What to expect when you're expecting a trade war
A guide to the coming economic devastation
What if they gave a trade war and no one came?
That philosophical question from the 60s is rhetorical because they are most certainly coming to Trump’s trade war. China became the first country to strike back at the US for Trump’s “unilateral bullying practice” by imposing a 34 percent tariff on all American imports.
On the American side of the pond, layoffs have already begun as Stellantis NV, an automaker, announced 900 layoffs in the US due to production pauses at plants in Mexico and Canada. The US job cuts are at plants that build components for the foreign factories.
Prices haven't started rising yet, although some retailers may decide to get a jump on the tariff charges. Inventories already on hand won’t be taxed at the higher rate, but replenishment will. Large price increases are expected for clothing, cars, and raw materials like metals and textiles.
Tariff implementation is staggered with the universal 10 percent tariff effective on April 5 and the steeper “reciprocal” tariffs kicking in on April 9. After that, there will be a hodgepodge of retaliation from both other countries and Donald Trump.
This is just the beginning.
What comes after that is the question. In very large part, that depends on Donald Trump.
One option for Trump is to look for a few concessions from other countries, declare victory, and remove the tariffs. This would allow Trump to look somewhat sane and magnanimous, even if also like a bully. It would allow the stock market to rebound at least partially and hopefully avert a global recession. If, as some people claim, Trump is using tariff threats as a negotiating tactic, events would follow this course.
I don’t think this will happen.
I think the most likely course is that Trump doubles down and ramps up his tariffs as other countries respond. If you wonder why, I’ll point at history, both recent and otherwise. There is ample evidence that Trump has been a “Tariff Man” for decades. He really believes in the tactic, and during his first term, the tariffs were there to stay (with some waffling). There’s no reason to believe this time is any different.
The fact that Trump tariffed Israel after it preemptively removed its tariffs on US imports is an indication that it is not a negotiating tactic. Even if it was, it would be a poor negotiating tactic against countries like China where bending to Trump’s will would entail an unacceptable loss of face.
And let’s face it, who would trust Trump to make an honest deal at this point anyway? The president is infamous for changing and ignoring the terms of agreements. I mean, he calls the USMCA a horrible deal today but said it was the “best agreement we’ve ever made” when he signed it only five years ago. Anyone who inks a deal with Trump must know that it isn’t worth the paper it's written on.
The question then becomes what happens when the trade war rages for the 1,384 days until Trump leaves office. For starters, the economy will slow and prices will rise. As is often the case, the poor will be hardest hit because so much of what lower-income people buy comes from countries like China and Vietnam. The inventories of retailers like Dollar General, Walmart, Amazon, and Temu will be hard hit.
Inflation may also rise. Those who don’t remember the 70s may not have heard the term “stagflation,” but many economists are predicting that the combination of high inflation and stagnant economic growth is a distinct possibility.
We have already seen plummeting stock markets and magically disappearing 401(k)s, and that trend is likely to continue with more rounds of retaliation. Shockingly, the Trump supporters I know who were very concerned about their retirement savings during the 2022 stock market declines after Russia launched its full-scale invasion of Ukraine are mostly silent. At this point, they haven’t felt the pain, and most of them still have faith that Trump knows what he is doing.
How long will it take them to disabuse themselves of that notion? Who knows? Some never will. For others, at some point, it will kick in that they’ve been had, but after a full decade of being programmed by Fox News and right-wing media to believe that Trump is a messianic genius, it is going to be a long process.
How long may depend on how bad it gets and how quickly. The 2018 tariffs destroyed hundreds of thousands of the manufacturing jobs they were meant to create and bankrupted farms, but most Trump supporters still think that the Trump economy was a strong one. This is due in roughly equal parts to a rose-colored view of the past, disinformation by right-wing media, and the fact that if they weren’t directly affected by the economic effects of the tariffs, their information bubbles meant that they wouldn’t hear about them. Further, the pandemic overtook the economy as the major story of 2020 and helped Trump escape accountability for his ill-advised trade policies.
Of course, the 2025 tariffs are bigger than the 2018 tariffs, and Trump is introducing them earlier in his term. Whether the tariff policy is successful or not will be very evident by the midterms. By 2028, the Republican Party will be reeling unless course reversals are made. In a 50-50 country, it won’t take a large electoral shift to produce a blue wave, and I do expect a significant shift.
Nevertheless, the US has a strong economy that can withstand a lot of mismanagement. The future looks even worse for countries like Vietnam, where 30 percent of the country’s exports go to the US. It will be difficult for the country to replace US buyers, so the imposition of tariffs based on a lie that even Erick Erickson has called out could devastate the economy. Vietnam never had a 90 percent tariff on US imports, as Trump claimed. The actual figure varies by commodity, but the highest published rate for Most Favored Nation countries was 10 percent.
Recessions in other countries may not bear the political weight of a domestic downturn, but they can spark humanitarian crises or even wars. That’s particularly true since the trade war is being combined with Trump’s shutdown of foreign aid projects to create a double whammy. It seems that the Administration doesn’t want to give handouts to other countries, but it also doesn’t want them to better themselves by trade.
There is also a possibility that Trump may “wag the dog.” At some point, he may try to distract the nation from its economic problems with an invasion of Greenland or Panama. I don’t believe that Trump is intentionally crashing the economy to trigger unrest and use the Insurrection Act, but that chain of events could happen even without premeditation.
As I wrote last week, the trade war won’t affect all countries equally. China is well-positioned to fill the America-shaped vacuum left by Trump’s isolationism after it employed the savvy strategy of not declaring a trade war against the entire world. If Sun Tzu didn't say something about it being a bad idea to declare war on the whole world at once, he should have. China would also like to take the American role as de facto leader of the world, a mantle that MAGA seems happy to surrender. Brazil, an exporter of soybeans, oil, and iron ore, also stands to gain ground with former buyers of US goods.
The trade war is not going to end well for the US or anyone else. How bad it gets depends on how long Donald Trump is willing to pursue a failed and destructive policy.
The best that we can hope for is that the economic devastation will inoculate American voters against economic populism, particularly the authoritarian MAGA strain. As I’ve said before, nothing will make the public sour on Trump like letting him get what he wants. His ideas are just bad.
In the meantime, our 401(k)s may be significantly lighter and we may be turning allies into enemies at an alarming rate, but boys can’t play on girls’ teams and Kamala had an annoying laugh. It’s all been worth it, right?
REPORTATION ORDER: A federal judge ordered on Friday that a legal immigrant who was deported “because of an administrative error” must be repatriated to the US.
“This was an illegal act,” Judge Paula Xinis said. “Congress said you can’t do it, and you did it anyway.”
THE MEME WAR: The economic situation may dire, but the memes are fire. In a case of laughing rather than crying, people are savaging the trade war with memes. You can view many of these memes on Racket News’ social media. Links are below. References to the penguins, the only inhabitants of the deserted Heard and McDonald Islands that are now subject to a 10 percent tariff, are especially popular.
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My understanding is that there's an awful lot of military force build-up in the Middle East area. Gaza or Iran as targets, perhaps?
One problem with "tariffs as negotiating tactic" is that they're also counting the revenue from tariffs into budget considerations. They can't if they expect the tariffs to be removed.
I think we need to take Trump at his word: he hates trade and doesn't understand that exchanging money - which we print - for goods and services works better than barter systems.
The tariffs ploy is risky, but we will see changes within a few months if it is really harmful to the economy. There's a lot of moving parts that will determine the final effects of the tariffs. It could turn out not very well like the Inflation Reduction Act. Or less effective than it could have been like the CHIPS Act because there were no provisions for the USA to obtain rare minerals from friendly countries or North America and to build refining facilities for those ores. It's hard to be perfect when you are actually doing something.
Regarding the erroneous deportation, Congress never said not to do it. It was a judge who stayed a final deportation order because he was taken in by a sob story of an illegal with criminal ties. Judge Xinis's deadline has just been removed by the Supremes.