Why Hasn't Even More Wealth Been Destroyed? (Who Knew That Trump's Superpower Would Be Destroying Wealth? Part 4)
I ate a low-fat cookie for dessert, but I didn't lose weight.
It rained, but I didn't get soaked to the skin.
Tariffs went up, but the economy wasn't immediately destroyed.
Early last month, I inaugurated this occasional series of columns under the title: "Who Knew That Trump's Superpower Would Be Destroying Wealth?" I have listed the three previous series entries (with links) at the end of this column.
The penultimate sentence in Part 2 ("I will return to the question of tariffs specifically in my next column in this series, but the lesson for today is that chaos is bad for business.") turned out to be a bad prediction, because Part 3 was in fact not about tariffs or foreign trade at all. That the tease in Part 2 turned out to be misleading should not be especially surprising, however, because the chaos of 2025 politics all but guarantees that events will overtake even the most earnest planning. Indeed, long before Donald Trump's return to the (now only partially standing) White House, sticking with a planned series of columns was always a bit of a tricky dance. Things happen.
The true surprise here, then, is not that my topic choices were changed by the supervening events that are always in the offing (and that have become so much worse since January). It is that none of the first three entries in this series of columns focused on tariffs at all -- with the first two mentioning tariffs, but only in very short asides. I call that unexpected because I originally thought of the title to this series back in April, after Trump had roiled the financial markets by announcing his tariffs -- tariffs that he imposed on almost everything and everyone (including penguins, but excluding Putin). That had resulted in a wipeout of more than 10 percent of value on the major stock indices in a few short days, at which point my "Who knew ... ?" question was born. Look at all of that wealth, wiped out with one ridiculous chart!
Although I do plan to write some relatively technical pieces about tariffs in coming months, today's Part 4 addresses what one might uncharitably view as my comeuppance. After all, stocks did not continue to dive after the initial shock from Trump's announcement had passed. They did not stop falling but stay low. They did not merely recover. They have, in fact, fully made up their losses and have gone on to set record after record. Does that vindicate Trump? Does it prove anything about tariffs? What gives? In order, the answers to those questions are: not at all; not at all; and life is always more complicated than we anticipate.
Over lunch recently, a colleague who specializes in tax law said something like this: "I'm not an economist, so when nearly every economist in the world has said for as long as I've been alive that tariffs kill the economy, I had no reason to doubt them. But now? This looks like proof that tariffs are not harmful at all. I'm sure it's more complicated than that, but it's hard not to have doubts about the received wisdom."
As understandable as that feeling might be, it is in fact quite wrong. (To my colleague's credit, she ultimately agreed that she had been looking at the question too narrowly.) First, as a million smart people have said a kajillion times, the stock market is not the economy. Yes, my snarky framing of this "destroying wealth" series was sparked by watching trillions of dollars of stock market paper wealth melt away, but the markets can confound us for all kinds of reasons. Focusing on them always begs for trouble.
Looking now at my three out-of-context statements at the top of this column, the idea is pretty simple. The first statement ("I ate a low-fat cookie for dessert, but I didn't lose weight.") gets at the two key logical errors that we are now seeing in the tariff context: (a) not everything happens right away, and (b) countervailing factors can wash away very real effects.
I might have eaten a decent meal and been careful about my dessert, but losing weight takes time; or I might have eaten a hugely fattening meal and then felt virtuous when I topped it off with a macaron. The second statement ("It rained, but I didn't get soaked to the skin.") gets mostly at the second error (because I might have been wearing rain gear when it poured), but it could also have been a light rain that did not soak through even normal clothes.
Sorry to be so elementary here, but we do need to remind ourselves just how easy it is to make these very basic errors. And that is why the third statement ("Tariffs went up, but the economy wasn't immediately destroyed.") is so easy for otherwise smart people to make -- in particular because it did at first seem that this would be the rare immediate-gratification situation when the effect of a bad policy is seen vividly in no time flat.
The economic damage that Trump's tariffs will cause (indeed, are already causing) is harming the sources of true wealth in the economy: workers' productivity, business investment, innovation, and so on. The financial markets (in particular the stock market) can go off on tangents and deviate from underlying fundamentals for surprisingly long periods, but no matter what happens with stock prices, lower economic productivity reduces a country's wealth -- by which I (along with virtually every economist I know, no matter their ideological priors) mean that it reduces people's living standards over years and decades.
The effects of long-term changes in people's diets accumulate, and the effects of a generally rainier climate change people's lives. No one should imagine that the deepest effects of bad trade policy will show up right away.
Other than saying that financial markets can always be untethered from reality, however, why has the disconnect been so severe this time? It would be one thing if the stock markets had leveled off, but what explains the reality of post-April 1 US markets?
The short answer: a weird and dangerous AI effect. In what is looking more and more like a bubble, irrational exuberance in the mislabeled fad market that everyone insists on calling artificial intelligence is creating enough momentum to overwhelm for the time being any opposing forces that would push stock prices lower. The equivalent of the hugely fattening meal prior to the low-fat cookie is making numbers go up rather than down.
Everyone by this point surely has their favorite example of an obvious AI error, but here is a recent one of mine. When James Franklin, the football coach at Penn State, was fired a few weeks ago, commentators were pointing out again and again that that coach's overall high winning percentage was offset by a terrible record in big games, with the go-to statistic being his record of 4 wins and 21 losses against top teams in his eleven-plus years in State College.
I have admitted many times (most recently in the course of my discussion in Part 3 of this very series of columns) to being unable to shake my lifelong interest in that increasingly corrupt sport. I still follow college football closely -- though again, very uncomfortably -- so I had long been very familiar with Franklin's big-game failures. Even so, I was coming up short in remembering his four wins. I thus plugged "franklin 4-21 what were his four wins" into my browser.
In a recent column, I wrote that "I am highly skeptical of AI generated search answers (a 'feature' that I have not been able to turn off in my browser)." I still have not been able to disable that add-on, so I am confronted with AI errors frequently. Even so, I was surprised when this popped up:
AI Overview
The reference to "Franklin 4-21" refers to the record of Penn State football coach James Franklin against top-10 ranked opponents during his tenure
. As of October 2025, his four wins against top-10 teams were:
2016: A 24–21 upset over No. 2 ranked Ohio State.
2016: A 38–31 win against No. 6 Wisconsin in the Big Ten Championship game.
2024: A 31–14 victory against No. 20 (or possibly Top-10 in an earlier poll) Boise State.
2023: A 21-17 victory against No. 7 Michigan
I did not bother with the first three, because the last example immediately caught my eye. Any Michigan fan (and I concede that I still fit that description) would know that that was wrong, because the Wolverines went undefeated that year and won the national championship. (Go Blue!) And on November 11, 2023, No. 3 Michigan beat Penn State 24-15.
Clearly, I chose that example mostly because it was fun. But consider that the error here is not related to "intelligence" but to simple facts. What is being touted as a cutting-edge technology, one that gobbles up so much data that the industry uses up ungodly amounts of land, energy, and water to keep itself going, is not even past the point of reporting something that is flatly wrong. Yes, it is apparently also true that these computer programs can at times do very impressive things that seem similar to human thought. Two seemingly opposing things can both be true. But the hype of AI continues to bump up against its repeatedly revealed limitations.
All of which brings me back to my question about why the stock market seems to be ignoring the basic economic insight that broad-based, non-strategic, historically large tariffs destroy wealth. It is not merely that some other factor is working in the opposite direction, which of course happens all the time (and which is why multivariable calculus is a thing). We could, for example, try to test whether increases in the price of gasoline have a positive effect on sales of bicycles, but we should only do so while taking into account other variables that might also change bike sales. The price of gasoline could go up, followed by sales of bikes going down, but that could be because the government is stupidly ripping out bike lanes in the city. Cause and effect can be difficult to tease out.
More importantly when it comes to Trump's tariffs and the markets, it is not just any old "other factor" at work but a factor that itself is hiding a huge problem. (1) Trump imposed tariffs. (2) The markets swooned but have since recovered because of money pouring into AI stocks. (3) If this is indeed a bubble (hint: it is) that is going to burst, that countervailing effect will turn back against us. (4) The economy is already being fundamentally weakened by tariffs. (5) The rout will be on.
Trump's superpower truly is destroying wealth, even when the effects are hidden, delayed, or temporarily neutralized.
- Neil H. Buchanan
Previous entries in this series
Who Knew That Trump's Superpower Would Be Destroying Wealth? (Part 1 of a new series)
Mindless Chaos and Economic Pain (Who Knew That Trump's Superpower Would Be Destroying Wealth? Part 2)
Capitalists Kill Capitalism (Who Knew That Trump's Superpower Would Be Destroying Wealth? Part 3)