Blain’s Morning Porridge May 7^th 2025 – Modelling Trump Tariffs Suggests Resilience But Chaotic Consequences

“The ability to predict what the world will look like in a few months is virtually impossible to say with any confidence. But…”

This morning’s Porridge is given over to what my chum Rob Hillman’s modelling of the Pandemic economy teaches us about the unpredictable consequences of Trump’s Tariffs. Chaotic, but we are more resilient than we might expect. And very likely to backfire on Trump!

Last weekend I sat down for a beer (or many) with my great mate Robert Hillman, a fellow sailor and a data scientist – and also one of the most constructive risk managers it was ever my pleasure to know from the City. We were discussing the US tariffs, not from the perspective of how economically illiterate they were, but how markets might cope with them better than the doomsters expect.

Rob called me up to say he’d written something on it. He’s posted his article on Linked-In, and this morning I’m going to nick many of his ideas. I’m also going to post it on-line as a Porridge-Extra on the Must Read page of the Porridge. You can access it here if you are on Linked-In.

Reading Rob’s piece this morning I’ve learnt a critical new expression: Sheissebedauern (a fake German word), meaning; “the disappointment felt when something turns out not nearly as badly as one expected.” Yes, I admit it… my “Trump Derangement Syndrome” is now so bad I will be peeved if the US doesn’t disappear in a puff of economic logic because of how stupid Trump’s policies have been.

Hillman is more positive than I about the global economy will react to tariffs.

He bases that on how the new modelling frameworks policy makers were forced to develop and adopt during the Pandemic and the subsequent rolling series of market aftershocks, mean we are better able and better equipped to deal with tariff-shocks than during Trump’s first presidency. In effect, the shocks of Trump V2 are already being mitigated to some extent by how modelling is guiding better policy and stronger economic resilience.

Up till the Pandemic the global economy was shaped by the Central Banking toolkit of the post Global Financial Crisis era – which were at first lazer-focused on bank risks and then the consequences of quantitative easing. (These have very much been my own major themes since I started writing the Morning Porridge in 2007!)

That policy tool-kit offered very little in terms of how to address the real-world impacts of the Pandemic; production shut-downs when workers were furloughed, or how supply chains exposed how single part shortages could stop goods from being produced completely.

In his article Hillman describes how he and data scientist colleagues from the OECD were one of a number of teams that built new bottom-up economic models to analyse and describe the new economic realities of the pandemic. They did so through computer simulations of how microeconomic agents (companies and households) would react and what their actions implied for macro variables like inflation and GDP. The models enabled them to show how real firm cash flows interlinked to the economy – and how shocks (like failure) impacted the real world of customers and suppliers.

They were able to model the effects and consequences of the pandemic loans and furlough schemes. Hillman went on to work with Govt to build in-house modelling and to analyse post-pandemic shocks in semi-conductors (which disrupted auto-production for years) and energy.

One point in the modelling that surprised Hillman and his team was their fear that a massive systemic shock, like the Pandemic, could cause GDP to unravel in a doom spiral as bankruptcies cascaded through the economy. But that’s not what their modelling revealed. Hence – Sheissebedauern.

Instead, they found that crisis, and having to rewire the economy to cope with issues like supply chain dislocation, actually made it more resilient. That all very much fits with my broad economic outlook that consequences spawn consequences, and Blain’s Second Market Mantra: “Things are never as bad as you think, but seldom as good as you hope.”  (I always knew there would eventually be real science behind my gut instinct about the degree of market robustness!)

On the other hand, Hillman and his team went on to show how the consequences and effects of pandemic supply chain shortages persisted longer than expected, leading to the cost-push inflation we saw in the mid-20s, exacerbated by the energy crisis around the outbreak of the Ukraine War. Rob writes: “Digging into the details we found that our firms were rationally managing their inventories and employees as a function of their expected demand. But in a connected economy with complex products, it only takes a few firms to be constrained in their ability to increase production to cause shortages to be propagated downstream to broader sectors.

The found many examples of consequences – how a sudden shortage of Heavy Goods Vehicle drivers (Truckers) in the UK occurred because they all switched to being delivery drivers! They also saw how older workers would leave the workplace and never return – such shifts prevent shocks simply reversing or mean reverting

Apply all that thinking, learning and modelling from the pandemic and how that is going to playout in Trump’s Tariff wars, and America’s assumption they are headed for a new Golden Age and a global trade “equilibrium”. No chance.

Last month the US economy contracted despite a massive inventory build-up ahead of tariffs by US firms. Hillman has demonstrated that “over-trading”, building up inventory, and spending cash on inputs can result in crisis when future cashflows can’t support it.

What Hillman’s modelling shows is the claims by the Trump Administration of nothing worse than a short-term blip to the US economy before a strong recovery are utterly misplaced and unlikely. Hillman identifies three types of irreversible shocks that may stem from the Trump Tariffs:

• Behavioural adaption – like older workers leaving the workforce or how shifting consumer tastes and preferences impact demand: like how no one is drinking American beer or bourbon, or is ever now likely to buy a Tesla.
• Structural adaption – how global supply chains will be rewired by the changing economics of trade: it might take years to build a market, but just days for it to be broken if, for example, the goods now not heading to LA Ports find permanent new markets elsewhere.
• Technological adaption – innovations in products and product design are continuous, and result in constantly reconfigured operational processes. How quickly will products shift away from the US market towards winning new markets

He also points out the clear bottlenecks and inflationary consequences of the tariffs which could prove even harder to manage than during the pandemic. Hillman’s biggest takeaway is how the “unpredictability of the tariff shock’s consequences should not be underestimated.” Essentially global trade is chaotic – small changes can have large consequences – the butterfly effect. “What may appear to be a trivial policy or change today could turn out to have gigantic consequences in the future, and vice versa.”

What we’ve seen over the last 110 days has been a multitude of small and large events (from out of Trump’s mouth or Sharpie), and it’s impossible to say just how consequential even the most benign of these may prove!

I would certainly urge readers to check out Rob’s whole article – here.

Meanwhile, I will post links to the other main stories developing overnight: India vs Pakistan, German Chancellor etc on the website.

Out of time, and back to the day job!

Bill Blain

Author Morning Porridge

Founder Windshift Capital

Partner Shard Capital