Donald Trump’s extraordinary misadventures in international trade have already thrown companies and countries into a tempest of confusion. His Twitter-begun trade policy and late-night proclamations have become a major wildcard in the global economic equation. As nations scramble to respond to his unpredictable strategies, analysts note that Trump has “fundamentally rewritten the rules of global trade,” as stated by Stephen Olson, Senior Visiting Fellow at the ISEAS – Yusof Ishak Institute and a former U.S. trade negotiator.
Trump’s approach to trade has largely been a parade of competitive high-profile threats and sudden policy reversals. He has made waves by threatening to cancel the North American Free Trade Agreement (NAFTA) on several occasions. He calls on Canada and Mexico to accept tougher conditions. This strategy illustrates his willingness to use trade negotiations to achieve bigger policy goals. The problem is that, as a matter of course, he constantly leaves nations hanging.
In April, Trump stunned global markets by announcing a blanket 10% tariff hike, which was subsequently paused, only to see a partial reinstatement later. The most recent turn came down when Administration officials announced an extension of the tariff deadline from July 9 to August 1. Indeed, within days, Trump signed an executive order to make this extension official. Markets, still spooked from other recent big announcements, prepared for further shocks to their newfound optimism on trade relations.
Thailand and Malaysia, for example, saw their trade rates suddenly recalibrated in retaliation for Trump’s moves. Canada’s economy felt the brunt of these changes, experiencing significant disruptions due to Trump’s aggressive tariff policies. Switzerland, typically known for its neutrality in international commerce, faced an unexpected 39% tariff from Trump. This move came despite the lack of any discernable friction between the two.
Until now, Trump’s self-imposed deadlines have had even the most optimistic of economists scratching their heads. As Holger Schmieding, chief economist at Berenberg, noted in his must-read daily dispatch, that was the key. He said a lot of Trump’s steep tariff rates on countries the U.S. doesn’t have trade deals with are just bluffing. Never take for granted that this is the last chapter. For Trump, this is one long reality show. More of such ‘deals’ or meaningful additional tariff increases are unlikely to be coming. While we’ve not fully returned to a ‘law of the jungle’ regime, we are on the precipice of doing so. As Olson noted, we’ve come a long way in doing just that.
Well Trump’s new 40% penalty on transshipped goods couldn’t come at a better time. With the United States and China continuing to negotiate a trade deal, it is perhaps more noteworthy that this timing occurs. This action has further soured relations between the two countries. Businesses are becoming collateral damage with tariffs mounting and regulations constantly changing.
As slapdash and senseless as Trump’s trade tactics have come across, they’re achieving the desired results—or at least the Trump desired results. It’s the chaos and uncertainty of his rule that has required businesses to scramble and pivot repeatedly, adjusting to new realities in real time. As some economists have argued, such an approach would be likely to introduce lasting instability into the international trading system.
With the August 1 deadline fast approaching, markets around the world are still on high alert. Especially as the long-run impacts of his negotiations and decisions will no doubt continue to reverberate through our economy for decades to follow.