Most commentators have been whipsawed by the Trump tariff climbdown along with the wild stock and Treasury market moves, and so have been focusing on why Trump relented and immediate signs of disruption, such as order cancellations, container pile-ups, shipment diversions. We thought it might prove useful to highlight some issues that don’t appear to have gotten the attention they warrant.
How is this a better deal? Much noise was made in the press about how the Trump “pause” at 125% tariffs against China (functionally equivalent to his previous China raise to a total of 104%) and keeping everyone else at 10% for 90 days was a great relief.
It isn’t for American consumers:
Hello am I going insane?
A 125% tariff on EVERYTHING FROM CHINA and a 10% blanket tariff on ALL OF EARTH is not a “pause on tariffs”
— Conor Rogers (@conorjrogers) April 9, 2025
We calculated that post Trump “put” today, the tariff mix is actually worse —China exports more consumer goods to US than other countries, so boosting that (to 125%) relative to others will boost the hit to consumption goods. pic.twitter.com/Yw9QIgcXqG
— Anna Wong (@AnnaEconomist) April 9, 2025
This is before getting to the fact that pretty much everyone in corporate and consumer America buys a lots of things from China, either finished goods or items with considerable Chinese content. Some businesses will have enough China exposure that they won’t be able to find new sources fast enough and will fail or cut operations severely. Similarly, everyone will be both directly and indirectly wind up paying more for most goods, with limited exceptions like gas (cheaper thanks to recessionary conditions). Some of these will be consumables like food and drugs, so public awareness of inflationary effects will be high.
In other words, Mr. Market’s happiness is one of short-term relief (and decades of conditioning to buy dips) and not real fundamental improvement. We still have a President deeply attached to insanely bad beliefs. As the New York Times put it:
But Mr. Trump has a theory on tariffs that has been hardened over 40 years, one that’s frozen in place and is resistant to data that conflicts with his gut. Over many years, when he has been presented with statistics that don’t comport with his instincts, he demands that people find him alternative information that backs up his beliefs.
So he plowed ahead, even while his advisers found themselves struggling to communicate to the public about a policy that they didn’t fully understand. Aides held multiple meetings with Mr. Trump and his senior advisers to try to find a way to convince the public that the economic penalties were a good idea.
Trump narcissism in charge. As John Helmer said in on interview with Nima on Dialogue Works, the Russians, when the Ukraine talks looked like they were happening, had ascertained that they were negotiating with a personality cult. One of the keys for Trump aides in persuading him to retreat was the idea that he’d won because over 75 countries wanted to negotiate pronto. From Axios, with particular attention to #1:
The move was based on three factors, according to three sources familiar with the meeting:
Bessent and Lutnick told Trump their phones were burning up with countries calling to negotiate. One source described the message from the two as: “We’ve got all these great countries. They all want to come and talk. How do we do it?”
The president and his advisers also agreed that China’s decision to raise tariffs on the U.S. created an opportunity for Trump to pause the tariff hikes on other countries as a token of friendship. It would be an effort to “put a ring around China, and isolate them,” an administration official said.
After several days in which Trump steadfastly said the falling stock market didn’t bother him, the market’s continued slide, emerging problems in the bond market and the falling value of the dollar became impossible to ignore. Friendly world leaders, congressional allies, major donors and CEOs “were practically begging for a pause,” another official said.
As for isolating China, the notion that 10% tariffs with a gun to the head of worse if concessions are not made is a way to build alliances is barmy. Trump seems to treat everyone like a contractor who is to be beaten down on price. See for instance:
The “isolating China” claim suggests that US negotiators will try to wrest concessions from ASEAN members and other countries not just on bilateral relations with the US, but also on Chinese companies producing products in those countries that are sold to the US. Like India, these nations make a point of not choosing sides between the West and China; so the US acting like a prototypical colonialist who can tell its possessions what to do is not going to go over well.
Mind you, it is not as if the impact of tariffs on China won’t strain relations with other countries. The 3% of GDP that US exports represent is not chicken feed. While it may be able to stimulate domestic demand to take up some of the slack, it will almost certainly try to increase exports too. ASEAN already runs a trade deficit with China. It’s not as if they are in a position to bail out China by acting as buyer of the last resort.
Emerging market crises are a wild card. As we have pointed out, former UN economist Jomo Kwame Sundaram has been writing for at least the last 18 months about how Western policies are pushing developing countries towards a crisis. When they hit, investors are not discriminating. They yank hot money out and ask questions later. So one decent-sized country, unless there really are unique, will create runs in many others, pushing them towards or into crisis.
The tariff shock is going to hit smaller and less developed countries. Central America looks vulnerable. A meltdown there may have repercussions for the US due to proximity and possible exposure of US financial institutions.
However, there is also risk in Asia. The Indonesian rupiah was in trouble before the tariff row started. For an article to appear in the Bangkok Post on crisis risk says it is an open secret.
Countries in an actual or near crisis are not good export markets, so they would be buying even less from China under that scenario.
On top of that, in the 1997 Asian Crisis, the IMF rode in and administered its usual painful rescues. The BRICS Kazan declaration reaffirmed the role of the IMF as bailouter in chief. So at most, BRICS countries see themselves as participating in an IMF-led drill. But the IMF is also dominated by Europe and the US. With Trump out to pick fights with Europe to show he’s the boss, might the US try to sandbag IMF programs?
China is not backing down. Trump clearly derives satisfaction from country leaders calling him to get relief. China has made clear it’s not making that call. The onus is on the US to make any move to break the impasse. From the latest daily briefing by the Chinese Ministry of Foreign Affairs
AFP: President Donald Trump has paused tariffs now on most countries but has raised duties on China to 125 percent. He also said China has shown a lack of respect and what is China’s response to this treatment? And will China announce further rises in its own tariffs on U.S. imports?
Lin Jian: The U.S. uses tariff as a weapon to exert maximum pressure for its own selfish gains, which severely hurts the legitimate rights and interests of all countries, violates the WTO rules, sabotages the rules-based multilateral trading regime, and destabilizes the global economic order. The U.S., in defiance of global criticism, is pitching itself against the rest of the world. China has taken necessary countermeasures against the U.S.’s bullying acts in order to safeguard its own sovereignty, security and development interests, and more importantly, to uphold international fairness and justice and the multilateral trading regime, and protect the common interests of the international community. A just cause enjoys the support of many. America’s move that goes against the trend of the times will find no support and end up in failure.
Let me stress once again that tariff and trade wars have no winner. China does not want to fight these wars but is not scared of them. We will not sit idly by when the Chinese people’s legitimate rights and interests are denied or when the international trade rules and the multilateral trading regime are undermined. If the U.S. is determined to fight a tariff and trade war, China’s response will continue to the end. If the U.S. puts its own interests over the public good of the international community and sacrifices all countries’ legitimate interests for its own hegemony, it will for sure meet stronger opposition from the international community….
Anadolu Agency: About the tariff issue, U.S. President Donald Trump said China wants to have a deal but they don’t know how quite to go about it. What do you think that means? And are there any contacts between the U.S. and China on the issue? (A similar question was asked by Reuters.)
Lin Jian: The U.S. is still abusing tariffs on China. China firmly rejects and will never accept such hegemonic and bullying move. Intimidation, threat and blackmail are not the right way to engage with China. If the U.S. truly wants to talk, it should let people see that they’re ready to treat others with equality, respect and mutual benefit. If the U.S. decides not to care about the interests of the U.S. itself, China and the rest of the world, and is determined to fight a tariff and trade war, China’s response will continue to the end.
US concerns have made themselves vulnerable by putting their own operations in China. Punctilious enforcement of regulations, stringent tax audits, and expulsions of foreign managers on dimly plausible ground could be crippling.
And for comic relief, from the Financial Times:
The renminbi weakened to its lowest level since 2007 in the latest sign Beijing is willing to tolerate gradual depreciation in response to US tariffs…
US Treasury secretary Scott Bessent on Wednesday warned China against a currency devaluation.
As if the US can seriously administer additional punishments? Is Bessant about to take a page from Ursula von der Leyen, who if memory serves correctly, is now up to her 16th sanctions package against Russia?
Why China probably wins. It may seem radical to suggest that the US, with declining pretty much everything, educational attainment, patent output, health levels, investment, even has a hope of coming out of this row OK. But as PlutoniumKun, who has made an extensive study of development economics, explained long-form in comments yesterday, trade surplus countries usually suffer much more in a trade war than trade deficit nations.
One reason things might be different now is the extreme specialization of labor and production. A trade deficit country, unless it was terribly resource poor, could move toward a greater measure of self-sufficiency. It’s hard to see the US doing that to a great degree absent a big fall in living standards. Subsistence farming, anyone?
But at least two things work in China’s favor. First, US leadership, both in government and in the private sector, are so diseased, incompetent, and corrupt, that even allowing for a gap between China hype and reality, it’s hard to see the US managing its way out of a paper bag, let alone a crisis.
Second, external enemies increase internal cohesion and commitment. And the US is a perfect bad guy, trying to cut China down to size precisely because it has been so successful.
