There is now only a slim chance that a global recession can be averted

Independent

02-04-2025

Most presidents of the United States seek to build. Donald Trump seeks only to do the opposite – ironically, given his history as a prominent property developer. In the circumstances, announcing a series of devastating differential "reciprocal" tariffs on the US's major trading partners in the charming environs of the White House Rose Garden seemed rather incongruous. Then again, as the true enormity of what is at hand became clear, the wind got up and there was a sense of a storm coming. That was far more fitting.
His first days in office were marked by wild executive orders inflicted on the federal government and on the constitution of the United States. His whirlwind continues – although the defeat of a Trumpian judge in an election in Wisconsin is perhaps a small sign that the US is growing weary of the efforts of the president and his noisy Svengali, Elon Musk.
In the name of what seems a futile search for peace in Ukraine, the president has also applied his nihilism to the US's traditional alliances, not least Nato, where he has chosen to abuse friends and allies while simultaneously flattering and appeasing Vladimir Putin. To astonishment, the US has told former partners, from Canada to Ukraine to Japan, that the US no longer has a strategic interest in their survival as independent sovereign states, and in any case no longer shares their values. Matters are now purely transactional.
The international rules-based order that took eight decades to construct and won the Cold War has been comprehensively abandoned within 80 days of Mr Trump's inauguration, exceeding even the worst of fears. It is scarcely believable, but tragically true that the president seeks to annex Greenland and absorb Canada.
The result has been to plunge the US and the world into a state of permanent crisis. Having tested the fabric of American political life and the international order, the president is now rapidly reaching the final stages in dismantling the post-war economic order, too. As with the military and diplomatic alliances that protected the US and its partners for so long, so too with the institutions and policies that helped propel the world to unprecedented progress and prosperity.
Decades of painstaking work to grow international trade and establish a rules-based system eventually overseen by the World Trade Organisation are being undone by the stroke of a presidential Sharpie. It is a revolution, and it has already wrought chaos in financial markets and the corporate world.
In the space of less than one hour, interspersed with the usual rambling digressions, Mr Trump visited enormous economic hardship on what he would call "friend and foe" alike. China, predictably, came in for the most vindictive treatment – a blanket tariff of 34 per cent, but the EU, scrambling to defend itself from Russia, has been whacked with a 20 per cent tax. The British, let off with a 10 per cent charge, need not feel too smug – the global trade slowdown this will trigger will hit the UK's feeble growth prospects hard.
With his much-trumpeted 'Liberation Day' tariff announcement, Mr Trump seeks nothing less than the reversal of globalisation and the disruption of highly efficient integrated supply chains and markets in the name of a senseless zero-sum economic nationalism.
All the lessons of history and practical economics are abandoned in the cause of crude protectionism – specifically mercantilism, in which politicians such as Mr Trump, rather than markets, determine what is made where and by whom.
Mr Trump, a child of his times whose formative years were marked by the rise of German and Japanese industrial power, seeks to return the US to its status as a great manufacturing nation, even though other nations build cars and make steel better and more cheaply. It is a fundamentally atavistic vision of the US's economic future, and it will serve Americans badly.
So far from being the disaster zone he so often describes, the US as a whole has never had it so good. Its economy has lately been growing strongly, and in most places living standards are high and rising. The problem has been the lack of care and attention given to the casualties of globalisation. Mr Trump blames foreigners – who else? – for the dislocations caused, and sincerely believes, absurdly, that the US can be self-sufficient in almost everything.
Early on in his first term, he wrote 'TRADE IS BAD' on the top of a draft speech for an international economic summit. That simple and simplistic belief is the key to what is befalling the global economy now.
America First is becoming America Only, which might be fine for Americans if it was true. But, unlike the world of real estate deals, trade need not be a zero-sum game. Just as the gradual easing of trade restrictions drove productivity and economic growth higher, so it is also the grim historical experience that no one wins trade wars, and they can lead to real wars.
Tariffs will make Americans poorer, make businesses less competitive, and the retaliation by the EU, China and others will cut off valuable export markets, particularly for farmers and the oil industry. The import taxes cannot simultaneously yield the vast revenues predicted by Mr Trump – paid if goods are still imported in the same volumes – and restore US jobs, if there is no change in consumer behaviour and no switching of purchases to buy American, which means lower imports and tariff revenues.
As things stand, it seems too late to try to reason with Mr Trump. The only hope is that out of chaos will emerge a new order and, through negotiations, the US and its major trading partners can end up with tariffs that are actually lower than before. Restraint is required if tit-for-tat tariffs are not to escalate to absurd and catastrophically damaging levels.
There's a slim chance that a global trade recession can be avoided, and even that a new settlement can benefit all sides. At the conclusion of his remarks the president hinted that this initiative could be the beginning of a more benign process of tariff reduction. Certainly, something akin to the peace process that follows a real war will be needed to restore order.