William Pesek
When Donald Trump returned to office in January, he pledged to show China who’s economic boss through massive tariffs. Yet six months later, it’s the US economy that’s feeling the trade war pain, not Asia’s biggest economy.
From a 0.3% first-quarter growth contraction to rising inflation to cratering housing demand, the Trump 2.0 trade war is boomeranging back on Americans in unpredictable and painful ways. Bond traders, meanwhile, are in a whirl as Trump’s tariffs, spending plans and attacks on the Federal Reserve’s autonomy wreak havoc with global yields.
The question looming over markets now is what Trump does when he realizes that his trade war is a dud? What about when it dawns on Trump World that investors are essentially ignoring his tirades? One big wildcard is that Trump goes all-in on dispelling the #TACO theory that “Trump always chickens out.”
Trump’s threatened 50% tax on Brazil, with which the US enjoys a trade surplus, suggests Trump’s worldview has pivoted from economic strategy to personal attacks. Trump is irked that Brazil is holding former President Jair Bolsonaro accountable for an alleged 2022 coup attempt.
The latest steps Trump is taking toward Japan also suggest emotions have gotten the better of his trade war strategy. Annoyed that Japanese Prime Minister Shigeru Ishiba isn’t just rolling over and signing a trade deal, Trump says Tokyo will face a 25% tariff on top of his 25% global auto levy.
Yet the real indignity will come from China, which is in no mood to bow to Trump World. Chinese leader Xi Jinping, remember, has yet to offer concrete concessions to signal fealty to Trump.
Though Trump has claimed since late June that “we just signed with China the other day,” officials in Beijing hold that US-China trade deal talks are still in the early stages, at best.
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