Trump Is Unleashing a Chaos Economy

Yahoo

14-03-2025

Americans hold all sorts of views on tariffs. Some are opposed on free-market grounds. Others are in favor for reasons of national security or to bring back American manufacturing. Those debates are part of a normal democratic process. But President Donald Trump's first weeks in office have shown that a principled discussion over tariff policy is simply not on the agenda, because the administration's tariff policy is nonsense.
What we have is chaos. One U.S. uncertainty index of economic policy, which goes back to 1985, has been higher at only one point in the past 40 years: when the coronavirus pandemic began. That, of course, was a global phenomenon that the United States could do little to avoid. What's going on now, by contrast, is entirely self-inflicted.
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Chaos is Trump's calling card, but few could have expected how quickly the president would ricochet all over the place on the size, nature, and timing of—not to mention the justifications for—one of his signature policies. Before markets can adjust to one pronouncement, the world's smartphones buzz in unison announcing that the wealthiest nation in the world, whose dollars hold up the global financial system, is hurtling in another direction once again.
Just consider this abridged timeline of the most significant twists and turns thus far:
November 25, 2024: Trump posted on Truth Social that on the first day of his new term, he would 'sign all necessary documents to charge Mexico and Canada a 25 percent Tariff on ALL products coming into the United States, and its ridiculous Open Borders.'
January 20, 2025: The first day of Trump's term. No tariffs announced. Instead, Trump signed a memo directing the Commerce secretary to 'investigate the causes of our country's large and persistent annual trade deficits.'
January 26: After the Colombian president rejected U.S. military flights carrying deportees, Trump threatened 25 percent tariffs on all Colombian goods. Colombia threatened to respond but deescalated before the new taxes were put in place.
February 1: Tariffs against China, Mexico, and Canada are on.
February 3: Tariffs (for Mexico and Canada) are off.
February 4: Chinese tariffs go into effect, and the Chinese government announces retaliatory tariffs as well as export controls on key minerals.
February 11: Trump imposes a 25 percent tariff on steel and aluminum from all countries.
February 13: Trump threatens reciprocity to any country enacting tariff policies against the United States.
February 25: Trump raises the possibility of tariffs on copper.
February 27: Canada and Mexico tariffs maybe coming back on?
March 1: In the middle of a housing crisis, Trump raises the possibility of tariffs on lumber and timber.
March 4: Okay, yes, the Canada and Mexico tariffs are back on.
March 6: Just kidding, only for some stuff.
March 9: Tariffs 'could go up,' Trump says on Fox News.
March 11: Ontario threatens 25 percent tariffs on electricity, causing Trump to promise a 50—yes, 50—percent tariff on Canadian aluminum and steel. By the end of the day, both countries backed off these threats.
March 12: A big day for tariffs. The 25 percent tax on all imports of steel and aluminum go into effect, and in retaliation, the European Union enacted duties on $28 billion worth of American goods, while Canada announced $21 billion in tariffs on American goods.
March 13: Not to be outdone, Trump threatened 200 percent tariffs on wine and other alcoholic beverages from Europe.
To recap, the United States is now in a trade war with its largest trading partner (Canada), its second-largest trading partner (the European Union), its third-largest trading partner (Mexico), and its fourth-largest trading partner (China).
It's obvious to the point of cliché that businesses rely on regulatory—and fiscal—policy predictability in order to plan hiring, capital investments, and pricing strategies. And that means these past few weeks have been very rough. How can you begin a capital-intensive project if you have no idea what anything will cost? The chaos of the current trade policy is a strange parallel to the chaos that the Trump administration has unleashed on the federal government. One difference is evident, however: Although markets expected the new president to go on a deregulatory spree, they failed to take his affinity for tariffs seriously—or at least thought things would be executed a little more deliberately.
An adviser to prominent energy companies told me that because 'infrastructure projects require five to 10 years for permitting and construction,' some of her clients are pausing normal business decisions. 'The current environment is so chaotic that it's difficult to understand effects [on] permitting pathways, community approvals, and supply-chain costs.' She requested anonymity to speak freely about her clients' struggles in the early days of the new Trump administration.
The big companies are in a better spot than small businesses. As we've already seen when the Big Three automakers were able to get direct relief from the tariffs, large companies that can provide Trump with good PR are able to get carve-outs from tariffs. But small businesses are less suited to absorbing shocks and are less likely to stay abreast of the day-to-day shifts of tariff policy. Many will be unable to game the system.
Uncertainty may also be paralyzing the labor markets. As my colleague Rogé Karma reported last month, job switching is at its lowest level in nearly a decade, even though the unemployment rate remains low. Part of what's going on is that lack of confidence in the future breeds risk aversion: Employers are too rattled to make a bet on a new hire, and employees are too worried to leave a safe position.
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Some people—such as those who are worried that a backlash may invigorate American support for free markets—would like the public to believe that the country is in the throes of an 'economic masterplan' and that the chaos of this moment will cohere into a reasonable strategy. Color me skeptical. For one, the president and his team have yet to articulate a consistent set of arguments for supporting his vision. Instead, the justifications for the tariff policies change as fast as the policies themselves.
If the tariffs are about rebalancing America's trade and restoring its manufacturing greatness, then why are they being removed? If they're about improving America's negotiating position vis-à-vis bordering nations on issues such as fentanyl and immigration, then why are we putting them on Canada?
Is Trump doing this to make Americans richer? Is he doing this to balance the budget? To hit back at other countries for their unfair policies? For national-security reasons? To solve the child-care-cost crisis?
As the Yale Law professor Jerry Mashaw wrote for Fordham Law Review, 'The authority of all law relies on a set of complex reasons for believing that it should be authoritative. Unjustifiable law demands reform, unjustifiable legal systems demand revolution.' That our elected officials are required to explain themselves, to give reasons for the actions they take, is a cornerstone of democratic accountability. Without clear reasons, it's not just businesses that are at stake. It's democratic governance.
But if sifting through Trump's roiling sea of rationalizations is important for democratic purposes, it's also personally significant. Every business, worker, and consumer in the country has a stake in figuring out the why and what of tariffs.
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Ideologues across the political spectrum resent the American voter's materialism. Environmentalists moan that the public refuses to bear higher energy costs in order to help mitigate the effects of climate change; animal-rights advocates worry that people won't pay to ensure better treatment of livestock; farm advocates who already benefit from distortionary subsidies have even advocated for price floors. Now it's the economic populists insisting that the public should be willing to pay higher prices on the path to restoring American greatness. On Truth Social, Trump posted an article with the headline 'Shut Up About Egg Prices,' and Republicans are insisting that it's worth it to 'pay a little bit more' to support the president. But 'America First' has always been a better slogan than organizing principle. When people have the option to pay for domestic goods at higher prices, they opt out, time and again.
The speed with which Republicans have gone from hammering Democrats about high grocery prices to justifying the inflationary effects of tariffs is remarkable. Yet Republicans are likely to learn the lesson that Democrats did last November: Before they are Republicans, Democrats, or even Americans, my countrymen are consumers first.
Article originally published at The Atlantic