Editorial
The US
president blinked first, but this is just a time-out. The threat to the global
economy remains real.
Thu 10 Apr
2025 19.08 BST
It was
Donald Trump who blinked first. Never forget that. China is unlikely to
overlook its importance. A week after launching an all-out global trade war,
the US president paused significant parts of it for 90 days. Having insisted
that he would stick with the random tariffs he imposed on most trading nations,
Mr Trump suddenly decreed that he would reduce most of them to 10%. It was a
major humiliation.
Yet 10% is
still a significant tariff to bear for nations exporting to the US. This is
also only a pause until July, not a withdrawal, so the uncertainty remains. And
huge tariffs still remain on China (now hiked to 145%), Canada and Mexico (both
25%), as well as on all US imports of steel, aluminium and cars (also 25%). Mr
Trump is now substituting a US-world conflict with a US-China one. The two
largest economies in the world – which between them have generated around half
of global economic growth in the 21st century – are, in effect, no longer doing
business with each other.
Even so,
this was a necessary step back from the cliff edge. It was enough to trigger a
temporary bounceback on stock markets around the globe, though prices slipped
back on Thursday and remain much lower than at the start of April. In the week
since Mr Trump’s absurd “liberation day”, more than $6tn dollars of value was
wiped from stocks on the S&P 500 index. It is a shameful outcome.
Mr Trump
claims he made the move because more than 75 nations had been willing to
negotiate or “kiss my ass”. This is nonsense. He has got nothing out of the
tariff war. He has not won. No one has negotiated. Mr Trump is making his usual
efforts to claim yet another triumph. The plain truth is that he backed down
because he was forced to.
That Mr
Trump can retreat is good news, as far as it goes. Overall, however, the past
week has been an indictment of the president, his policies, his instincts and
his behaviour. The pause should on no account be seen as proof that rational
business can be done with him. For one thing, this week’s mayhem may easily
kick off again as July nears. The White House has merely given itself more time
to make some very big calls.
Two things
appear pivotal in the decision announced on Wednesday. The first was the
overheating of the US bond market, subverting the established assumption that
dollar bonds will always be a safe asset, and drawing the Federal Reserve to
the threshold of intervention. A similar crisis doomed Liz Truss’s economic
strategy in the UK in 2022, but the destructive potential of a US bond crisis
is far greater. Mr Trump’s tariffs were threatening all-out recession.
The second
factor was some limited elite domestic pushback. Anxious senators appeared on
Fox News (which the president watches) and pressed the case for dialling down.
The head of JPMorgan Chase warned about recession. So did a handful of world
leaders and some Trump cabinet members in telephone calls.
These
realities were a brake on Mr Trump this time. It is possible the trauma has
left its mark and there will now be no repeat. But there is no case for
confidence, let alone for accepting that this outcome had been schemed all
along. Even Mr Trump admitted that Americans were “getting yippy”. They had
every right to be. So did the markets, along with the rest of the world. Trust
disappeared long ago, replaced now by uncertainty. There is no way that this is
over.
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