Blain’s Morning Porridge Feb 19^th, 2026 – Tariffs hoist Trump on his own Petard

“And I would have gotten away with it, if it wasn’t for these pesky kids…”

Sometimes you have to laugh. Tariffs have been the cornerstone of Trump’s economic miracle, allowing him to deflect, discombobulate and distract voters from economic truths. Now the NY Fed says tariffs are a consumption tax – even MAGA voters will be worried as the Mid-Terms approach.

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I reckon a fair number of Porridge Readers will remember Scooby-Do….

Donald Trump is the evil financial-economic genius planning the ultimate political heist. His cunning plan to ensure a MAGA landslide in the Mid-Terms, just 8 months away, was utterly brilliant. Slap tariffs on everything and tell the American people the economy is booming because of them. Keep telling them that till they believed it. The bigger the lie, the better it sounds. Brag about big foreign investments. Boast about new factories – as yet unbuilt. I particularly admired the brazen promise to increase US defence spending by 50% to $1.5 trillion on the back of the unlimited bounty off tariff income.

Then wait. And in March, just as the political campaign season kicks into high gear, he’s going to tell the people tariffs have been so successful and so biggly restored global respect for the USA that he’s able to cancel them. By removing what is a massive consumption tax on the US economy he will generate a deflationary spike and an economic boom that will peak around election day. Foreign leaders will praise his munificence.

As I said – genius of the highest order… If it wasn’t for the pesky kids at the New York Fed…

Last week the NY Fed released a report showing clearly that US firms and consumers have borne almost all the costs of tariffs. Foreign exporters into the USA have paid just over 10% of the total tariffs – the rest has been absorbed by US producers and consumers. Tariffs are a consumption tax on America – simple as.

Who knew? (US Readers – Sarcasm alert.)

The economic picture might get worse. It now sounds like the Fed is getting nervous on inflation and an overheating economy. It may row back on easing rates… even as overseas Governments (notably Singapore) warn of deteriorating trade conditions as the world starts to tire of the non-stop Washington sh*tshow.

And now it gets just plain funny…

The man who would have been chairman of the Federal Reserve, Trump’s economic whisperer in chief, Kevin Hassett, is furiously demanding the authors of the New York Fed are “disciplined” for their “embarrassing” report – calling it the worst report he’s ever seen… Of course it is…

While few neutral economic think-tanks or recognised institutions have come out in favour of tariffs, the list of respected names that say they impose costs on households and businesses is substantial. The Congressional Budget Office, The US Tax Foundation and Yale’s Budget Lab all back up the findings of the NY Fed, concluding tariffs are a consumption tax, will impact GDP, will raise overall taxation without increasing revenues (because the rich pay less when taxation is regressive), and foreign economies suffer less.

Of course, everything in the Trump Administration is smoke and mirrors. Hassett is a disappointed man. He didn’t get the Fed job because he carried too much baggage. He would have failed to win the senate confirmation process because he was so clearly Trump’s political shill being put into the job to deliver Trump’s demands. He’s not a central banker, but an academic. Now he’s a tariff apologist.

Had he been nominated for the Fed post by Trump, the relief rally that accompanied Kevin Warsh’s nomination would likely have been a bond crash as the market figured it would have meant the end of Fed Independence.

And now Hassett is howling into the wind that the Fed is undermining the administration. He claims foreign firms are impacted because they will reduce their margins to export into the USA – but that doesn’t result in income going to the USA! He claims tariffs are mitigated by the strong dollar – which has fallen in value 7% since Liberation Day last April, making the costs even higher on the USA! He sees tariffs creating long-term “dynamic” supply chain and manufacturing shifts in favour of the US – but if these happen it will be years down the line in return for creating short-term damage now. (And who knows what future US governments may do to reverse the Trump era.)

Had you asked me 10-years ago if we would ever see the US Administration, Treasury and the Federal Reserve screaming liar, liar, pants on fire at each other, it would have seemed impossible. Now we shrug it off because that is the new normal. The NY Fed just needs to keep telling the truth. The administration undermines itself – in that peculiarly MAGA way of shouting it loudly, louder, and louder still to convince the 40% of Americans who still believe to keep believing.

Trump and his backing choir of Greer, Lutnick, and Bessent have argued repetitively that:

• Tariffs bring in money. Yes, they do – American consumer and producer money.
• Tariffs generate Federal Revenue. Yes/No, tariffs are a regressive tax than barely impacts the rich but hit the poorest in society hardest – who are most likely to be MAGA voters. When tariff revenues are used to allow tax cuts for the wealthy, overall revenues fall.
• Tariffs will restore American manufacturing by protecting businesses from unfair competition. No, it’s a consumption tax American firms are paying, making them less competitive.
• Will attract foreign firms to build capacity in the US. No, ultimately it will be cheaper not to produce in the US, and long-term planning is impossible when rules keep changing.
• Tariffs are a lever of power. Well, they were. Foreign powers realise it’s the US that pays. They are more concerned now with global slowdown and geopolitical instability.

A whole bunch of Republican, but MAGA thumbnailed, US senators and congressmen, many facing elections, have come out in favour of Tariffs. It will be interesting to hear how they defend them in coming months to angry voters who feel misinformed.

Now.. In any good Scooby-Do mystery, there should still be some unfinished business to be revealed as the villain, usually the “haunted” school janitor, is hauled off to jail. In this case its inflation. Why haven’t tariffs generated the kind of inflation economists expected? That’s complex is largely due to tariffs being fairly concentrated in specific goods rather than across all the goods and services in the economy, and by them being one off rather sustained price hikes. (And, let’s be honest, the tariff rates have shot up and down so much as Trump TACO’d we don’t see a single impact.)

What is the risk of a real inflation shock on the back of tariffs. If the global economy slows because of exhaustion with the whole process that could trigger inflation. It’s clear the battle for the Fed’s Independence is not yet won – but Trump’s credibility will be tested at the Mid-terms and even the core MAGA base is not immune to the increasing noise and the whiff of corruption around Epstein or the recent Crypto-Party pushing all things Liberty-World at Mar-al-Lago. If there were to be geopolitical or energy shock (as may follow a spat with Iran) … who knows what might happen.

Out of time, and back to the day job…

Bill Blain

Author of the Morning Porridge

CEO Windshift Capital

Advisor – Spitfire Strategic Capital