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Saturday, April 5, 2025

The Economist Magazine Cover For 04/04/2025

Cover Story: Ruination Day Inbox The Economist Unsubscribe 10:02 AM (2 hours ago) to me The Economist Read in browser April 5th 2025 How we chose this week’s image SUBSCRIBER ONLY Cover Story How we chose this week’s image Insert a clear and simple description of the image Edward Carr Deputy editor As Liberation Day dawned I had a feeling that, after weeks of suspense, President Donald Trump’s big tariff announcement was going to be an anti-climax. And because he was due to speak on Wednesday, just an hour before our cover had to go to the printers, we wouldn’t have much time to react. So we prepared two covers—one squarely on trade and the other on China, in case Mr Trump’s squib was damp. I could not have been more wrong about the thunderbolt the president was about to unleash. What he had to say was more unhinged and more wantonly destructive than I had ever imagined. We knew a few things in advance of the Rose Garden rant—that Mr Trump has an archaic obsession with the trade in goods, to the exclusion of services; and that extra tariffs will hurt America and the world. Those ideas led here. As the president speaks, a container is hanging over him like the sword of Damocles. Or we could have a container-grenade about to blow a hole in the global trading system. We thought these designs might seem like hyperbole. We needn’t have worried. Mr Trump began his address by asserting that America was being “looted, pillaged and raped”. That’s quite an accusation to level against countries supplying you with tennis shoes. A month ago we had a cover of Mr Trump about to torch a heap of dollars. Perhaps we could offer readers an update, with the president striding gleefully away from a conflagration of greenbacks, a bit like the Joker after bombing a hospital in Gotham City. But surely that would be too extreme… We settled on this, because it focuses on the needless harm of Mr Trump’s policies. As we have written many times, America’s economy is the envy of the world. But under Mr Trump’s foolish policies, its consumers will pay more, and have less choice. Its savers will suffer from a slump in markets. Its workers will be hit by slower growth. And, spared the discipline of foreign competition, its companies will fall behind. We have developed the sketch. But our attempt to show that we are thinking globally hasn’t worked—sawing America out of the globe looks odd. We also preferred the type aligned left. Our working title was “Ruination Day”. As we waited for Mr Trump to begin speaking, I was wondering if we’d need to revise it. Mr Trump’s new tariffs take America back to the 19th century. They have been calculated using a formula that, when you strip away the pretentious Greek letters, treats every bilateral trade deficit as unfair—which makes as much sense as complaining that Ford suffers by buying in the parts it needs to make money selling cars. And almost every word the president uttered to justify his economic vandalism was arrant nonsense. We called it Ruination Day. We were being generous. We were loth to waste the China cover we had prepared, because it provides one more reason to think that Mr Trump’s announcement will harm America: it could benefit China. So we published the cover in our Asian edition. Tariffs now totalling 65% will hurt China’s economy, no doubt. The retaliation announced in Beijing after we went to press will exacerbate the harm. However, our argument is that American protectionism will put pressure on China’s leaders to correct their worst economic errors. It may also allow President Xi Jinping to redraw the geopolitical map of Asia in China’s favour. In short, it is a big, beautiful opportunity. That took us to a golden fortune cookie. It is good, in that it gets across the notion that China has an opportunity, but may not seize it. If China is to make the most of Mr Trump’s self-harm it will need to boost domestic consumption and steady the property market, as well as stop persecuting the private sector. All those things require Mr Xi to change course. But there is a problem with this cover. Restaurants inside China don’t serve fortune cookies at the end of a meal. That is something they do in Chinese restaurants abroad. This design therefore illustrates how Americans see China, not how the Chinese see America. MAGA Mao was much better. Indeed, as we have reported, many Chinese make comparisons between Mr Trump’s whirlwind executive orders buffeting America and the chairman’s Cultural Revolution, which tore China apart after 1966. Whether China seizes this moment depends on one man: Mr Xi. But the fact that the opportunity exists owes much to another: Mr Trump. You can browse all of our covers from 2024—and learn about the creative decisions that went into each one—in this interactive Cover Story annual. Related → Donald Trump’s mindless tariffs will cause economic havoc (Leader) → America’s president takes trade policies back to the 19th century (Finance and economics) → Can the world’s free-traders withstand Trump’s attack? (Finance and economics) → How America could end up making China great again (Leader) → As the trade war heats up, China is surprisingly confident (Briefing) Cover image • View large image (“Ruination Day”) • View large image (“How America could end up making China great again”)

Friday, April 4, 2025

Tariffs: The Genie Has Been Let Out Of The Magic Lantern: No One Can Predict What Happens Next

Yesterday and early this morning, the new tariffs were front and center. Everyone was transfixed as things developed. I have a very original and thought-provoking analysis for you. It all starts in the 1980s when the great author Michael Crichton published the book "Jurassic Park." To make a long story short, dinosaur DNA was brought back to life to create dinosaurs that were then left to run wild in some deserted area in Central America. (In reality, these huge animals lived in a time when there was much more oxygen in the earth's atmosphere. They could not survive in the lower oxygen atmosphere that we live in today.) A mathematical concept called "Chaos Theory" was introduced to the readers. Elena heard this theory and had a blank look on her face. In very simple English, it says that when you let a genie out of a magic lantern, you cannot predict what will happen next. For those curious, here is an in-depth discussion of this theory: Search Labs | AI Overview Learn more Chaos theory, a branch of mathematics and interdisciplinary science, studies seemingly random or unpredictable behavior in systems governed by deterministic laws, highlighting the concept of "sensitive dependence on initial conditions" (the "butterfly effect"). Here's a more detailed explanation: Key Concepts: • Deterministic Systems: Chaos theory explores systems where the future state is entirely determined by the present state and a set of rules, meaning there's no inherent randomness in the system itself. • Sensitivity to Initial Conditions: Even tiny differences in the starting conditions of a chaotic system can lead to dramatically different outcomes over time, making long-term prediction extremely difficult. • The Butterfly Effect: This metaphor illustrates the idea that a small change in one part of a chaotic system (like a butterfly flapping its wings) can have large, unpredictable consequences elsewhere (like a tornado in another location). • Non-linearity: Chaos often arises in systems with non-linear interactions, where the effect of a change is not proportional to the change itself. • Strange Attractors: Chaotic systems often exhibit behavior that appears to be random, but is actually confined to certain regions of the state space, known as strange attractors. • Fractals: Fractals, with their self-similar patterns across different scales, can be used to visualize and understand the complex structures of chaotic systems. • Examples: Chaos theory has applications in various fields, including weather forecasting, economics, population dynamics, and even the behavior of seemingly random processes like stock markets. Examples of Chaos Theory in Action: • Weather: Weather patterns are highly sensitive to initial conditions, making long-term weather forecasting inherently difficult. • Stock Market: The stock market is a complex system with many interacting factors, and its behavior can appear chaotic due to the sensitivity to news, investor sentiment, and other factors. • Population Dynamics: The growth and decline of populations can exhibit chaotic patterns, influenced by factors like resource availability and competition. • Double Pendulum: A simple system like a double pendulum can exhibit chaotic behavior due to the non-linear interactions between the two pendulums. In essence, chaos theory reveals that even in seemingly random systems, there can be underlying patterns and deterministic laws that govern their behavior, although these patterns can be difficult to predict due to their sensitivity to initial conditions. Dra. Claudia Sheinbaum is the president of Mexico. Before she was a politician, she was a well-respected scientist who worked for 4 years at the Lawrence Livermore Laboratory here in California. When tariffs were being discussed, she wrote a very thoughtful and well-researched piece to President Trump. She warned him that up to 400,000 US workers would lose their jobs if he implemented the tariffs. This morning, the first US layoffs resulting from the tariffs have taken place. Stellantis is a US auto company that produces Jeeps and Chrysler cars. They furloughed 900 workers at plants in Michigan and Indiana that assemble cars from parts made in Mexico. Half a world away in China, the Fitch credit rating agency downgraded China's debt credit rating from A+ to A due to concern about tariffs: Fitch Downgrades China to 'A'; Outlook Stable. Fitch Ratings - Hong Kong - 03 Apr 2025: Fitch Ratings has downgraded China's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'A' from 'A+'. The Outlook is Stable. The stock market took a hard crash yesterday. It does not look better today. We are about to go through a very painful time.