Dealmaking genius or boy who cried wolf? Trump’s trade retreat sows doubts

https://www.theguardian.com/us-news/2025/apr/12/trump-economy-tariffs-analysis

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Nothing is certain under this president – as seen in the inconsistent implementation of tariffs. And it has a longer-term economic cost

Minutes after Donald Trump unveiled a climbdown on tariffs, softening an extraordinary US attack on trade from much of the world, his press secretary scolded reporters at the White House.

“Many of you in the media clearly missed The Art of the Deal,” said Karoline Leavitt, referring to the 1987 bestseller which laid the foundations of the president’s reputation as a consummate dealmaker.

Outside the administration, Wednesday’s 90-day pause of vast tariffs on dozens of countries – the latest bewildering reversal on tariffs since he took office, coming as his deputies repeatedly swore the levies were here to stay – conjured up a different fable.

“Really, like the boy who cried wolf, you can only do this so many times,” said John Cochrane, an economist at the Hoover Institution at Stanford University. “It really does piss people off.

“These tariffs are an answer in search of a question,” said Cochrane. “It always comes down to tariffs, and then the reasons for them keep changing.”

Trump and his officials have long put forward a consistent, but contradictory, case for high tariffs. They will lure an influx of manufacturers to set up plants in the US, according to the administration while at the same time enabling the US to tax the world, not its citizens and prompting a stream of countries to strike new deals with Washington and eliminate US trade deficits – the gap between what it imports and exports – with other leading economies. Economists can’t see this working.

“I think the Trump administration is floundering,” said Simon Johnson, a Nobel prize-winning economist and professor at MIT’s Sloan School of Management. “They know they’ve got an issue that grabs attention … They don’t know the endgame they want.”

Nor has the implementation of the slated tariffs been consistent. Officials who had spent days explaining how this stunning wave of tariffs would create millions of US jobs and raise trillions of dollars were sent out to explain why its part-reversal was, in fact, a shrewd masterstroke – billed by Stephen Miller, Trump’s deputy chief of staff for policy, as part of “the greatest economic master strategy from an American president” in history.

Even Trump struggled to claim this move was part of a carefully crafted plan. People “were getting yippy”, he said, when asked why he ordered the pause. He later acknowledged “transition problems”, as companies and consumers struggled to keep up with developments.

Just 10 days ago, the president – on what he claimed would go down as “one of the most important days” in US history – announced a baseline tariff of 10% on most of his country’s imports, and significantly higher tariffs on specific nations. 2 April 2025 would forever be remembered as “liberation day”, according to Trump and his aides.

Stock markets tanked, US government bond markets endured a sharp sell-off, and even some of Trump’s allies warned of widespread disruption. But he imposed the 10% tariff anyway, insisting that he would not be moved.

On Wednesday, hours after the US introduced the higher tariff rates on about 60 markets, Trump abruptly changed tack. For 90 days, he said, these markets – including the EU (20%), Japan (24%) and the Falkland Islands (41%) – would face the blanket 10% rate, after all. Only China, which hit back hard with its own tariffs on US exports, would face a targeted US tariff of 145%.

While markets briefly surged back, confusion and uncertainty loomed large. “I think the probability of an across-the-board cataclysm has receded,” said Johnson. “Until the next time Mr Trump speaks publicly.”

Nothing is certain under this president. From longstanding geopolitical relationships to constitutional term limits, he has little time for established norms. Erratic policymaking is a feature, not a bug, of his administration.

Trump has forged this uncertainty, and uses it as a short-term political tool – leaving the world to hang on his every word, be it uttered in the Oval Office, or posted on his social network. But it has a longer-term economic cost, too.

“It used to be that a country could sign a trade agreement and have fair confidence that that meant that there’d be free trade,” said Joseph Stiglitz, a Nobel prize-winning economist and professor at Columbia University. “With Trump, no confidence. It’s added a permanent level of uncertainty into all cross-border transactions.”

Sure, this week’s pause removes the imminent danger of “complete Covid-level and more supply chain chaos”, said Cochrane. “You’re not going to have that immediate effect. But you’re certainly going to have the chilling effect that nobody knows what’s coming next.”

Facing the threat of higher prices as a result of tariffs, some consumers hunker down and curb their spending. Others make bigger purchases now, earlier than planned, for fear of paying more next week, or month.

Johnson, for example, went out and bought a car this week for his daughter, who did not need it for another two months. Uncertainty can be “an inducement to buy consumer durables”, he said. “But from a business investment perspective, it is probably a delaying factor.”

How many global executives are prepared to commission a new factory, and fund months, if not years, of construction, in a market where the economic landscape shifts drastically from one week to the next?

For now, at least, one thing firms can count on is spiraling tensions between the world’s two largest economies. After a dramatic escalation in recent days, the US is now charging a tariff of 145% on Chinese exports, and China is charging a tariff of 125% on US exports.

“We are very interdependent on China – right through our whole supply chain,” Stiglitz, former chief economist of the World Bank and chair of the US Council of Economic Advisers, said of the US. “Doubling the cost of every input is going to mean the cost of our goods are going to go up.”

Chinese-manufactured finished products, from consumer goods to electronics, are likely to be hit, noted Cochrane – but key parts and tools for other goods will also be affected. “Everything at Walmart is going to double as a result of Trump’s tariffs on China,” he said.

Such expectations have heightened fears of “stagflation”, an unpalatable economic cocktail of both stagnant growth and high inflation. The US Federal Reserve chair, Jerome Powell, has warned in recent weeks of “higher inflation and slower growth”, while the JPMorgan Chase boss, Jamie Dimon, reported that Trump’s tariffs have prompted “many” to consider “a greater probability” of recession.

“We may be facing inflationary pressures and – at the same time because of the shortage of key components, with increased prices – we also may be facing unemployment,” Stiglitz said. “There’s a real risk of stagflation.”

That is “particularly true” if Fed policymakers respond to inflation as they typically do, and raise interest rates, he said. “And particularly true if Americans see, as they are seeing, chaos. There’s a lack of confidence. And particularly, as the US is facing, this additional problem of mass government layoffs, chaotically done, in critical institutions.”

There is a further risk, he added, that Trump – having built an economic strategy around tariffs on goods – overlooks industries at the heart of the US economy built around services, from finance and advertising to technology.

“He doesn’t understand that we are a service-sector economy,” said Stiglitz. “We’re not in the 1950s. Service sector exports for the United States are particularly important. And he has just taken actions which are killing two of the important service sectors of the United States.”

Tensions with allies, like Canada, and detentions of tourists have “sent a chill” through the international tourism market, while student visa cancellations are “killing our universities”, he said. “He’s hellbent on destroying two of the most important service export sectors.”

As the economic impact of his trade war with China becomes clear, Trump now wants to strike agreements with an array of other countries, halting those tariffs until July.

Such deadlines only work if people believe they are true. This administration, as Canada and Mexico know well, has a habit of scuffing its lines in the sand.

High tariffs would put the US on “a whole new prosperous path”, Trump claimed – despite the doubts of many economists – in his “liberation day” address. He held firm for a week, before announcing a three-month detour.

What happens next? Trump, who built and rebuilt his political career on a promise to make America great again, has opted to make America wait, again.