Trump’s Tariffs set off Global Trade War, Threatening Recession

President Donald Trump’s tariff barrage has inflicted economic chaos around the world and opened up a new front in his war against the global order that has maintained political and economic stability since the end of World War II.

Stock market plunges in every major index have prompted prominent economists and central bankers to warn a recession is looming for the European Union, the United States and most other countries of the developed world.

In China, the world’s second-largest economy after the United States, a new era of Chinese protectionist measures has already begun. Beijing on Friday announced it was matching Trump’s 34% tariff on its exports to the United States and promised to cut off rare earth minerals and other supplies vital to U.S. high-tech development and manufacturing.

Perhaps most concerning for the security of democratic nations is the huge distraction Trump’s tariff turmoil has caused from his apparently abandoned effort to end the war in Ukraine. For the past week, since Russian President Vladimir Putin rebuffed Trump’s appeal for the Kremlin to join a ceasefire that Ukraine agreed to, Putin has escalated missile and drone attacks on Ukraine’s two most populous cities, Kyiv and Kharkiv. In keeping with Trump’s pivot from Western allies to align with Putin, Russia is not among the countries targeted in Trump’s tariff spree.

The hefty tariffs levied on U.S. friends and other foes are disrupting an 80-year-old practice of pursuing mutually beneficial and mostly tariff-free trade that lowers prices for consumers on both sides of the trade exchange.

The initial wave of tariffs put a 25% import tax on automobiles, steel and aluminum coming into the United States, hitting the car industries in Europe and Asia as well as the U.S.-based carmakers that rely on imported foreign-made parts.

Automakers’ fears of having to raise prices for their foreign-made vehicles to cover that 25% tax paid upon delivery has already triggered what are said to be “temporary” layoffs of 900 U.S.-resident auto workers at Stellantis plants in Mexico and Canada.

The 27-nation European Union faces “reciprocal” tariffs of 20% on most other goods sold to U.S. importers, which will jack up the cost for American shoppers of French wines and champagne, German and Italian meats, Scandinavian appliances and designer clothing. Additional tariffs on EU exporters are still to be determined on pharmaceuticals, wood, copper and high-tech products like semiconductors needed for U.S. manufacturing. The EU exported $585 billion in goods to the United States last year.

In Britain, no longer a member state of the EU, luxury carmakers like Jaguar, Bentley and Rolls Royce are bracing for a drop in exports to the United States, the British car industry’s second-biggest market after the EU. British automakers sold $10.7 billion in high-end vehicles to U.S. buyers in the fiscal year ending in September 2024. Jaguar Land Rover announced after the U.S. tariff hit that it was “pausing” shipments to the United States until it reassesses how it should respond to the Trump administration’s action.

Trump’s universal assault on longstanding global trade relationships threatens to shift alliances that have strengthened the economies of the world’s most prosperous countries. Negotiations are already underway among the EU, China and Canada, to coordinate strategy in imposing retaliatory tariffs on the United States. There are also likely opportunities for the trade blocs facing the biggest costs for retaining their U.S. trade relationship to turn to each other to sell them the goods that will now be more expensive from the United States.

The European Commission, the policy coordinating body for EU trade, was drafting a list of U.S. products to have their tariffs boosted, to be proposed to members this week.  The list is said to target U.S.-made bourbon with a 50% tariff, which Trump hit back at with a threat to raise the tariff on all EU alcohol exports to 200%. French President Emmanuel Macron suggested the EU suspend investments in the United States until “things are clarified” in the transatlantic trade conflict.

Trump’s inconsistent messaging on how long and at what level tariffs will be in place has created uncertainty that is roiling financial markets. U.S. manufacturers in Asian countries are hearing from various White House officials that the tariffs are only a temporary negotiating tactic, while Trump himself has said repeatedly they are permanent until U.S. factories abroad are “reshored” to the United States. That is a shift that would take years to execute and in the meantime retailers will have to raise prices commensurate with the tariff rate increase to recoup their investments.

Over the past half century, low-wage countries like China, Vietnam, Cambodia, Bangladesh and Indonesia have attracted U.S. investors who outsource production and ship the finished products back to the U.S. market. That lower cost of production for U.S. companies leads to an imbalance in U.S. trade with those countries as low-paid workers can’t afford the pricy goods the United States makes at home, where wages are significantly higher.

U.S. stock markets lost $5.4 trillion dollars in value on Thursday and Friday, a drop of more than 9% that moved some indexes into correction territory. The freefall diminishing millions of Americans’ retirement accounts and investments had little effect on Trump who left the capital to spend the weekend golfing in Florida. But the collapsing markets spooked a few Republican lawmakers and conservative economic institutions to challenge the president’s nonchalance amid an economic meltdown.

A handful of congressional Republicans have initiated a so-far-unsuccessful effort to recover the power of the national purse with the assertion that setting tariffs is an authority vested in Congress, not the president.

The Bloomberg financial news agency warned Saturday that Trump’s action in “unleashing the steepest increase in tariffs in a century last week has raised the odds of a global recession.

“The heavy selloff in U.S.-listed Chinese stocks also reflected fears of further tit-for-tat responses between the world’s top two economies,” the agency reported.

The conservative American Enterprise Institute weighed in Saturday with a report that Trump’s tariff action was based on an erroneous formula that led to the levies on all targeted countries being inflated four-fold. As a consequence of that, the new tariff regime “makes no economic sense.”

The AEI verdict and similar negative assessments of Trump’s launch of a potentially global trade war have intensified concerns among longstanding U.S. allies that the current president is too capricious and deaf to sound advice coming from outside his circle of sycophantic congressional allies and largely unqualified Cabinet appointees.

Trade ministers from key U.S. allies Japan and South Korea met in Seoul on Sunday with Chinese representatives to discuss widening of regional trade ties. It was the first time in five years that the regional trade officials got together in pursuit of closer commercial ties, the New York Times reported.

U.S. allies forging closer ties with China could significantly undermine Washington’s goal of slowing breakout advancements in technology by China, the newspaper reported, citing Georgetown University Professor Abraham Newman as warning that would be “the opposite of what the U.S. would hope to achieve.”