Shooting yourself in the foot

Trumpist messages tend to be blunt: Trump is a thundering Jupiter, harsh and threatening. His strategy is fear. But at the same time, his public appearances always leave areas of ambiguity, riddled with shadows intended to give himself room to negotiate, which is what this huckster-turned-U.S. president likes the most: there will be a minimum tariff of 10%, and higher in countries with the largest trade surplus with the U.S., including the European Union, to which he will apply a 20% rate after accusing it of having swindled America for years. Even so, despite everything, the worst-case scenario — a linear 25% threshold for everyone — has not been reached; and furthermore, the tariffs are not being applied immediately: the door remains open for negotiation. This ambiguous forcefulness—on the lower end of what was feared—was what had been expected in Brussels and in European chancelleries on the eve of the declaration of trade war: another dose of uncertainty. And we have plenty of that. Radical uncertainty is perhaps the phrase that best defines this era. And in times of maximum noise, with uncertainty levels at their highest in the last 20 years, it’s worth returning to the classics: the problem is choosing them well, and I’m afraid that rather than political scientists and economists, this time it’s better to read good historians (and, if possible, the occasional note from intelligence services and military analysts).

What do the conventional textbooks say about the trade war Trump has just declared? That in the short term, we can expect a bout of market instability, although paradoxically, that correction has already occurred, at least in part (sharp falls in the stock market, shocks in the currency market, and a dramatic rise in safe-haven assets like gold). The financial sector, even more so in times of unbridled uncertainty, is a formidable amplifier of bouts of economic stress: we must keep an eye on the markets, which will provide the first response to Washington’s move. If the markets give a thumbs-down, as they might, the crisis will have a tendency to accelerate.

The textbooks also say that, in the long run, Trump has just shot himself in the foot, and in the process, also shot the global economy. The tariff increases (also called “beggar-thy-neighbor policies” in the aforementioned textbooks) will leave disruptions in value chains, inflation, a delay in purchasing and investment decisions, and, ultimately, ugly wounds in the real economy, which in the U.S. is already showing the first symptoms of what appears to be a self-induced crisis. One of the world’s most open economies is declaring a sort of autarky. Analysts predict enormous tension and tectonic shifts: the global geoeconomic order is changing screens before our very eyes, and at the aggregate level, there is little doubt that the damage will be widespread; the problem is venturing to quantify it reliably. But the fun and games vary from neighborhood to neighborhood, and the damage to each country and each trading bloc will depend on the economic policy response to the Trump shock: Europe has given itself a few days to respond, but even in the United States, the final picture is a “most likely, who knows,” as the Caribbean saying goes. The long-term effect on the U.S. economy will depend on how the country’s big companies react, on whether they really think Trumpism is here for the long haul and decide to invest in the U.S. and start building factories at home.

That’s what the classic textbooks say, but none are capable of anticipating the creativity of history: it’s possible that even today, uncertainty hasn’t disappeared, and that Trump will raise and lower the tariff bar depending on the upcoming negotiations, his own interests, and almost the mood he wakes up in the day after the announcement. It’s also possible that the markets will at least somewhat rein in this unbridled Trumpism: the financial channel can be ferocious when it wants to be, even more so if almost everything looks bad in the U.S., from stocks to inflation expectations, confidence levels and leading labor market indicators. There are two ways to go bust, said Hemingway. One is gradually; the other suddenly. So far, we’ve seen the gradual path, but it’s possible that from now on, there will be an acceleration: the markets are that accelerator when they want to be.

The second way to study the economic consequences of Trump’s announcement is to turn to historians. The Great Depression brought fascism and a world war. The Great Recession of 2008 didn’t go that far: governments and central banks managed to cushion the blow, but the advance of populisms—often neo-fascist or post-fascist, or whatever one wants to call that mutation—has been relentless since then, ultimately bringing the wars in Ukraine and Gaza, which have claimed hundreds of thousands of lives.

Every crisis, in short, breeds its own monsters, and the Great Recession has left us with inequality: that crisis was (and is) a brutal transfer of capital from the middle classes to the rich. Think of the bailouts, which were actually financial lifelines for the banks. Think of an era of globalization that brought aggregate benefits to the global economy but ignored the losers, among many other Trump voters, who are now taking their revenge. Think of the current situation of the Western real estate market: “The rich get the assets, the poor get the debt, and then the poor have to pay their whole salary to the rich every year just to live in a house. The rich use that money to buy the rest of the assets from the middle class and then the problem gets worse every year,” summarizes a character in Gary Stevenson’s fascinating The Trading Game.

Trump is the last link in that chain, a confirmation that times of political and economic turmoil give birth to monsters. And he’s about to unleash, with that mix of fear and hatred that characterizes demagogues, a new engine of inequality and poverty that we’ve agreed to call a trade war. It’s going to be a bumpy ride: the market will tell us in a few hours just how bumpy, and in just a month we’ll have the first reliable indicators of the damage to the real economy. Later, Canadians will vote in a national election and that will be an early indicator of what the political response to Trump might be. In Canada, the Liberals (the equivalent of the European center-left) are leading the way, with a mix of anti-Trumpism, patriotism, rearmament, and economic security. Whether this is also the European strategy remains to be seen, depending also on the electoral outlook on the continent.

“May you live in interesting times” is a Chinese curse. It’s at least paradoxical to think of Donald John Trump as a Chinese curse.

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