Insights
Welcome to Insights, where you can see many examples of my recent economic commentary and analysis, including how past predictions have played out. This will give you a clear idea of the analysis and insights you can expect when you work with me.
Ignore the cut off pics for now, they will be fixed
National Insurance rises could reduce employment
Back in October I predicted that the increase in employer National Insurance Contributions (NIC's) rumoured to be introduced in the Budget would likely result in muted wage increases, lower employer and reduced investment. As of May 2025 many UK businesses report that they are shelving plans for expansion and hiring, with some even cutting jobs. They blame the measures introduced in the Budget including the NIC increase, a rise in the minimum wage and more onerous employment legislation.
How Trump's Liberation Day tariffs could affect the US economy
Add text and change pic so its not cut off
Sales Forecast model gives 88% accuracy
This forecast model for a major UK automotive brand used market conditions and subsidy (incentive ) spend to estimate sales. The resulting model predicted monthly sales up to one year ahead with 88% accuracy (average forecast error of 12%) when using planned subsidy spend and market forecast.
This is evident in the graph where the actual sales and forecast sales are closely clustered around the trend line. A perfect one -for one- forecast would have a line cutting right through the origin (the bottom left hand corner) with all points exactly on the line. However, this would be extremely rare so there is always some adjustment. The numbers in the small blue box show that we take 89% of the actuals, then add 12.697 to get the forecast figure. A one -for -one would have 100% of the actual, plus 0, so this is pretty close.
Current prediction about tax revenue
Read latest news about headroom diminishing and tax rises for Autumn and check ONS tax data. Spring OBR did not report lower tax take was due to NICs (but then they wouldnt would they cause theyre the Chancellors best mate)
Trump's tariff calculation explained
If you are wondering how Trump arrived at the punitive tariff rates for some countries, the Office of the United States Trade Representative published the below formula, along with an explanation. This is basically asking, ‘what value do we need imports to be so that the trade balance equals zero?' This is done by setting the change in the value of imports equal to the trade balance by adjusting the tariff rate. Or basically, making sure that after pass through effects and demand effects (after adjusting for the fact that price and quantity will change) what new, higher price is needed to bring imports equal to the value of exports?
So if you had a deficit of 50, then the formula would need to reduce imports by 50 to equalise it.
I have created a simple example to explain this, using e and y instead of the Greek symbols. The e is called the elasticity of demand with respect to imports, and is basically a measure of how much imports fall when prices rise. They have it as 4, so for a 1% rise in prices, imports (measured in monetary terms) will fall by 4%. y shows what percentage of tariff prices are typically passed through to import ones. Sometimes sellers into a country will chose to absorb some of the tariff prices themselves. These two parameters help to account for the fact that import volumes will change in response to higher prices, and also recognises that not all of the tariff will be passed through, and are assumed to be fixed i.e. they are not created by the formula. It is worth noting however, that this is just an average, applied uniformly to all countries, but in reality this will vary widely between goods and industries.
For simplicity lets assume that the US exports $500 worth of goods to this 'offending' country. This country in turn sells $800 worth of goods to the US. What do we need to do to this $800 to make it $500? This is what the formula does. Plugging the values of X, M, e and y gives the tariff rate required to reduce the trade balance to 0, which in this case is 38%. So, if you take this 38% and reduce it so that only 25% is passed through, you get 9.4%. Remember that for every 1% rise in prices, imports fall by 4%. So for a 9.4% rise in prices they would fall by 38%. This is how much that original $800 needs to fall by in order to equalise the trade balance. This is $300. So if you wiped $300 off the original $800 you get $500 worth of imports, which of course now equals exports.
Note that this is different from the calculation shown here https://www.bbc.co.uk/news/articles/c93gq72n7y1o, which shows the end result being divided by 2 because, according to Trump, 'we are nice.' Also you will note that the 4 and .25 end up being 1 so the formula ends up being the same as reported in the press which is trade deficit divided by imports which is then divided by 2.
Some other possible effects of Trump's tariffs
April 5, 2025
1. A full scale trade war may be avoided
2. The ‘Brexit advantage’ may be short lived
3. There will very likely be a productivity crisis
4. The shift to US manufacturing that Trump hopes for may be limited
1. The reaction of many states appears to be conciliatory, leaning towards negotiation rather than retaliation. This reaction is underpinned by an understanding that an all out trade war would be very damaging, so many states appear to be taking steps to avoid this, with some offering support packages for affected industries and opening talks with non US trading partners. The caveat here is that two very large players, China and the EU, look to be taking a tougher stance, with China announcing 34% tariffs on all US goods on 4th April, plus a ban on sales to the US of some essential rare minerals. The EU is also making noises about 'a package of measures,' although it's not yet clear what this actually means.
2. There is talk that that the firms that face lower tariffs may have an advantage in US markets compared to those who don’t, because they can sell their products more cheaply. However, given the sweeping and punitive nature of the tariffs on any country holding a trade deficit with the US, if these countries with the lower tariff soon rack upma trade deficit, it is possible or even likely that Trump may hit them with a more punitive rate.
3. As firms scramble to reorganise supply chains, this will very likely result in less efficiency because they are now not free to chose the best supplier. They may be forced to shoes one which can’t produce as cheaply, as quickly or to the same quality for the same cost as before. All this lowers productivity which lowers growth and puts upward on inflation. In a nutshell, the global market is no longer being allowed to allocate resources in the most efficient way. (This by the way, is know to economists as ‘deadweight loss’ because it is a reduction in output which is not transferred to anyone else.)
4. Despite his aspirations to the contrary, Trump is only going to be in power for the next four years. After which one would hope to see a withdrawal of tariffs and a return to normality. Trump appears to want two things from this-for firms to produce in the US or to buy as much from the US as they sell, or at the very least, remove any tariffs on incoming US goods. It looks like he might achieve this to some extent, as several countries have already suggested they are willing to negotiate.
But it is very costly and time consuming to simply uproot manufacturing from one country to another. It takes time to build new factories. By the time the planning and building has been completed, Trump’s term may well be over. He is essentially trying to force firms to make long term decisions based on short term conditions. In this case, only those firms who can expand at a lower cost and in a short amount of time would be able to increase production easily. Although some big manufacturers have already said that they will build more capacity in the US, the scale of these moves could be limited to less companies than hoped, for the reasons given above.
Uncertainty over tariffs likely to harm US investment
May 10th, 2025
In May I posted that the very uncertainty over the tariffs would make companies wary of investing in the US. Five days later Investment Monitor reported that " non-US companies are delaying major US investment decisions as a result of the uncertainty created by the tariffs agenda being pursued by the Trump administration."
Yvonne Bendinger-Rothschild, executive director of the European American Chamber of Commerce in New York, told Investment Monitor: “The problem is more the uncertainty than the tariff itself. "
I think the problem is that we’re constantly going back and forth. If we say there’s going to be a 10% tariff, then people can plan with it to do something and make forecasts. [But now] we have earnings reports that don’t have a forecast in them.
Ed Brzytwa, vice president for international trade at the Consumer Technology Association, added: “There is a great desire by companies to invest in the United States, but in order to do that, they need predictability and certainty"... "– not just today, but in the future, both short term, mid-term and long term.
“The current tariff policy "..."– does not create that necessary certainty and predictability. As a matter of fact, it leaves companies guessing as to how they can position themselves for success.”
Ready to gain valuable insights for your business?
Contact The Popup Economist today for custom economic analysis and sales forecasting tailored to your business needs.