In the short and tumultuous time since Donald Trump made his rambling address on trade policy in the White House Rose Garden, he has done what even his most bitter critics could not have foreseen – tipped the global economy perilously close to a recession, perhaps even a slump.
Even the Bolshevik Revolution of 1917 took a little longer to shake the world. It is difficult to exaggerate the far-reaching effects of this abrupt abandonment of the post-war American policy of liberalising trade.
It is especially poignant that China has retaliated with 34 per cent tariffs and lodged a complaint with the World Trade Organisation – a body that was effectively created by America, and which China eventually joined in 2001, a significant moment in the spread of globalisation.
No one can say where the declaration of a trade war made by Mr Trump on 2 April 2025 will take us. He proudly called it “Liberation Day”, when “American industry was reborn, the day America's destiny was reclaimed, and the day that we began to make America wealthy again”. In reality, it was more like an in-reverse trade version of the Japanese raid on Pearl Harbour on 7 December 1941, a date that President Roosevelt famously declared “will live in infamy".
So far, it looks very much as though Mr Trump’s dramatic initiative is headed towards infamy.
It has wiped trillions off the value of the world’s stock markets, and the distress is now spreading from manufacturing and the resources sector to banking shares – threatening a financial crisis. Many millions of people across the world have seen large sums wiped from the value of their pension funds and other savings.
It would not be the first time that a crisis in the “real economy” of trade and investment caused a crisis of confidence in the financial system. The banks should be better prepared for a storm than they were in 2008. But any disruption to credit will further damage economic confidence, adding a further reverberation of the Trump tariff shock.
As so often, the president has proved not merely misguided but somewhat deluded about the present, the past and the future. In his Liberation Day speech, he offered a grotesquely distorted account of the history of US protectionism, presenting it as something akin to motherhood and apple pie, and an integral part of the American dream. The truth is that whatever role import taxes had to play in the development of the infant United States in 1789, their role in the great depression of the 1930s was to exacerbate, prolong and spread its malign effects around the world.
A repeat of this, or something like it, is what the world is now faced with – and the tit-for-tat tariff retaliations are already beginning. At one point in his remarks, Mr Trump suggested that the notorious US Tariff Act of 1930, better known after its Congressional sponsors as the Smoot-Hawley Act, would have saved America from the slump had the tariffs been stuck to. That is, at best, a partial reading of history. Historians may debate what effect the trade wars of the 1930s had on growth, employment, the rise of extremism and the coming of a world war – but the widespread adoption of tariffs made matters worse than otherwise.
That lesson was learnt, and the post-war period saw the establishment of the first general agreement on tariffs and trade. The impressive growth in international trade that followed gave the world as a whole unprecedented prosperity, and nowhere more so than the bountiful United States.
America has done well out of freer trade and globalisation, most graphically demonstrated by its supremacy in tech. A trend away from manufacturing towards services is a normal and welcome stage in the development of an advanced economy. There is no point in America making its own cheap T-shirts again, as Mr Trump seems to want, or even smartphones and electric cars. Even with tariffs set at the levels they are, it would still make more sense to source goods from east Asia.
Globalisation has obviously contributed to the rise of China, but it has done America no harm at all, and made it the biggest and one of the wealthiest economies on earth. In the past few years, indeed, under successive presidents of both parties, the US has enjoyed enviable growth rates. Americans, on the whole, are living their dream, and America is already “great”. That is why is so bizarre and disturbing to listen to the president describe his country as having been “raped”, “plundered” and “scavenged” by its trading partners.
It is fair to concede that some countries haven’t played fairly at times, have indulged in currency manipulation, and bent the rules; but it has not impeded the growth of American prosperity. To the extent that there is still trade malpractice, Mr Trump’s response is grotesquely disproportionate.
This week the president of the United States vandalised the global trade system, pushed the world towards another slump, rewrote history, and turned economics on its head. It is more or less what he has already inflicted on America’s military and security partnerships in his tilt towards the Kremlin and away from Nato. At home, he has set about unpicking constitutional norms and freedoms, and done so with depressing success.
In every area, Mr Trump is taking America back to the isolationism, protectionism and nativism of a darker time in its history. In the case of trade, he is creating a new mercantilism – a regime where politicians, rather than free markets and people, determine the economic activity of the nation, with the guarantee that resources will be misallocated and Americans made poorer.
Mr Trump likes to hark back to Ronald Reagan – he has a large portrait of the 40th president in the Oval Office, and has purloined the Gipper’s slogan “Make America Great Again”. But Reagan, like Eisenhower, Nixon and the two President Bushes, would not recognise what Mr Trump is doing as even pragmatic common sense, let alone the proper application of Republican values. The madness must end.
Elon Musk’s terrible week is about to get even worse
Is this the secret manual behind Trump’s tough talk on tariffs?
‘Hulk’ Trump has smashed through the global economy
Since Trump came to power, cowardice has become contagious
Starmer is right to maintain the dignity of the nation – and avoid upsetting Trump
There is now only a slim chance that a global recession can be averted
