Trump's trade war an exercise in mutually assured global destruction

AllAfrica

a day ago

The recent spate of dreadful US data probably has Donald Trump hoping the Jeffrey Epstein scandal gets even more attention than it is.
Of course, the US president is trying to conjure all his weapons of mass distraction to push reports of his ties to the disgraced sex offender out of the headlines. For Trump, though, fast-mounting evidence that his one-man tariff arms race is backfiring at home could be more politically dangerous.
The US added just 73,000 new jobs in July. There were also seismic revisions to the previous two months, indicating that the globe's biggest economy is weaker than official figures suggested.
'Not only was this a much weaker than forecast payrolls number, the monster downward revisions to the past two months inflicts a major blow to the picture of labor market robustness,' says Seema Shah, chief strategist with Principal Asset Management. 'What's more concerning is that with the negative impact of tariffs only just starting to be felt, the coming months are likely to see even clearer evidence of a labor market slowdown.'
The about-face in perceptions of US economic invulnerability puts the US Federal Reserve in a new tough spot. Trump has been banging the table for rate cuts and ratcheting up threats to fire Fed Chair Jerome Powell.
News that payrolls averaged just 35,000 over the last three months — the weakest pace of job growth since the pandemic in 2020 — appears to have Trump in panic mode. So much so that on Friday (August 1), just hours after the jobs numbers were released, he fired the head of the statistical agency that tabulates the data.
Yet it's the mirror that Trump should be looking at. The effects of Trump's massive tariffs on hundreds of countries — including 30% on China — are already boomeranging back on America. They're adversely affecting other major economies, too, as the global trade order enters a new chaotic era.
Look no further than China's official manufacturing purchasing managers' index (PMI), which remained below the 50 mark in July, denoting contraction. That 49.3 reading comes as Asia's biggest economy battles unrelenting deflationary pressures.
China's 'PMI slowdown points to a weak start to the third quarter,' says Carlos Casanova, economist at Union Bancaire Privée. 'This marks the fourth consecutive month of contraction, driven by declining export orders and weak domestic demand.'
Casanova notes that Chinese and inflation data out later this week will provide the first official insight into the pace of economic slowdown in the July-September period. Generally speaking, he notes, 'deflationary pressures are expected to continue, reflecting sluggish domestic demand.'
China's consumer price index, out Saturday, has remained near zero throughout 2025 and 'could dip into negative territory in July, influenced by seasonal factors and weakening real estate activity indicators,' Casanova says.
In China, the real estate sector plays a pivotal role in shaping domestic sentiment due to significant household exposure to this asset class, notes Casanova. The sharp decline in real estate activity from May to July may have dampened consumer confidence, potentially weighing on retail sales.
The headwinds from Trump's trade war, meanwhile, are making things even tougher for China's pre-trade-war, pre-existing conditions. These include a property crisis, high youth unemployment and local governments struggling under the weight of crushing debt burdens.
Yet it's the mutually-assured destruction dynamic emanating from Trump's tariffs that's dampening the global outlook.
It's not just the US and China, of course, but economies from Canada to Germany to Japan. As British Columbia Premier David Eby puts it: 'The trade war that we're in right now, that neither Washington state nor British Columbia asked for … but is being imposed on us by the president, is a recipe for mutually assured destruction.'
One of the great ironies of Trump's recent attempts to stop Beijing is his aping of Chinese Communist Party tactics in a nation that prides itself on being a model of free-market transparency. Exhibit A: firing Erika McEntarfer, the Bureau of Labor Statistics commissioner, for, in Trump's telling, 'faking' weak employment data.
'For six months, I've said that threats to economic data have been more collateral damage than intentional harm — no longer,' says Jed Kolko, a senior fellow at the Peterson Institute for International Economics, a Washington-based think tank. 'Firing the head of the BLS is five-alarm intentional harm to the integrity of US economic data and the entire statistical system.'
Economist Michael Strain at the right-leaning American Enterprise Institute chimes in, 'it's imperative that decision makers understand that government statistics are unbiased and of the highest quality.'
No longer, indeed. Upcoming US data on employment, inflation, gross domestic product and international trade may require an asterisk in much the way Wall Street has long viewed Beijing's official numbers with suspicion.
Yet this Chinafication dynamic doesn't stop there. Trump's desire to eliminate the Fed's independence is an effort to morph the most respected US institution into another People's Bank of China. Though PBOC Governor Pan Gongsheng wields certain powers, big decisions on interest rates, reserve requirements and yuan levels are made far above his pay grade.
Trump's intensifying assault on the media is also right out of the CCP's playbook. Trump's moves to dismantle the Voice of America news agency, kill off the Public Broadcasting Service, browbeat ABC and CBS into submission via settlements and sue The Wall Street Journal, New York Times and others must have information censors in Beijing blushing.
'There's real Ministry of Truth stuff going on right in front of our eyes,' writes political pundit and podcaster John Archibald. 'Just like Orwell wrote it.'
Yet for Trump, who was elected mainly a second time to hasten GDP, the tariffs are proving to be economic poison. Whichever loyalist he names to head the Bureau of Labor Statistics will have a hard time masking the inflationary pain from Trump's tariffs.
Six-plus months in, it's abundantly clear that the US is sustaining bigger blows than Asia's biggest economies. All this throws cold water and new suspicion on the surprisingly strong 3% growth rate the US produced in the second quarter.
Case in point: Don Bacon, a Republican Congressman for Nebraska, claiming that 'GDP here has decreased by 6% over the last year. And it's all about trade. It's all about getting corn and soybeans out the door.' As he told CNN: 'We're now in a troubled time.'
Chief Goldman Sachs economist Jan Hatzius says that even if the US is expected to avoid a recession, GDP is forecast to only expand about 1% this year as tariff rates rise. Core inflation, meanwhile, is projected to climb to about 3%.
As such, he notes, 'there are signs that consumer spending is stagnating.' At the same time, Hatzius adds, 'investors are increasingly focused on the outlook for US deficits, and those concerns are beginning to drive up yields on longer-maturity Treasuries.'
The US national debt has topped US$37 trillion. Trump's recent 'Big Beautiful Bill' will add $4.1 trillion to that pile through 2034, says the nonpartisan Committee for a Responsible Federal Budget. Against this, Trump is playing the economic version of Russian roulette with the Fed, the globe's most important financial institution.
Trump's obsession with bilateral tariff deals also missed the point that the global financial system is increasingly interconnected, like borderless supply chains. This extreme bilateralization of trade is a reminder that Trump's economic strategy is ripped from the pages of the mid-1980s.
The rationale behind Trump's tariff policies dates back to a time when the five most industrialized nations held vast sway over economic dynamics. The problem with a US leader prioritizing 40-year-old sticking-time strategies is that 'Made in China 2025' is upending the global economy in real time.
And at a moment when China is investing in industries and sectors it thinks will lead the world in 2035. This goes, too, for a Global South that's increasingly forging its own path – one that barely factors in where the US might fit in a decade from now.
'The world economy is splitting into competing groups instead of a single connected system of globalization of the 1990s,' says Gilles Moec, chief economist at AXA Investment.
Trump tariffs, in other words, won't shrink cross-border trade. Instead of bringing production back to the countries where products are used, global companies have been reorganizing supply chains around groups of countries or 'clubs' with similar values or security concerns, Moec argues.
He argues that as long as clubs include both low-wage nations and high-spending economies, the adverse effects of this 'diluted version of globalization' – such as inflation and lower efficiency – can be mitigated and 'can still keep the wheels moving.'
Another problem: the rather capricious nature of Trump's tariff rates. In response to Canadian Prime Minister Mark Carney rolling his eyes at Trump's 51st state strategy, Ottawa is being hit by a higher-than-China 35% tax.
A threatened 50% tax on Brazil, with which the US enjoys a trade surplus, also suggests Trump's worldview has pivoted from economic strategy to personal attacks. Trump is irked that Brazil is holding former President Jair Bolsonaro accountable for an alleged 2022 coup attempt.
The real indignity may come from China, though, if Xi Jinping refuses to bow to Trump World. Xi, remember, has yet to offer concrete concessions to signal fealty to Trump, which continues to delay the deadline for a deal.
Though Trump has claimed since late June that 'we just signed with China the other day,' officials in Beijing hold that US-China trade deal talks are still in the early stages, at best. The longer China drags its feet, the harder it becomes for Trump to convince his #MAGA base that huge economic wins lie ahead to make tariff disruptions worth it.
Yet despite weak data here and there, China is holding up much better than expected in the face of Trump's barrage of tariffs. China's claimed 5.2% GDP growth rate in the second quarter likely shows Xi's economy was readier for the tactics of Trump 2.0 than Washington anticipated or understood.
And that Xi's strategy to diversify trade flows to non-US markets is paying off while Trump's troubles intensify and mount.
Follow William Pesek on X at @WilliamPesek