Donald Trump just took the greatest political gamble with the US economy of any modern president.
Presidents normally try to do everything they can to avoid upsetting the country’s economic engine and global stability — especially if unemployment is low and growth is ticking over, as it was when he took over from Joe Biden.
But with his stunning outburst of new tariffs on almost all imports from 185 nations, Trump administered an extraordinary shock that went against the advice of almost every economic expert and the lessons from some of history’s grimmest omens.
He went with a lifelong belief in the mystical power of making imported goods uncompetitive to boost domestic production. No matter that trade wars tend to end badly and that tariffs are more a feature of the 19th century than the 21st.
In a surreal appearance in the White House Rose Garden Wednesday, Trump clung onto a big poster that showed new tariff rates as it swayed in the wind. The world saw an unrestrained president in the sole spotlight he adores, hazarding the economic fates of billions of people with an outlandish political bet.
The biggest political surprise is that Trump — in the name of reviving the economic prospects of post-industrial regions ravaged by the loss of jobs and factories abroad — is about to inflict real pain on Americans.
He was elected five months ago in large part because voters were frustrated at high prices for groceries and housing after grinding inflation inflicted by Covid-19 and after the Biden administration’s spending helped overheat the economy. Democratic nominee Kamala Harris had few good answers when asked how she’d cut prices. But Trump projected blue-collar solidarity by working the fries station at a Pennsylvania McDonalds.
Yet he’s gone all-in on a policy that will make almost everything people buy — from fast food to electronics, cars to new homes — pricier. Poorer people will get hurt more than Trump’s rich friends, as will those who live on fixed incomes and can’t bear to look at their plunging 401ks.
He told NBC at the weekend that he “couldn’t care less” if the cost of buying cars shoots up. His new tariff experiment suggests that he means it. It’s a staggering piece of political positioning for a billionaire president who heads a Cabinet of fellow billionaires and millionaires.
Foreign nations sure to hit back
No one can predict exactly how this gambit will play out.
Assuming the full range of tariffs are implemented and there are no last minute opt-outs — a possibility that can’t be ignored given Trump’s past reversals — the world is set for a full-scale trade war.
Foreign leaders are as subject to political factors as Trump is. And they will be under fierce pressure to hit back at the US for a universal tariff of 10% on almost all nations, plus much higher rates for nations he said are the worst offenders.
It’s hard to think of a more loyal US ally than Australia. But its Prime Minister Anthony Albanese warned, “This is not the act of a friend.” Foreign reprisals could set up an escalation ladder and make Trump — who always wants to get the last word — feel he’s got no option but to respond.