Step one: Start a pointless, globe-encompassing trade war, rationalized solely by your own boneheaded innumeracy. Step two: Tank the markets. Step three: Pare the war back to a hot conflict with one of the United States’ most important trading partners and a warm conflict with every other country on Earth. Step four: Watch the market rebound and declare victory. That’s the art of the deal, when it comes to President Donald Trump’s tariffs and trade policies.
This afternoon, Trump announced that the U.S. will pause the imposition of its “Liberation Day” tariff rates for 90 days. The markets surged in response; the president’s supporters cheered. But there’s no victory here, whatever the Dow Jones does and the Trump administration claims. The White House has risked everything, ruined plenty, and gotten nothing. The country’s economy is weakening, and the possibility of a recession remains.
Today’s trade policies are less draconian than yesterday’s, but they are still draconian, and will result in rising costs for American businesses and households. Contrary to Trump’s claims, tariffs are effectively domestic sales taxes, paid by domestic importers and passed onto American consumers. If this latest policy holds, tens of thousands of companies will have to pay a 10 percent tariff rate on goods imported from countries other than China, and a 125 percent tariff rate on goods from China.
Americans purchase roughly $440 billion in goods from Chinese firms a year. They purchase roughly $250 billion worth of goods from other countries a month. Prices in grocery stores and malls are already rising and will keep rising, sapping thousands of dollars from each and every family in the country. Businesses, especially small businesses, will founder. Many farmers, for instance, cannot pass price increases onto consumers. Thousands might need carve-outs or bailouts to avoid going bankrupt.
The whiplash on rates is having its own effects. Other countries are putting retaliatory tariffs on American goods, which will translate into falling sales for domestic exporters. Moreover, uncertainty is dampening business spending. How much should department stores charge for dishwashers? How many cars should auto dealers keep on their lots? How much should real-estate developers expect to spend on lumber and rebar? How much should hospitals budget for medical equipment? Under Trump, those are impossible questions to answer. Input costs changed dramatically from last week to this week, and stand to change dramatically again in 90 days or whenever the president changes his mind.
American manufacturing and heavy-industry firms are struggling to figure out whether they can reshore operations, as Trump wants them to do, or whether they should scramble their supply chains. Many executives are doing nothing instead, waiting until they have confidence in and clarity on trade barriers going forward. The White House shifting its policies radically over a seven-day period and promising to change them again in three months will sap confidence more than the tariff pause will bolster it.
Families are living under their own pall of uncertainty. Consumer confidence has tanked. Inflation expectations have risen. Millions of Americans think that the country is headed into a recession or believe it is already in one. In response, households are pulling back on their spending—meaning that they are slowing the economy down, making an actual recession far more likely. A sudden increase in gas prices, an unexpected collapse in lending, or a slow trickle in layoffs might be enough to send the whole country into the red.
Investors are struggling as well, as evidenced by the volatility in the price of bonds and stocks. They are pricing in the effect of the tariffs on corporate earnings. They are also pricing in the reality that the United States is a less democratic and less rational country than it was a few months ago. The country’s borrowing costs are likely to rise, for good reason. A White House that would blow up the global trading system for no reason and call oopsie on its own policy a week later seems like a White House that might gut Social Security, doctor economic data, breach the debt ceiling, and stop legal payments too.
Who would bail the country out if a market rout turned into a financial crisis turned into an economic panic? The Federal Reserve is slashing its growth forecasts, with financial analysts warning that the central bank might find itself caught between the need to provide liquidity to the markets and the need to keep prices stable, the mandate to hold down unemployment and to prevent runaway inflation. Congress, for its part, has abdicated its responsibility to act as a check on the White House.
What has the country gotten for all of this chaos? Nothing. Trump tarnished the United States’ long-standing trading relationships and boosted the cost of imports, and evidently won zero concessions in return. The Liberation Day pause is better than the Liberation Day policy itself was. But Americans are getting a raw deal one way or another.
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