What Happens If America Cuts Off Trade With the World?

Well, the Federal Reserve raised interest rates, which means that I was wrong… and Donald Trump is mad.

As I noted in a dispatch earlier this week, I figured the Fed would hold steady with rates because raising them raises the cost of servicing America’s debt. Looks like Fed Chair Kevin Warsh chose recession and fiscal crisis as his side-effects of fighting inflation.

The more immediate problem is Señor Trump.

What is he going to do?

For more than a year, he’s been insisting that the Fed cut interest rates. He went so far recently as to offer up this threat: If the Fed doesn’t cut, he will cut off all trade with all countries with which America has a trade deficit.

That’s a lot of countries.

In the hours after the Fed decision on Wednesday to raise rates, Trump told a crowd in North Carolina, “If we stop trading with every country that we have a deficit with, which is most of them, which would be very easy to do, we would make at least $1.5 trillion a year.”

On the spectrum of truth and BS… well, that’s not how trade deficits work.

But we’ll skip that, because there’s a bigger issue: Your morning cup of coffee.

Imported coffee beans fuel 99% of America’s caffeine addition. Only Hawaii and the US territory of Puerto Rico produce coffee beans. Hawaii’s Kona region produces about 4 million pounds every year.

Americans drink about 8 million pounds… every day.

Meaning Hawaii’s entire annual harvest—the whole year—covers roughly one American morning.

After that, it’s “Hasta la vista, Java” until next year’s crop.

So where does Starbucks go for coffee beans if Trump cuts off trade with the world because the Fed won’t play his game? Where does Dunkin’ go?

And the tens of thousands of diners, gas stations, and fast-food drive-thrus that ladle up a cup of joe to the more than 150 million Americans who drink coffee every day—where do they go?

Because we’re not talking about tariffs that raise the price of your pumpkin spice latte by a buck. We’re talking about cutting off trade completely. Meaning importing coffee beans into America is illegal.

There are nearly 17,000 Starbucks in the US.

Dunkin’ Donuts outlets number about 9,600.

All of them go dark inside 90 to 120 days because they have no coffee to sell.

And just like that, Americans are googling “how did rum-runners smuggle liquor into America during Prohibition?”

Then again, even if you get your hand on contraband coffee, brewing your beans might be problematic because 20% of America’s electricity comes from nuclear power, and 99% of the uranium that fuels America’s nuclear power plants comes from overseas—primarily Canada and Kazakhstan.

Then there’s that new house you’re looking to build.

The US imports about a third of the softwood lumber used in new-home construction and remodels. Canada supplies 85% of those imports. That’s about a quarter of every board of lumber in every new house built in America.

Housing prices—already crushing America’s lost dreams of affordability—go vertical.

Then there’s your grocery bill.

95% of the potash American farmers use to grow food is imported. 85 to 90% of that potash comes from Canada. Potash is one of the three nutrients that plants can’t grow without—there is no substitute. Cut off potash imports and American farmers can’t fertilize their crops next spring. Which means yields collapse the season after.

Which means food prices spiral in ways that make current inflation feel warm and fuzzy.

Every aisle. Every farmers’ market. Every butcher shop.

Beer, cars, semiconductors, prescription drugs, rare earth minerals… vast amounts of goods in all of those categories come from countries with which Uncle Sam runs a trade deficit. And every single one is on Trump’s do-not-call list.

Does he really shut down America’s trade with the world as a way to punish the Fed for disregarding his ill-devised economic wishes?

That’s the most powerful man on earth saying he’s willing to burn down the store if the manager won’t lower prices to levels that ensure the store goes bankrupt.

Companies will literally go out of business. I mean, why does Starbucks exist if it has no coffee (and no tea, also more than 99% imports) to sell?

Starbucks as a company is gone inside 120 days.

If Trump follows through, it will be one of the single most disastrous economic missteps in the history of economic missteps. And I’d say the same about any politician of any political color, because the impacts on the economy of a strategy this blatantly ignorant are obvious, they’re easy to predict, and they’d cause irreparable harm to consumers and to businesses big and small.

The impact of the Fed’s rate hike are also blatantly obvious, easy to predict, and will cause harm to consumers and business.

But more on that soon…