Although Trump’s on-again, off-again tariffs and tariff threats seem confusing and contradictory, let’s examine the underlying motives.
Earlier this week, I touched on a few of the contradictions and misconceptions in Trump’s global tariff war.
The stated justifications depend on which Trump minion you ask (and the day of the week), and their broad scope – even against countries to which the US exports more than it imports – is inconsistent with the trade deficit argument we’ve often heard.
Yet there is method to the madness. I’m not sure how much of this Trump really understands, and economists almost universally think his trade policies are misguided, but if you squint really hard, you can see a potential end-game.
And it isn’t pretty.
Gangster
At a superficial level, Trump is just a gangster. Listen to him talk at the National Republican Congressional Committee Dinner earlier in the week. In between the self-aggrandising, the shameless bragging, and the repeated lies, there’s this: “I’m telling you these countries are calling us up, kissing my ass. They are. They are dying to make it here. Please, please! Make a deal. I’ll do anything. I’ll do anything, sir!”
The audience laughed, but he sounded like an abuser. With his gloating grin, he resembled a goon bragging to his gang buddies that he made his victim beg for his life by breaking his legs and tearing out his fingernails. What a man! What a negotiator! What a deal-maker!
What really happened, of course, is that foreign countries against whose imports Trump levied unjustified tariffs – that contrary to Trump’s lies did not reflect the tariffs they charge on US goods – approached him to see if they could convince him to back down.
Knowing that Trump is easy to manipulate by obsequious flattery, that is the style they adopted. Trump was duly flattered, and with a profound lack of self-awareness, bragged about it over dinner.
Trump caved
Like most bullies, Trump isn’t strong. While talking tough to China, he caved as soon as Europe announced its own response to Trump’s tariffs.
Within hours of the EU’s announcement of a “first wave” of retaliatory tariffs, Trump announced that all “reciprocal” tariffs over the 10% “baseline” would be paused for 90 days. Except on China, with whom he is engaged in a tit-for-tat breast-beating showdown which has already escalated to 125% 145% worth of tariffs.
It is hard to tell whether it was Europe’s retaliatory tariffs that caused Trump to cave. (Europe has also paused its tariffs for 90 days now.)
Maybe he caved to economists who foretold a global recession.
Maybe he caved to First Buddy Elon Musk, who called Trump’s tariff czar and favourite jailbird, Peter Navarro (who implausibly claimed that tariffs would net the US government $6 trillion in revenue over 10 years), a “moron” and ”dumber than a sack of bricks”.
Maybe he caved because the stock markets continued to nosedive, taking bonds with them, and household finance expectations sank to the lowest level on record as people watched their retirement funds burn.
Whatever the cause, the pressure told, because the tariffs that Trump previously called “necessary medicine” are now no longer quite so necessary.
This undermines several of the Trump administration’s grab-bag of justifications for the tariffs, including that they are necessary to level trade balances and bring about real free trade, are necessary to re-industrialise America, or could replace the income tax. And as for those loopholes that Commerce Secretary Howard Lutnick was so worried about, well, now China has 10% loopholes everywhere in the world, to dodge the 125% 145% tariffs that US imports from China will now attract.
Bad for everyone
The on-again off-again trade policies and surprise turnabouts that have become Trump’s hallmark are bad for almost everyone. It looks for all the world as if he’s just revelling in his (excessive) power, yanking on levers like a malignant boy who snuck onto grandpa’s combine harvester.
Nobody can plan their business when they don’t know from one day to the next what their input costs will be. Individual savers watch their retirement portfolios go up in flames. Investors get burnt on the stock markets as volatility runs rampant. Capital dries up as investors keep their powder dry to see how it all shakes out. Big businesses raise prices to account for future input cost risks, and small businesses flounder in stormy, unpredictable waters.
Billionaires who bet on Trump lost billions, except for Warren Buffet, who saw this train crash coming and fled to the safety of the world’s largest-ever cash pile.
It’s bad for almost everyone, except for speculators with an inside track.
Insider trading
At 8:37 on the morning of 9 April, Trump posted to his personal social network, Truth Social, that “THIS IS A GREAT TIME TO BUY!!!” (using the capitalisation of an old man, and the exclamation marks of a child).
That sparked a minor recovery in stock prices. Most seasoned investors dismissed it as a “dead cat bounce”, because less than a day earlier, White House spokesperson Karoline Leavitt had assured the public that Trump was “not considering an extension or a delay” in implementing the global tariffs. You’re supposed to be able to take the words of the president’s official spokesperson to the bank.
Trump’s buy signal certainly was stock manipulation, though, of the kind that would land a corporate CEO in prison. But then, since both Trump and Lutnick have been punting Tesla cars and stocks, respectively (likely against the law), it seems blatant market manipulation is just what we should expect from Trump 2.0.
A record-breaking stock market rally ensued at about 13:18 on the same day, when Trump announced that all tariffs in excess of 10%, except on China, would be suspended for 90 days. (That the market is this responsive to mere tariff announcements should tell the Trump administration something about what is good policy and what is bad policy, but we’ve had that argument before.)
Here’s what’s suspicious. A minute or so after one o’clock, just over 15 minutes in advance of Trump’s announcement, a flurry of buying took place, briefly bumping up the stock price. The chart below shows the S&P 500, but the same thing happened with the Nasdaq and the Dow Jones Industrial Average indices.
Some Republicans are known to have bought the dip. Who, other than Trump administration insiders, could have had – and traded on – advance knowledge of Trump’s tariff pause announcement, when the administration had clearly stated that tariffs would not be paused?
So that’s one theory: simple corruption, cronyism and self-dealing. It’s a tale as old as time.
Personality cult
Another theory about Trump is that he is establishing a personality cult around himself. Richard Hanania, an American political science researcher and right-wing political commentator who contributed to Project 2025, compares Trump to his good friend, Kim Jong Un.
He puts it as follows: “…to assert Donald Trump doesn’t have a plan misses the essence of this man and what is happening. From the perspective of making the country better off, he obviously doesn’t have one and doesn’t care. But if you imagine Trump as someone who wants to maximise his own personal power and the number of people paying him deference, then massive tariffs do not seem like a bad way to go about achieving his goals.”
Hanania’s analysis zeroes in on Trump’s personality and psychology, and is well worth a read.
Currency regime
I think Ray Hartley and Greg Mills, in their excellent article earlier this week, hit the nail on the head, however.
They pointed to a November 2024 paper by Stephen Miran, an economist and current chair of Trump’s Council of Economic Advisers, entitled A User’s Guide to Restructuring the Global Trading System.
According to Miran, the US dollar is chronically overvalued, which makes US imports cheap, and US exports expensive. This has led to a shift of industrial and manufacturing capacity to countries with weaker currencies, and hence lower costs. The geopolitical situation in the world is fragile, with multiple centres of power and spheres of influences developing, primarily with the US and China at their core.
The shift of manufacturing away from the US, so Miran’s argument goes, threatens national security interests, since reliance on foreign supply chains is dangerous should war ever break out, as the 2020 pandemic demonstrated.
While the critical supply chain argument has merit, Trump’s tariff war is too over-broad and unfocused to be a considered response to this threat.
Whether the dollar really is overvalued is the question. Miran (and Trump) believe so, but clearly, the global market does not. I don’t, either. I think it is valued exactly as one would expect from a leading global power that sells high-value technology, designs, entertainment and services worldwide, instead of doing the mundane work of putting screws into smartphones.
Mar-A-Lago Accord
Miran’s answer to what he perceives as the dollar overvaluation crisis is to revalue global currencies. To put this in perspective, this would establish an entirely new currency regime, to succeed the free-floating exchange rate system that developed in the 1970s and 1980s, which itself followed the collapse of the Bretton Woods system under which global exchange rates were fixed against a gold-backed US dollar.
Miran proposes a tentative multilateral agreement to revalue currencies, to be known as the Mar-A-Lago Accord, echoing the Plaza Accord of 1985 which devalued the dollar, the Louvre Accord in 1987, which stopped the devaluation, and the Jamaica Accord of 1976 which ratified the end of the Bretton Woods system.
No major country (only China, the EU and maybe Japan really count; even the UK and India are small potatoes) would willingly strengthen their currencies against the US dollar, making their exports less competitive, their foreign debt more expensive, and their tourism revenue lower, to mention just some of the downsides of a stronger currency.
Europe is already stagnating, and cannot afford a drop in demand for its manufactured goods or tourism offerings.
China’s domestic growth is also faltering, which makes manufacturing-led export growth critical to sustaining its own development. The same will be true about Africa, in future.
Protection racket
This is where Trump’s tariffs come in. They give him leverage. They’re the gun to the heads of unwilling negotiating partners. They’re the stick, with the carrot being the US security umbrella and preferential access to US consumer markets.
It’s thuggish. It’s a protection racket. But it makes sense.
Ultimately, tariffs could be used to force countries into a new exchange rate regime in which the dollar is weaker and US exports are cheaper, while countries that do not kowtow to the American Empire are kept out of US markets.
The Miran paper is heavy going, but Money & Macro made an excellent video explaining this plan.
The tariffs aren’t meant to counter foreign tariffs. They are meant to be much higher, to create enough leverage to force countries to submit to US hegemony, strengthen their currencies, and pay the US for the security umbrella it offers.
They’re leverage to manipulate the world’s currency exchange rates in favour of the US.
Far from the world order we’ve had for the last 50 years, in which sovereign countries voluntarily trade with each other, currencies were sovereign and for the most part freely traded, and security alliances were based on common interests and values, Trump’s ideologues want to establish a world in which a small number of imperial states rule over vassal states that have “made a deal” with their chosen hegemon.
Pax Americana II
The countries that join such a Mar-A-Lago accord would lose sovereign powers, limiting their control over monetary policy and interest rates, and making it harder to enact policy responses to foreign capital flows, economic contagion, inflation, and unemployment.
Countries that are forced to join an American Empire against their best interests will chafe against the yoke. Whereas the Western Alliance has been stable and strong for decades, the new dispensation, a Pax Americana II, would be unstable and fractious.
Most importantly for prosperity and freedom, the era of global free trade would be over, and the world would return to the mercantilist age of contesting empires, complete with vassal states to stand in for the colonies of yore. As the volume of trade declines, so will global prosperity.
If this really is Trump’s agenda, I think he’s overplaying his hand. He might think he has the cards, but he faces opponents (and prospective vassals) with strong hands themselves. Either way, it’s not an appealing prospect.
[Image: A speculative American Empire, ca. 2054, imagined by Healy27 on DeviantArt in 2015. Used under a Creative Commons BY-NC-ND 3.0 License. – American Empire.webp]
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