Macro, Micro, and Trump’s Trade War

“Economics is the study of how people and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various persons and groups of society.”

Ooops !!! 

This is how economics is defined. Yes, that’s the formal definition.

Economics has a peculiar charm — the deeper you dive, the more tangled it becomes—theories, models, assumptions, graphs... all seemingly designed to make you question your intelligence.

But let’s cut the jargon.

At its core, economics is simply the study of how we produce, share, and consume resources. It branches into macroeconomics and microeconomics. Macroeconomics deals with the bigger picture. It studies and analyses the national and global economy. It churns a lot of data. It analyses government fiscal deficit, monetary policy, unemployment rates, inflation, business cycles, the recession, etc. 

However, microeconomics deals mostly with localized issues like how businesses are set up and run, how people make financial decisions, and how supply and demand change. Theoretically, the sum of the parts of microeconomics makes it to macroeconomics. Surprisingly, both these subjects use different theories, models, and research methods. Most of the time, there is a wide disparity between these two areas of study. 

The purpose of this prologue is to address the widespread discussion around Mr. Trump’s tariff war.

Suddenly, it seems everyone has become an expert on economics, offering opinions on global trade wars, trade deficits, export-import data, foreign policy, and U.S.-China relations.

Even the roadside chaiwala has started advising Trump about tariffs on tea, sugar, and cigarettes.

There is so much noise generated by Mr. Trump and his antics. But is it worth it?

History is filled with similar instances, although the reasons may differ. I recall that back in October 2022, significant excitement surrounded inflation in the U.S., interest rates, the Federal Reserve, and the potential for a recession. Discussions about the dollar index, crude oil prices, and Fed rate hikes were almost daily occurrences.

Economists thrive in such situations, as they have opportunities to appear on national television and showcase their knowledge and expertise. They analyze data, reference obscure models, use complex jargon, and often create panic among the rest of us. They gaze into a metaphorical crystal ball, attempting to predict the future, which is inherently uncertain and unpredictable. 

Will the U.S. enter a recession? Maybe. Or maybe not.

As usual, they are unsure.

They don’t have definitive answers. All their forecasts are subjective, reliant on numerous assumptions, which makes their accuracy questionable—much like a magical black box.

And that’s precisely the point.

As retail investors, we need not be excessively concerned by this high-pitched rhetoric. It is in our interest to ignore these economists completely. Let us not get carried away by these heavy jargons and theoretical models. These macro headlines are mostly noise — loud, dramatic, and short-lived.

Long-term investors should be aware that markets have a way of absorbing such shocks and moving on.

Do you remember the Russia-Ukraine war panic? Or the Israel-Palestine crisis? Two years ago, this has created a huge furore. And market nosedived. But today, no one is bothered whether the war is still ongoing or has ended.

Life moves on.

This Trump Tariff saga will follow the same path.

So let us not lose sleep over the macros like:-

1. What tantrum will Mr. Trump or anyone, for that matter, throw next?

2. Whether the US or any other country slide into recession?

3. Will China overtake the US economy?

4. Will the US inflation increase, and will the Fed reduce the rates?

5. Where will the Dollar index level be in the next year?

6. Will the Crude prices be hovering again beyond $100?

   
   

Leave these questions for the economists to handle. They are handsomely paid to predict the future.

The real question that matters for all of us is:-

Will these factors affect my investments?

And the answer is a resounding NO.

As someone who appreciates the insights of behavioral finance, I urge you to avoid this noise and stay on course toward wealth creation. Understanding economics is great — it sharpens your mind. But it’s your behavior that creates wealth.

Yes, in the short run, due to such tantrums, the markets may wobble. We may witness heightened volatility. The Nifty 50 index might swing between 22,000 and 20,000 levels. However, long-term investors should not get worried about these temporary obstacles. 

The market is supreme. It has seen the worst and bounced back stronger.

The market digests uncertainty with surprising resilience. Compared to past shocks, this tariff drama is minuscule. Blink, and it’ll be gone.

This is where Vipassana Investing comes in — sit still, observe, don’t react, and let go.

Leave macro worries to economists. Our job is to focus on our goals and our behavior. 

And before we go, here are two gems that’ll make you chuckle:

"The curious mind embraces science;

the gifted and sensitive, the arts;

the practical, business;

the leftover becomes an economist."

— Nassim Nicholas Taleb

"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." — Laurence J. Peter

So next time you see a headline screaming about tariffs or recessions — smile, sip your coffee, and let your SIPs do the talking.

Defensive Investing isn’t just about avoiding risk, it’s about managing your behavior.