There are few words that capture the carnage already caused by Trump’s hubris. The tariff panic in global markets vapourised trillions in assets owned by the top 10 per cent, yet the cumulative, supply-based costs in the real economy are just beginning to bear down on debt-burdened consumers and the manufacturers and workers whom Trump purportedly champions. While the stock market has partially rebounded, these are the “multiplier” costs that freeze hirings, soften demand, reduce working hours, and precipitate lay-offs. Without a rapid reprieve, the pain could rapidly spread.
The predictable narrative from the White House is that Trump has shown cunning resolve against China and other countries he believes have gamed the trade system at the US’s expense. But instead, he has pulled the curtain on America’s underlying weaknesses, reminding voters, experts and foreign foes of what is known in the abstract but typically forgotten in-between crises: that Americans, more than citizens of any other developed nation, depend on sheer purchasing power to survive. Whatever comes next, we already have a snapshot of the chaos that erupts when an emboldened executive raises the American drawbridge to globalised trade.
The odds of an equally rapid turnaround are murky at best. On 9 April, one week after “Liberation Day”, Trump announced a new 90-day “pause” on all “reciprocal tariffs” except those on China, which he increased to 125 per cent on top of existing duties. For once, perhaps, he was bowing, slightly, to the unpopularity and dire blowback of his actions. The intent of this window is to negotiate with other countries what the treasury secretary Scott Bessent is now calling “bespoke” trade deals. But in fewer than 100 days, this headstrong and mercurial president has already shaken international trust as never before. It’s easy to see how he may, at this rate, fail to restore business and consumer confidence to levels that prevent stagflation setting in.
The spectre of that phenomenon of anaemic output and rising prices – once considered unique to the decline of Fordism and the energy shocks of the 1970s – has belied Trump’s inauguration day promise that a new “golden age” of American prosperity is dawning. It has also magnified the credulity of Trump’s Republican allies, his underlings, and his brashest oligarchic backers. However dubious Trump’s promise, his obsession with quick economic growth and a booming stock market, the latter a strong proxy for his own sense of political validation, had convinced mainstream business, tech and financial leaders that Trump’s true appetite for unorthodox policies was limited. The “coming Maga assault on capitalism” forewarned during the 2024 campaign by the prominent Yale business analyst Jeffrey Sonnenfeld, reflected misplaced fears of Steve Bannon’s enduring populist fantasies, not the kamikaze mission of Trump’s obsequious cabinet.
In fact, Trump’s newer converts all but ignored his trail of promises to build radically on his first-term attempts to revise global trade. They either minimised Trump’s penchant for trade wars, accepted the premise that tariffs were justified on national security grounds, or lapped up the idea that a bit of jawboning was necessary to secure lower tariff and non-tariff barriers to American exports. In January, even normally sober-minded titans such as Jamie Dimon, CEO of JP Morgan Chase, dismissed brewing anxiety over Trump’s pledge to reset US trade relations. Now he has joined the chorus of those warning that a global downturn is imminent. Among Trump loyalists, however, the capacity for self-delusion is of another magnitude. They insist, in public at least, that this “was the plan [Trump] was pursuing all along”.
Perhaps more concerning than this cheerleading is the maximalist approach advocated by Peter Navarro, Trump’s “counsellor” on trade and manufacturing, and his most fervent China hawk. A dour veteran of the first-term trade wars who prevailed, alongside the former US trade representative Robert Lighthizer, over Trump’s “globalist” faction to confront China’s “cheating”, Navarro has always struggled to prove he is more policy mastermind than propagandist. His reputation in Washington for hot-headedness precedes him, and there are concerns that his deepening influence augurs a fanatical turn in US-China policy, despite Trump’s previous desire to strike “the deal of a century” with Xi Jinping.
That has left the more measured and patrician-like Bessent to assuage the public. As a former hedge fund manager who once worked for George Soros, it was initially hoped by Wall Street that Bessent would restrain Trump’s mercantilist impulses. Bessent, however, has not found his register. He has effectively embraced the national security argument – that tariffs are a necessary tool to compel key industries to re-shore operations – while expressing dismay over an economy that has simultaneously led to record numbers of European vacations for the well-off and record food-bank dependence among working families. Bessent, though nearly identifying the exorbitant cost of living and thus the concentrated power of organised money over ordinary workers as America’s chief ailment, has ventured no solution to counteract the ways in which tariffs will soon exacerbate dependence on aid.
This motley crew has left some analysts wondering if Lighthizer’s return would have averted the present turmoil. After being tipped for a more high-profile position than trade ambassador, Lighthizer was reportedly “frozen out” by Bessent and the secretary of commerce Howard Lutnick in the weeks after Trump’s November victory. That surprised many in the media, including those who were wary of Lighthizer’s hawkish prescriptions but nevertheless recognised him as an authority on trade issues. For the rare appointee who stayed in Trump’s good graces, he was regarded as a steady hand who avoided the servility of his compatriots.
Lighthizer’s alarm over offshoring and its social costs also long predated his association with Trump. Accordingly, his consistent views and expertise were seen as assets that might at the very least have focused Trump on constructive negotiations this spring. During the first administration, Lighthizer had indeed attempted to reconcile and translate the competing trade objectives thought to animate the president. Though he was the chief architect of the 2018 tariffs on China, which raised barriers on the grounds of national security and unfair practises, it was reported by the New York Times in October 2020 that Lighthizer was pushing back on floated congressional and State Department measures, including a new US trade pact with Taiwan, that would derail completion of a comprehensive agreement with China. If a new grand bargain were to be struck between Trump and Xi, à la Nixon and Mao, it was increasingly wagered that Lighthizer’s tough-but-careful diplomacy would be the lynchpin of any lasting terms.
That no one has emerged to fill Lighthizer’s shoes should not disguise the fact that he still would have to contend with Trump’s whims. A case in point: in a congressional hearing last week, Lighthizer’s soft-spoken understudy Jamieson Greer, the new US trade representative, endured the humiliation of learning in the middle of his testimony that Trump had again changed the tariff rates. Neither, however, should the current approach vis-à-vis China be mistaken as necessarily differing from the one Lighthizer propounded after leaving office. “strategic decoupling”, Lighthizer maintained across several editorials, served America’s long-term security interests. The open question, for readers, was whether that truly encompassed whole commercial supply chains, not just the semiconductor fabrications, critical minerals and electric vehicle components that formed the cornerstone of Joe Biden’s own industrial strategy.
[See also: Trump’s tariffs are designed to extend American power]
What has unfolded since 20 January will strike most as anything but strategic. If a fundamental decoupling that isolates China is, in fact, the endgame, Trump has done vanishingly little to actually facilitate the manufacturing boom he’s repeatedly promised, and may actually be strengthening China’s hand. Yet this very incoherence arguably helps explain the more belligerent posture towards China. The dearth of ideas is partly compensated through exercising brutish geopolitical leverage while the fading hegemon still can.
Nowhere is this absence of constructive policy ideas more evident than in the administration’s disregard for other industrial strategies that have won bipartisan support. On the domestic front, a slate of easy if self-serving wins was at hand upon Trump’s inauguration. Trump could have stolen credit for the subsidies and domestic content rules that helped catalyse a surge in plant investment under Biden. He could have also restarted Trade Adjustment Assistance and launched related programmes to retrain workers. Alas, no such substantive proposals from Trump’s team have come the fore. The Republican Congress’s dominant libertarian wing, meanwhile, is up to its old tricks instead of helping the long-term unemployed. Amid the tariff whiplash preoccupying reporters, the House speaker Mike Johnson branded $880bn in proposed Medicaid cuts as essential to stopping young men from “playing video games all day”.
As economic uncertainty escalates, a gallows humour has spread among the commentariat. The climate reporter Robinson Meyer and others have quipped that, rather than reindustrialising America, Trump is implementing a “de-growth” regime. In the grimmest of ironies, they may be right: once diagnosed, stagflation will be hard to treat. And it will be protracted as long as Republicans remain otherwise wedded to a doctrine that shirks public investment.
In some ways America has been at this precipice before. But although it is tempting to compare today’s market turmoil to the first Covid lockdowns or the 2008 global financial crisis, the more apt analogy may be the 1981-82 recession, precipitated by the “Volcker shock”, named after the then Federal Reserve chair Paul Volcker, which spiked interest rates to nearly 20 per cent in a bid finally to end high inflation. As a result, unemployment reached almost 11 per cent, the worst postwar contraction until the Great Recession. It was also the last time a US president, Ronald Reagan, effectively forced a recession to remake the country’s political economy. Financialisation and deindustrialisation ensued – twin forces that helped fuel Trump’s business empire and which Maga and this tariff regime are ostensibly meant to reverse. Assuming Trump II marks a more definitive break with neoliberalism – and it might not – America is on the verge of passing through the mirror world of the early Reagan revolution.
On this score, it is possible Trump’s agenda could take on new dimensions that further clash with Republicans’ traditional “free-market” views. More intrusive export restrictions are on the table, which has prompted rumours that Trump will soon pursue ad-hoc capital controls; that, in turn, could set the stage for wage and price controls not seen since Richard Nixon’s first term. Paired with Trump’s mafioso operation, these developments would vindicate Yale’s Sonnenfeld, as well as the former Biden anti-trust official Tim Wu, who recently characterised Trump’s style of hyper-centralised economic policy as “command capitalism”.
Once derided as intellectually unserious, there is mounting evidence for the theory that Trump embodies a radical force of and against modern American capitalism. At the same time, Doge’s nihilistic demolition of state capacity and regulatory oversight bodes ill for a highly divided and unequal society. In a few short years, US decadence bleaker than the corporatisation satirised by Paul Verhoeven’s dystopian RoboCop, released the same year as Trump’s The Art of the Deal, may no longer seem so fantastical.
[See also: China is not afraid of Donald Trump]
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