The reaction of the financial markets to the Trump tariffs provides further proof, were it needed, of the depressing effects of the new US president’s trade policy.
“Depressing”, that is, in every sense, because not only will they, and the retaliation that they have already provoked, trigger an immediate slowdown in world economic growth but they will also divide and destabilise the West at the moment when Russia and China are growing increasingly emboldened and revanchist.
The fact that stock exchanges have slipped further even though the punitive measures against Canada, Mexico and China have been copiously signalled for some time shows that the impact is going to prove worse than expected, as well as unpredictable. With America behaving like a dictatorship over the Panama Canal and Greenland, the international order and the rule of law – diplomatic and economic – is coming under more sustained attack than at any time since the end of the Second World War.
America’s leadership, once the guarantor of Western security, is now becoming a threat to it. Though sometimes hypocritical, the United States stood for that international order; now it seems to be following President Putin and President Xi in aggressive territorial expansionism by force. That is indeed a radical and depressing shift.
To see the US engaged in a trade war with China is one thing – indeed, a familiar one for some years, as the People’s Republic began seriously to rival American industrial, technological, and military strength.
The whole of the West has had to live with that menace, given that China does not share liberal, democratic values.
What remains shocking is that Mr Trump has chosen to bully and weaken America’s closest friends and allies – Canada and Mexico in the first wave.
Mr Trump has, however, delayed tariffs on Mexico after the country’s president Claudia Sheinbaum agreed to send 10,000 troops to the US-Mexico border.
There are also sideshow assaults on Panamanian and Danish sovereignty.
Next up, he’s declared, for the Trump tariff treatment will be the European Union and, probably spared the worst of a mauling, Britain. In due course, perhaps Japan, India, Brazil, South Africa and the Gulf states will also be attacked, either for their audacity to run a trade surplus with the US or for mumbling about moving away from the dollar as their principal reserve currency.
By the end of the year, if things continue to go as badly and as quickly as they have in the couple of weeks President Trump has been in power, the US will have made almost a clean sweep of alienating the G20 group of the world’s largest economies. Perversely, the one major power he seems to have no plans to sanction is Russia.
History does not suggest this will serve anyone in the West well. Allies who have previously assumed that ultimately, wayward as he can sometimes be, President Trump would remain a reliable military ally and economic partner cannot be blamed for wondering whether this is still a realistic assumption.
It will certainly make the Europeans, along with the British, look to their own resources to protect their freedoms and prosperity in the face of Russian aggression.
Sir Keir Starmer’s informal defence summit with the EU and talk of a pan-European “coalition of the willing” to face down President Putin is clearly a sign of these troubled times. At the same time, Sir Keir’s attempts to balance closer relations with Europe without alienating the US reflect the complexities of Britain’s position. He seems to understand that fostering cooperation with the EU while maintaining ties with the US is essential for Britain’s future stability and influence on the world stage.
Some nations may even come to regard China, wicked as the regime is, as an alternative source for mutually advantageous trade and investment.
Other, non-aligned nations that have already fallen under strong Chinese influence under the Belt and Road Initiative and granted generous loans with diplomatic strings attached, will fall further into a modern-day version of a Chinese overseas empire – neocolonialism.
The Brics, concerned over the stability of America’s currency as well as its president, may explore ways to diversify their reserves, switching to the yuan and the euro. America, in other words, will become increasingly friendless, weaker and poorer.
Mr Trump and his Maga movement appear to believe that, as in the pre-war era, the country doesn’t need the rest of the world and certainly doesn’t want to be dragged into its wars.
But America is not as pre-eminent an industrial power as it was then, and the irony is that the era of the “Make America Great Again” movement could see the US decisively overtaken by China, just as, around a century ago, America eclipsed imperial Britain.
Such is the pessimistic view, and history suggests it is at least a plausible future. In the 1930s, every major economy tried to protect itself against competition by putting up tariff walls and making competitive “beggar my neighbour” devaluations of their currencies.
The notorious Smoot-Hawley Act, passed by the US Congress in 1930, was a major contribution to the decade of depression that followed, and the subsequent conflicts and war. It did not make America, nor anyone else, great again.
Likewise, the forthcoming “Trump Slump” would not be confined to the United States, though many Trump voters would suffer prodigiously.
There is, though, still some room for optimism. The speed and pain inflicted on American consumers, investors and companies by retaliatory anti-American tariffs might force Mr Trump to think again.
There will come a point when the dangers of a worldwide slump become too obvious to ignore and even Mr Trump would have to come back from the brink, if only to save his presidency and the Maga movement from ignominious collapse.
It is also quite possible that Mr Trump is “trying it on”, imposing punitive tariffs in the hope of securing a more advantageous arrangement, and thus practising the “art of the deal” via some of his usual gangsterism.
He’s sometimes indicated he might relent but has also expressed the wild hope that bountiful revenues from tariffs will raise sufficient funds to lower US income and corporation taxes.
Perhaps Mr Trump doesn’t know exactly what he wants and is playing things by ear. If so, and he has miscalculated, then he, and the rest of the world, should be prepared for the very worst.
