April is Stress Awareness Month, and this year, Donald Trump has joined in by imposing on global markets a stress test comparable in size to a global pandemic or the kind of financial crisis that used to happen once in a generation. On “liberation day” (2 April), new tariffs were imposed on almost every country that trades with the US. As financial markets digested the impact, the values of companies worldwide fell by roughly $10trn – an asset bonfire three times the size of the UK economy.
The banking giant JP Morgan has increased its prediction of global recession to 60 per cent; Larry Fink, chief executive of the asset manager BlackRock, has said most CEOs believe the US is already entering recession.
Trump’s tax hike was so extensive that a group of uninhabited volcanic islands off the coast of Antarctica was included. Yet there were notable omissions, such as North Korea, Belarus and Russia. One Russian analyst called this a “friendly gesture” to Russia, which he said would “become a great power. And Trump will help.”
Tariff formulas are often an esoteric combination of careful maths and diplomatic sensitivities. Not for Trump, whose tariffs were calculated in the bluntest possible way, by dividing a country’s trade surplus by its exports to the US. Vietnam, for example, exports about $150bn per year of goods to the US and imports about $13bn from the US, so its surplus ($137bn) divided by its exports ($150bn) gives the number 0.913, which the US claims as a 91 per cent “trade barrier”. This is halved to create a 46 per cent “discounted reciprocal tariff” on goods entering the US from Vietnam. Coincidentally, this is also the method you get if you ask ChatGPT for the most basic way to design a tariff, although even the chatbots warn against actually doing it. This was a breathtakingly lazy and stupid way to impose the highest trade barriers for more than a century – but that was the point. This is a negotiation strategy in which the first step is to remove the pin from a grenade.
Why? The stated aim is to protect the American factory workers who raised their helmets and cheered as Trump announced the tariffs in the Rose Garden. Because the US dollar is the world’s reserve currency, it is in demand around the world, which is fantastic for American bankers, but not for American manufacturers, whose exports are artificially expensive as a result. The position of Trump’s economic advisers is that this can be fixed by an erratic president performing chainsaw surgery on the global economy. To avoid a global recession, the thinking goes, other countries will agree to take part in the manipulation of the dollar (as happened in the 1985 Plaza Accord), and the US will return to its 20th-century position of exorbitant privilege as banker, factory and policeman to the world.
A further theory, and a way to understand Trump’s seeming indifference to the market crash he has created, is that Trump is not only trying to fix the US’s trade deficit with the world, but to address the historic amounts America is spending on its debt. The US owes $36,698,000,000,000 (to the nearest billion at time of writing). Its debt is rising at a rate of about $60,000 per second; it is already worth more than 120 per cent of the country’s GDP. The cost of servicing this debt has grown to more than a trillion dollars a year.
Trump has long been concerned by this. In 2016, he told the Washington Post he would eliminate the US national debt in eight years (it increased in his first term by $8.4trn). And he is right to be concerned by it now, because – as a result of Trump’s own fiscal irresponsibility – the US is expected to issue $4.9trn in government bonds this year, more than double the amount of the world’s next-largest borrower (China, at $2.1trn). A government that represents roughly 4 per cent of the world’s population will account for 40 per cent of the world’s government borrowing.
Some on Wall Street have suggested Trump is happy for his policy to cause a “flight to quality” in financial markets, pushing money away from risky assets (such as company shares) and towards safe-haven investments (gold and government bonds). When investors will pay more for the safety of government bonds, governments can borrow more cheaply, and his job is made easier.
This theory is fun because it describes Trump as effectively committing a socialist coup. It suggests that he has hoodwinked the financiers and company executives of American capitalism, many of whom committed large sums to get him into the White House, and is now draining trillions from the market values of their companies to improve the price at which the government can borrow.
But this would also constitute a heist against the American people, because most (about two thirds) of the US’s borrowing is domestic. In the Trump crash, the president is not only devaluing the shares Americans have bought as investments in their economy, he is also devaluing the returns they get from lending to their government. America’s retirement funds are being violently exsanguinated, in both the equity and debt markets, to pay for the Republican Party’s economic experiment.
Will it work? If there really is a hope that a stock-market crash will make it cheaper for America to borrow, it does not look as if the gambit is paying off. As the market plummeted on 7 April, investors were also selling off US Treasury bonds – making government borrowing more expensive – as they sought to raise funds.
As for manipulating his currency, if this is Trump’s plan, then he faces an opponent who already possesses this power, and uses it on a daily basis. The government-controlled People’s Bank of China sets a daily reference rate around which the Chinese currency, the yuan, can be sold. It can also ask other banks to buy or sell other currencies to further manipulate the price. There are already signs that Xi Jinping is directing his central bankers to reduce support for the yuan, which would make Chinese exports still cheaper and US goods still more expensive. This has potentially serious consequences for China – investors might seek to move their money out of the country – but if Xi can support Chinese businesses, yuan devaluation could be a very dangerous weapon against Western markets.
Trump will face the ire of American consumers if cheap clothes made in Vietnam (for wages no American would tolerate) suddenly become more expensive, or when an iPhone shipped from China rises in price by hundreds of dollars. He may also lose the confidence of US businesses, although it is notable how little corporate America has felt able to criticise Trump even as he lays waste to their market valuations. No CEO wants to become the focus of Trump’s vindictive proto-authoritarianism.
There should be a lesson for the UK in this. The only reason Britain was favoured with the minimum 10 per cent tariff is that we import slightly more goods from the US than we sell to it. Whatever concessions our government offered up had no effect. There is no special relationship bonus for us. We are economically exposed to the US, whose private equity firms own our shops and whose multinationals made $836bn in revenues in the UK in 2022. Our government’s focus should be on how to improve our relationships with more reliable partners, especially Europe, and to reduce the contagion of American chaos.
[See more: Can the White House stomach this trade war?]
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This article appears in the 10 Apr 2025 issue of the New Statesman, Spring Special 2025