have limited sympathies for this concept — Canada pursued a policy of developing behind a tariff wall — it is a somewhat dated tool (as I discuss below).

Trump Folded, Uncertainty Remains

Uncertainty got the upper hand this weak. President Trump removed one certainty from the outlook — the U.S. economy would be wrecked by his de facto embargo of China — but we now are uncertain as to how bad a 30% Chinese tariff will be, and we also do not know what happens when the 90 day grace period is up. Meanwhile, the White House has indicated that he will start unilaterally imposing tariff rates within a week. Since Trump appears to get great satisfaction from changing tariff rates, and there is no sign that any country other than the U.K. is interested in his “deals,” he might as well go back to governing via posting tariff rate changes on social media.

Tariff Primer

Note: this unedited article may be used within a new chapter in my inflation primer.

The topic of tariffs became of extreme importance in 2025, courtesy of American President Trump’s trade war on the rest of the world. In the modern meaning, a tariff is a tax on imports or more rarely, exports. (In practice, “export taxes” seems to be used in the financial media.) The origin of the term is that it referred to tables, coming from the Arabic ta’rif (a notification or announcement, see reference by Paul Anthony Jones below). The tables were of fees paid by traders, and so the meaning of the word in European languages evolved to refer to fees. In English, the meaning became more specialised to just refer to import/export taxes.

Trump Trade "Deals"

Recent comments by Donald Trump seemed to confirm what he implied in his earlier remarks: the “90 trade deals in 90 days” he promised generally did not refer to formal trade treaties. Instead, they would be more informal negotiations about setting American tariff levels.

No Feedback

I have a primer in the pipeline, but I just want to comment on President’s Trump's statements/posts that hit yesterday. The problem with the current trajectory of the United States is that President Trump has effectively taken control of the economy, and it appears that he is getting no useful feedback on the consequences. We would need to go back to historically disastrous central planning episodes to find parallels.