Making Hay Monday – December 8th, 2025

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David Hay

Editor

Haymaker

Making Hay Monday

Runnin’ Hot…

Friedrich August Von Hayek: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

“The raw fact is that every successful example of economic development this past century … has taken place via globalization … by producing for the world market rather than trying for self‑sufficiency.” –Paul Krugman (a reasonable view from a Nobel prize winner, despite his reputation for being “often wrong but never in doubt”)

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The Risk of Running it Hot: Tariff-Fueled Deglobalization

There’s an old saying in politics: “When in doubt, punch China.” In markets, it’s “When in doubt, buy hard assets.” And in 2025, it appears the two are converging. We are now watching a real-time experiment in what happens when trade policy, domestic stimulus, and macro panic intersect. The result isn’t the collapse of growth, but what looks like a reordering of it. And for the first time in a generation, that reordering is making real assets great again.

Let’s revisit what triggered the shift. In July, Trump launched a fresh volley of tariffs under the Liberation Day banner; 10% across-the-board, 25% on Canada and Mexico, and a punishing 50% on Chinese steel. The goal was to “run the economy hot” heading into the 2026 midterms by bringing jobs home, punishing trade surplus countries (as well as many that aren’t), and lighting a fire under U.S. manufacturing.

Instead, the unintended consequences are rippling through every asset class. Using its 2025 tariff‑package assumptions, the Penn Wharton Budget Model estimates that U.S. GDP could be roughly 6% smaller over the long run, and that a typical middle‑income household might see the equivalent of a $1,200–$1,700 annual drag on purchasing power (or over $20,000 over a lifetime), depending on their spending patterns. Also, core CPI reaccelerated in Q3 (+0.3% MoM) and the dollar has now shed 10% since March; a devaluation markets are reading as a vote of no confidence…