Donald Trump’s erratic tariff policies have triggered economic instability, accelerated deglobalisation, and jeopardised America’s global leadership and economic credibility worldwide.
“Trump is not like you or me, he is crazy. All bets are off” said the renowned American author Michael Wolff in “All or Nothing”, published two months ago, the latest of his four best sellers on Donald Trump. Trump calls them works of fiction. Last week, as financial turmoil spread across the world and global markets spooked, all the result of Trump’s sweeping tariffs, many found themselves moving to agree with Wolff’s description of America’s erratic and unpredictable 47th president. As stock markets tumbled and consumer confidence plummeted, US economists at Goldman Sachs raised their assessment of the odds that America would tip into recession to 45% if the tariffs continued, up from 35% the week before. Other economists were raising similar alarms, with J P Morgan putting the odds of a US and global recession at 60%.
As much as Donald Trump mocked professional economists and made claims that tariffs would raise enormous amounts of revenue from foreigners, many disagreed, arguing that his policies would lead to ruin, destruction and decay. Republican political strategist, Antonia Ferrier, told the Spectator last week that if tariffs continued “there is no amount of MAGA fairy dust that can hide how destructive these import taxes will be on working Americans. Unfortunately, we are all going to pay the price for Trump’s single-minded commitment to destroying the global trading order, which has functioned smoothly since 1945 when America set the rules of the game, many of them in its own favour.”
In the meantime, Donald Trump gloried in the world spotlight as he claimed to his adoring followers that global leaders were willing to do anything to make a trade deal with him as world-wide American tariffs come into force. “I’m telling you, these countries are calling us up, kissing my ass”, he said during a speech at the National Republican Congressional Committee dinner in Washington last week. “They are dying to make a deal. ‘Please, please sir, make a deal. I’ll do anything sir,’” he intimated a begging foreign leader. That was just before China, America’s biggest trading partner, raised tariffs further on American goods to 84% in retaliation for the US’s 104% tariff.
China insisted it would “fight to the end” rather than capitulate to what it saw as US coercion, warning that America will “reap what it sows”. Trade between the two economic powers amounted to around $585bn last year, with the US importing far more than China ($440bn) than China imported from America ($145bn). This shows a trade deficit in 2024 of $295bn, significantly less than the $1trn figure repeatedly claimed by Trump last week. But then, Donald Trump is well known to be “economical with the truth”.
Then, suddenly the Donald blinked and carried out the mother of all U-turns. Having repeatedly stated that his tariff policies “will never change”, in a simple post on his Truth Social platform he announced “I have authorised a 90-day PAUSE.” As China had showed a “lack of respect” by retaliating against US tariffs, he added “I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately.” However, even as Trump paused his plans for aggressively higher tariff rates on many countries except China, he is still maintaining the 10% blanket levy on most imports from around the world that took effect on 5 April.
Trump’s humongous row-back shows that even “the stable genius”, as he calls himself, has to bow to falling markets and a tidal wave of criticism, as economists sounded worrying alarm bells over an imminent recession and financial crisis. Bill Ackman, the billionaire hedge-fund boss and Trump backer, earlier in the week turned on his friend, warning him that his tariffs risked an “economic nuclear winter.” Trump might have played all this down, but he could not deny that his biggest problem was bond yields. Since the tariff announcements, demand for bonds slumped so much that in just two days, yields on 30-year US Treasuries rose at the fastest pace recorded during any major stock
Look deeper at the events of the past week, though, and you will come to the inescapable conclusion that Trump is simply committed to walling America off from the world in order to dramatically reduce bilateral trade deficits while using tariffs to fund his tax cuts and spending plans. As Vice President Vance posted on X last month “President Trump believes in borders. He believes in economic self-sufficiency.” The problem with Trump’s approach, however, is that tariffs can only succeed at reshoring manufacturing over the long term and only by making imported goods permanently more expensive for US households and producers. Critics have asked the simple question “how many Americans are willing to forgo relatively well paid, air-conditioned jobs to sew sneakers and t-shirts in garment factories? If not, what’s the point of tariffs against the poorer countries like Bangladesh that specialise in low value-added industries?” A good point. Many believe that all Trump’s tariffs will achieve is a rise in prices and therefore inflation, a reduction in product variety and considerable pain for US businesses. Tariffs will not lead to a “golden age” of American manufacturing.
Take the ubiquitous iPhone, for example. Made in China, the pre-tariff price of a top of the range iPhone 16 retails in America at $1,199. Current tariffs will take the price to well over $2,000. Trump’s stated goal, however, is to have more iPhones and hi-tech goods made in the USA, and his high tariffs are meant to force the mass “reshoring” of manufacturing. In principle, that’s possible, but it would come at a high cost. Experts predict that a US made iPhone could cost as much as $3,500, and then only after years of investment in new factories and workforces. Who would choose or even be able to buy an iPhone at that price? Historians point to endless examples of failed attempts at reshoring and import substitution, and Donald Trump is likely to join the list.
Faced with the prospect of sustained US protectionism, the vast majority of countries will probably decide to de-risk from the United States and diversify their economic ties with the rest of the world. American interests and global influence will be damaged as nations begin to hedge towards Beijing as an alternative, as the trade war intensifies. Earlier last week, the message from Beijing to Washington was clear: “if you want to have dialogue as equals we can talk, but if you want to have a fight we can also fight.” On Friday it became clear that Trump had chosen the latter and the two economic super powers were entering a fully blown trade war. China then raised tariffs on all US goods to 125% in response to America’s 145% on Chinese goods, emphasising that it had well over a billion domestic consumers for its products and that it could sell the remaining goods to the rest of the world, especially the developing markets in South East Asia. It was no coincidence that Beijing announced on Friday that Chinese premier Xi Jinping will be visiting Vietnam, Cambodia and Malaysia over the next few days with a clear message: “whose side do you want to be on? Do you want to be with a bullying, unreliable, tariff-imposing USA? Or do you want to be with us, your friendly free-trading neighbour?”
The contours of a new world order are emerging and with globalisation on its death-bed, accelerated by Trump’s tariffs, regional and domestic value chains will be enhanced as a core feature of industrial reorganisation. There is almost certain to be further economic instability as Trump runs rampant and unrestrained. But many experts believe that at the end of the day, Trump’s tariffs have only served to fast-track moves to a new global economic order and global politics. Donald Trump fails to understand that his irrational actions, not just on trade but on international security, his decision to wipe-out USAID, and the continuing erosion of judicial processes and the rule of law in America, simply heightens the long-term decline of the United States and the relative rise of China.
Globalisation helped make America the most prosperous nation in history. But Trump’s “liberation day” signalled the death of globalisation as we know it today and the inevitable demise of US power and influence around the world.
* John Dobson is a former British diplomat, who also worked in UK Prime Minister John Major’s office between 1995 and 1998. He is currently a visiting fellow at the University of Plymouth.