There may be a fine line between clever strategy and utter tumult, something ex-President Donald Trump’s foreign economic policy seems to exemplify. Trump’s approach appears to revolve around canceling existing trade agreements and imposing tariffs on a global scale. He’s also applying pressure on the Federal Reserve to lower interest rates. Concurrently, his tactics seem to have adverse impacts on the stock market, as he attempts to fulfill his undefined objectives like revitalizing the U.S. manufacturing sector and accomplishing ambiguously defined American ‘victories’.
These abrupt moves have left the nation’s allies and trading partners puzzled, as they are faced with an unparalleled level of unpredictability. The Dow is experiencing its most significant drop in April since the dismal days of the Great Recession. With America retracting from its global foothold, China seizes the opportunity to expand its international reach, filling the vacuum left behind.
Anxiety arises as finance-savvy individuals have begun to offload American bonds – a phenomenon hinting towards a growing skepticism about the United States’ financial future. If there’s any viable solution to this situation in Trump’s repertoire, it’s high time it came to light.
A misstep in Trump’s strategy lies in the assumption that the United States holds all the cards and that other nations will simply bow to his command. It’s a narrowly focused perspective that stretches ‘America First’ into ‘America Alone.’ Such a worldview fails to recognize the reality of international politics.
Let’s examine the tariffs that Trump has imposed. He sanctioned a staggering 145% tariff on imports from China, which functionally amounts to a hefty tax on U.S. consumers. While it’s true that China has exhibited behaviors that need addressing, it was quite predictable that they would retaliate. And retaliate they did.
In response, China imposed tariffs of 125% on American imports and cautioned other nations against approving trade agreements that would be detrimental to Chinese interests. Beyond that, China has been seeking alliances globally, to build a coalition against the U.S. Chinese leadership has been busy fostering connections throughout Asia, promoting a united front to countries like Malaysia, Cambodia, and Vietnam.
China leveraged its status as the primary global supplier of rare earth elements – key components in a range of consumer goods and military equipment. Large retailers, such as Walmart, Home Depot, and Target, also heavily depend on Chinese commodities, and they’ve signaled that they foresee empty shelves and inflated prices if the situation persists.
Perhaps Trump is attempting to corner China by forging other alliances through new agreements. He seems to be on the brink of finalizing new deals with India and Japan which could serve to solidify these relationships. Nonetheless, there must be other more balanced alternatives to achieve this objective.
Trump’s strategy of disregarding established relationships in pursuit of newer ones could prove reckless. Enacting widespread tariffs has undoubtedly disrupted trade deals, including ones previously negotiated by Trump himself. This has caused waves in the stock market and triggered minor retaliatory acts.
In many ways, the U.S. seems to be withdrawing from its global status – both through trade and foreign policy, all under a dismissive attitude towards globalism. Yet, it seems unfeasible to hold a stance against globalization in an increasingly globalized world and expect to maintain the top spot in the world order.
Alarming signs include a sizable offload of Treasury bonds from investors, often viewed as capital flight, which could heavily impact what was previously considered a risk-free investment – the United States. This financial hesitation is what led Trump to put a 90-day hold on the larger tariffs.
It’s also troubling to note Trump’s apparent conflict with the Federal Reserve, particularly with Chairman Jerome Powell. Trump suggested that he might dismiss Powell if he doesn’t cut interest rates, although he eventually withdrew from the idea after recognizing the potential economic damage.
However, Trump’s insistence may cause a rate reduction, which if timed concurrently with tariffs, could spur inflation and worsen matters considerably. As one economist mentioned, ‘The tariffs will eventually raise prices. Lowering rates and increasing money supply, especially when tariffs are set to decelerate economic growth, will amplify inflation pressures and heighten the probability of stagflation.’
Conseuqently, Trump’s aggressive negotiation tactics are profoundly impacting industries, particularly in agriculture. While Trump continues to project that all is going well, he’s contemplating a substantial bailout for farmers funded by taxpayers’ money.
Additionally, the entire scenario is based on the notion of reinvigorating American manufacturing. However, it’s important to note that manufacturing production in America is close to its peak. What has decreased, though, is the number of manufacturing jobs, mostly due to automation and the shift towards a service-based economy. This is a primary reason why imposing tariffs to bring back jobs is misguided. A recent poll also revealed that while a majority believe more manufacturing jobs would benefit America, only a quarter would actually want such a job.
In conclusion, Trump and his supporters acknowledge some short-term pain but argue for long-term gain. However, considering the current situation, it does not seem like a fruitful conclusion is on the horizon.