Tariff Terrorism

April 17, 2025

The significance of what has occurred since “Liberation Day” on April 2 cannot be overstated. Donald Trump unleashed a tariff war, and was able to do so because “the land of the free and the home of the brave” has surrendered to a President who tramples America’s rights, breaks international treaties, bypasses Congress, and ignores financial tripwires. Trump’s tantrums and tariffs against China and others are not about economics. He has seized power globally over all nation-states. His tariff regime requires every country to bend the knee and pay tribute to Washington to win adjustments or duck punishment. What’s revolutionary is that he’s turned the tables by weaponizing America’s buying power and military might to control the world economy and establish supremacy. Guns and butter and trade have always been used in conquest or collaboration, but this is completely different. He alone is in charge. He is fickle and revises decisions on a dime, shuttering or rewarding industries or national economies. Hudson Institute expert Walter Russell Meade explained this one-man world order: “He has the power to change his mind again … and the rest of the world cannot do without the United States because of the size of its commercial market and military.”

Ellie Foreman-Peck

Trump’s trade revolution turns America’s “lemons into lemonade”. He uses soaring trade deficits to take control because other countries need the United States more than it needs them. The same applies to military aid. America is the world’s policeman, and America’s soaring defense costs mean that these countries also need the United States more than it needs them. So it’s a take-it-or-leave-it approach. The tariffs require negotiations on a country-by-country basis and will include requirements to spend more on defense or to properly reimburse America for its protection. This reality will hit America’s “allies” harder than its foes. Most – from Japan to South Korea, Europe, and Canada – are in for steep increases in their military commitments. Or, alternatively, they will receive gigantic “invoices” from the Pentagon.

Trump has pointed out for years that NATO’s 32 members should meet their decades-old commitment to devote 2% of GDP to defense, but, more recently, he hiked this to 5%. While reasonable, he has also outrageously suggested that Canada, Greenland, and the Panama Canal be annexed for security reasons to buttress against enemies. While upsetting, the fact is that, given the catastrophe in Europe concerning Ukraine, militarization in Europe and throughout the West is long overdue. Most American “allies” have freeloaded for decades and will be forced to spend tens of billions to partially catch up. While this strong-arm approach will be resented, it will be heeded and arguably make the world more secure against the big three threats: Russia, China, and Iran. For instance, Trump met this week with Japanese leaders to discuss tariffs and said bluntly that the “cost of military support is on the table”.

Trump’s personality is another “weapon” that rattles trading partners. He’s harsh and erratic. He spoke of sweeping changes one day, annexation of countries on another, then announced tariffs, un-tariffs, re-tariffs, then partial un-tariffs. Stock, currency, commodity, and bond markets adjusted with every revision and pronouncement. His pattern and behavior have drawn out his Wall Street and Silicon Valley donors, who openly criticize and warn about the dangers of this style and “tariff-ism”. BlackRock chief executive Larry Fink believes the U.S. may already be in a recession. In contrast, JPMorgan’s chief executive, Jamie Dimon, has said that a recession is the “likely outcome” of Trump’s trade war. Of greatest concern in recent days is that repeated shock waves are disrupting currency markets and creating instability in the bond markets, which threatens to jack up U.S. interest rates at a moment of economic vulnerability. If that happens, the “D” word may eventually apply.

Even Elon Musk has waded in, calling Trump’s tariff guru, Peter Navarro, a “moron”. America’s Fortune 500 vocalizes its worries. California’s Governor Gavin Newsom is suing the federal government for damages to its industries caused by these sweeping measures while attempting to negotiate bilateral trade deals with important customer countries. "President Trump's unlawful tariffs are wreaking chaos on California families, businesses, and our economy — driving up prices and threatening jobs," Newsom said in a statement. "We're standing up for American families who can't afford to let the chaos continue."

Trump’s approval rate has fallen due to the uncertainty he’s unleashed and the drop in value suffered by millions of Americans with 401K retirement funds. Companies scramble to create workarounds to compensate for lower export sales and import costs. While Trump’s grand scheme is a masterful stroke, geopolitically and geoeconomically capitalizing on America’s underlying strength, it may also end up being another “Brexit”—a hazardous and isolating decision that shrank the country, its GDP, and global influence.

The Trump Tariff Terrorism is also based on the fallacy that tariffs will restore America’s industrial greatness: Factories will reopen, be reshored from abroad, be built anew, and create high-paying manufacturing jobs. But that’s wishful, nostalgic thinking, and not rational. The Golden Age of factories in the United States is over. The factories of the future will be filled with robots, not highly paid unionized workers. Automation is mainly behind the drop in employment levels that Trump likes to blame on “cheating” trading partners like China or Vietnam. The disappearance of manufacturing jobs in America and the West is about technology, not trade.

Job drop: Technology not Trade

Trump ignores critics even though his “Liberation Day” came close to going down in history as “Black Wednesday” or the beginning of a global market meltdown. A high-level member of Trump’s tariff team, Stephen Miran, admitted on television recently that U.S. Treasury Secretary Scott Bessent saved the day. On April 9, the regular, global 10-year bond market auction failed. Bessent understood the danger, panicked, and rang the fire alarm in the White House, which led to Trump’s 90-day pause on reciprocal tariffs. That prevented a financial massacre. It’s a small comfort, but good to know that there are some grown-ups babysitting America’s Mad King Donald.

And may they prevail, for the sake of everyone.

(Next newsletter: The US-China Trade War)