Markets were mulling familiar themes last week. Will a wider U.S. twin deficit change the rules for the dollar and treasuries and is elevated volatility here to stay in equities? Judging by last week, the answer would be: probably and yes. The contemplation over these stories, though, were interrupted by politics. Mr. Trump announced announced announced—25% and 10% respectively—and Mrs. May attempted to give clarity on the U.K. government’s Brexit clarity on the U.K. government’s Brexit.* I was unimpressed with both.

Before I have a dig at Mr. Trump, I ought to provide an example of some-an example of some-. I have great respect for Stephen Jen, but his argument here is like endorsing the idea of a diet by advising someone to eat nothing but kale and carrots for a decade.

The analysis of Mr. Trump’s tariffs requires a distinction between the principle and the concrete measures. I concede that China is bending the rules of global trade, but Mr. Trump is stretching the fabrics of macro-economic policy if he starts imposing tariffs on industrial goods. He is presiding over an economy close to full employment, a low domestic savings rate, and a medium-sized twin deficit. To boot, he is about to let fly with unprecedented fiscal stimulus.

Adding policies to close the economy from the outside world—which presumably is the idea—is a recipe for soaring inflation and a sharp increase in interest rates. The dollar is a wildcard, though. Immediately after the election, markets also were considering the impact of tariffs. But they did so in the context of the assumption of a dollar bull market. The idea was that if the White House imposed tariffs of 10%, the dollar would rally 10% to cancel out the impact. Now, however, markets have been spooked by the prospect of fiscal stimulus, sending the dollar lower and bond yields higher.

Assuming that that U.S. savings rate remain unchanged, a steel and aluminium tariff is the equivalent of shooting yourself in the foot. By far the biggest steel sector in the U.S. is downstream— firms that use steel as inputs—and they now have to pay more for their raw material imports. With fiscal stimulus in infrastructure and defence coming their way, it seems unlikely that they will be able to switch entirely into domestically sourced steel. In other words, a tariff can be analysed like a tax increase, and microeconomics show that those with low demand elasticity tend to pay the lion’s share of it. Given where the U.S. economy is in the business cycle, the risk is high that the burden will be carried mainly in the domestic market. If the dollar weakens, and U.S. steel and aluminium imports rise, due to the boost from fiscal stimulus, the external deficit will widen.