Who does Donald Trump think he his? In interviews he compares himself to William McKinley, the 25th president of the United States, the “Napoleon of Protection” as he was known in his day (which came at the end of the 19th century). Trump has dusted off McKinley’s century-old economic nationalism, and the “reciprocal” tariffs he announced this month were described in the same language McKinley used for his trade policy. In his final speech, on 5 September 1901, McKinley spoke of being guided by the principle of “reciprocity”; he was fatally shot at a public appearance the following day. Perhaps Trump also admires his predecessor’s record of annexing other countries (McKinley added Hawaii, the Philippines and Puerto Rico to the US) when he thinks of Greenland.
But this weird pantomime of a president who has been dead for 12 decades is inaccurate. Trump does not actually resemble McKinley, the popular and diligent promoter of US enterprise who sought an “open door” for Chinese trade. In practice, Trump’s guiding principle seems closer to that of Mao Zedong. Before they initiated the bloodbath of the Cultural Revolution, Mao and his Red Guards identified as disciples of Sun Wukong, the rebellious monkey king of the 16th-century novel Journey to the West. Their manifesto promise was to “turn the old world upside down, smash it to pieces, pulverise it, create chaos and make a tremendous mess”. Mao, like Trump, was a septuagenarian revolutionary, an anarchist-in-chief. The shared principle of these leaders is that power can be concentrated by the imposition of disorder.
This is a principle that physicists will recognise. Trump leads by entropy, taking the energy that could be used to do orderly work and releasing it in a chaos of noise and heat. On 2 April – “Liberation Day”, as his administration called it – Trump applied this principle to the $33trn edifice of global trade.
Since the rules-based system of global trade was implemented after the Second World War, the US has been both its chief executive and its main beneficiary. Trump’s belligerent and unpredictable tariff policy is an assault on prosperity in his own country and around the world, suppressing hundreds of billions of dollars’ worth of commerce and dramatically increasing the chances of recession in the US and the global economy. Financial markets disagreed violently with the crude mercantilism of his policies, and he has been forced to back down on some tariffs, while raising others (on China) and threatening to impose more tariffs on goods such as pharmaceuticals and electronics. The conventional view is that in a trade war, nobody wins – but that depends on the objective. Is Trump trying to create prosperity, or planning for chaos?
There’s a 2003 scene from the Baltimore crime drama The Wire in which Frank Sobotka, a gruff union leader, voices a national frustration: “We used to make shit in this country, build shit. Now we just put our hand in the next guy’s pocket.” Working-class America has spent decades regretting its industrial emasculation, and Trump – who has since the 1980s positioned himself against “other countries ripping us off” – was well placed to blame the disappearance of well-paid manufacturing jobs on the rising economies of Asia.
There is a narrow sense in which he is right. As developing economies became wealthier selling goods into Western markets, they built up greater foreign exchange reserves to shield themselves against economic shocks. Within a generation, the value of foreign exchange reserves held by countries worldwide increased more than tenfold, and is now greater than $12trn. More than half of these reserves are held in dollars. The economic growth and stability of other countries has led to greater demand for the dollar, which has made it more expensive relative to other currencies, which has made America’s exports more expensive relative to those of other countries.
But this is a fantastically self-centred thing to complain about. The hard work of people in developing economies has strengthened America’s currency and its financial sector – almost two-thirds of the value of the world’s company shares are now concentrated in US equity markets – while the governments of those nations have paid for American public services by buying eight trillion dollars’ worth of US debt. At the same time, Americans have been able to enjoy decades of cheap consumerism at the expense of foreign workers – people whom JD Vance calls “Chinese peasants” – putting in long, badly paid shifts in factories the size of cities that no American or European would want to live anywhere near. Mountains have been flattened and rivers killed so that Americans can spend their days being paid to argue online, to gamble on financial markets or to go shopping. Now the peasants have amassed enough dollars that their relative prosperity affects Americans, and the Americans call it a rip-off.
“It’s very difficult to have sympathy with any argument that is based on the premise that the US has uniquely lost out to the global trading system it created,” said Sam Lowe, a trade and market access expert, “given that it is the largest, richest, most successful economy on Earth.”
Nevertheless, Trump has harnessed this impulse. For him, tariffs have a special attraction in that they are a blunt instrument that is easily grabbed. Sweeping changes to taxes or spending would take time and leave space for his authority to be challenged. Tariffs can be imposed immediately, using (or misusing) his emergency executive powers. They can be fired off almost as easily as a tweet.
Dmitry Grozoubinski, a former diplomat and author of Why Politicians Lie about Trade, told me this gives Trump considerable power. “Tariffs, because you can both do huge, sweeping things at the stroke of a pen and be incredibly targeted down to the level of the interest of an individual company, give him a huge amount of negotiating leverage. The Trump giveth, and the Trump taketh away.”
This suits Trump’s blatantly transactional approach to government. A 2023 study of the tariffs applied to $550bn in Chinese goods during Trump’s first term presented convincing evidence that businesses that donated to the Republican Party were much more likely to receive exemptions. The threat of new taxes – and the prospect of escaping them – was deployed for the purpose of “not only rewarding supporters, but also punishing opponents”. Such arrangements may become easier still with the sacking of the inspectors general from a range of government agencies. Countries, too, may find they have to rewrite sections of their domestic laws – on environmental legislation, for example – as part of the deal for access to the US market.
[See also: Donald Trump’s assault on capitalism]
A further reason Trump prefers tariffs is that he, like Rachel Reeves, is now in the business of imposing stealth taxes to pay for the running of a heavily indebted country. For Reeves, that has meant claiming to hike taxes on employers (while knowing the cost will actually be paid by workers); for Trump it means hiking taxes on foreign goods (while knowing the cost will actually be paid by consumers, through domestic inflation).
Trump therefore has four goals he can pursue using tariffs: to bring offshored manufacturing back to the US; to make deals; to reduce the power of China; and to raise money. This approach is on the one hand effective, in that negotiators can’t know which of these the Trump administration really wants. But it is also potentially disastrous for investment, because businesses can’t know which of these the Trump administration really wants.
“If you’re a supply chain manager,” Grozoubinski explained, “perhaps you might be motivated to build a factory in the United States if you’re told there’s going to be a 30 per cent tariff on bringing in parts… But that will be completely undermined if in the same breath, the person imposing those tariffs says they are a negotiating chip that he can’t wait to trade off for something that country is doing in a completely different sector.” Trump’s court of competing interests will encounter such contradictions, he said, because “they’re trying to play for the entire board at once”.
Of all the incentives guiding the White House, the most powerful is probably the geopolitical will to maintain America’s place as the world’s only real superpower – and perhaps to exploit it still further. Sam Lowe told me there are signs that “the US is seemingly going to try and push countries into a binary choice” between America and China, which could take the form of “pressuring countries to put tariffs on Chinese imports, or to block certain Chinese investments into their country”.
Some countries may decide to do so anyway, when the hundreds of billions of dollars’ worth of goods that were going to be sold to the US by China seek other markets, and the rest of the world moves to protect its industries from a flood of cut-price imports.
The US can afford to gamble with a reordering of the global trade system because it is less exposed to the risks of trade disruption than other countries. It is an extreme outlier in that while it imports around $3.4trn in goods and sends $2trn in exports to the world, its trade is equal to just 25 per cent of its economy. Only Sudan and Ethiopia have a lower trade-to-GDP ratio according to the World Bank; the EU’s trade-to-GDP ratio is 96 per cent. Countries such as the Netherlands, South Korea and Vietnam are highly exposed to changes in the movement of goods, but America largely does business with itself.
The US can also rely upon the dizzying profligacy of the American consumer. This is a culture in which it is fairly normal for a person to eat more than their own body weight in meat each year, in which almost a quarter of households have three or more cars and in which families earning more than $150,000 a year commonly live “paycheck to paycheck”. Americans have high incomes but their savings rate is less than a third of that in the euro area. Access to this market of grotesque overconsumption is extremely valuable. Diplomats may talk about other countries strengthening their trade relationships around the US, but as Grozoubinski told me, “it is quite hard to replace 350 million people who make a lot of money and live on credit cards”.
This does not mean a trade war with China is a done deal, however. “China has been preparing for this for the better part of a decade and a half,” said Grozoubinski. Ever since China began considering a blockade of Taiwan, it has had to consider the implications of such a move for its export-led economy. It has diversified away from holding some types of US debt and focused on conducting more trade in its own currency, the yuan.
Politicians in Washington claim that China’s income depends on selling things to the US, but this isn’t true. The US accounts for 15 per cent of China’s exports, and these exports are equal to less than 3 per cent of China’s GDP. China’s huge, globally connected economy has its own problems, but its fate will not be decided by whether it can sell to America.
Xi Jinping’s reaction to the tariff regime appears to have been well received in China. America’s belligerence fits with the picture impressed upon the Chinese public by the country’s patriotic education programme: China as a hard-working and enterprising economy that is picked upon by the vindictive West. Trump, on the other hand, will soon be hearing from small-business owners across the US who source parts and raw materials from China. Many will already be liable for the new tariffs on shipments they ordered prior to Liberation Day, because a container ship can take more than a month to reach the US from Shanghai or Guangzhou. Even if they can find new suppliers in other countries, prices will surge as demand moves around. It is hard to see how America’s trade war avoids creating a new surge in inflation.
[See also: Could John Maynard Keynes fix Trump’s tariff crisis?]
Kim Darroch, the British ambassador to the US during Trump’s first term, has close personal knowledge of the negotiations behind the economic grandstanding. “What Trump wants,” he told me, “is a deal with China. At various points in the tariff war of his first term, the Americans and the Chinese got quite close to a deal, which included Chinese promises to buy vast qualities of American agricultural products, and I suspect the Chinese also offered to try to sell their exports more widely.” Darroch believes Trump would be satisfied by Chinese commitments that enriched US farmers and car manufacturers (perhaps one electric-car maker in particular) and supported the reshoring of some high-tech production. Whether he gets such concessions is another question.
“Trump regards himself as a great dealmaker, on pretty limited evidence,” Darroch said, “but he may have met his match in the Chinese. They don’t give stuff away easy, and they take a long view.”
China has other cards to play. It can manipulate its currency via the reference rate set by its government-controlled central bank, forcing the price of its exports down in other markets. It could even consider selling off some of the more than three-quarters of a trillion dollars in US government bonds that it holds. To a certain extent, Xi can interfere with America’s monetary policy from Beijing.
Between these opposing powers is Europe, which Trump has perhaps unwisely treated as a single bloc, using the same force against his friends Giorgia Meloni and Viktor Orbán as against Germany and France. “Everyone now talks in Europe about our unreliable American ally,” Darroch said. “They will not stop doing that for the next three or four years.”
In the UK, Trump’s actions have buried for good the Brexiteer fantasy that Global Britain would have a long list of trade deals to sign the moment it left the EU. We have not brought into force a full free-trade agreement with any single country in North America, South America, Europe, Asia or Africa. We continue to negotiate, but deals take years to conclude and our relatively small size on the world stage makes it unimportant to other nations to conclude a deal. Our major trading partners (the EU and US) enjoy favourable terms because we rely on them more than they rely on us.
Whatever concessions we are considering, they are closely guarded. I’m told that UK officials involved in negotiations with the US have been separated from colleagues in the Foreign Office and given clear directions on the need for secrecy. This may be because the terms are controversial. “I would be astonished if in negotiations on this free-trade deal, the Trump team were not asking for something really difficult for us to swallow,” Darroch told me. “They don’t do deals that are gifts. They do deals that are part of the America First agenda and that benefit the US in some way, like the agricultural sector or the pharmaceutical companies or the tech companies. This should encourage the government to prioritise removing trade barriers with the EU.”
Headlines about the prospect of a trade deal between the UK and India are probably wishful thinking (trade is, if anything, even more heavily politicised and complex in India than it is in the West) and headlines about our hopes for a deal with the US are actively unhelpful. “Every time a UK leader goes on television and loudly announces that you are going to get a great trade deal with the US, you’re just handing them more leverage,” said Grozoubinski, “and making them think about what they could extort from you.”
[See also: The bastards of neoliberalism]
W hat happens next? It seems likely Trump will spend some time using the threat of tariffs as a means of economic coercion. In his negotiations with Western countries, as with Ukraine, every possible deal will be conducted against the background threat that the US security umbrella could be withdrawn. America will continue its transition from global police officer to global hoodlum.
Eventually, however, Trump’s 19th-century mercantilism will be shown to be incompatible with the modern global economy. What matters is how much damage he does to trade relations before then, and to what extent he can transform the system of global trade from the quiet protectionism of diplomatic agreement to the loud protectionism of tariffs.
Michael Gasiorek, professor of economics and director of the UK Trade Policy Observatory, warns that there is also risk in what other countries decide to do. “The risk at the moment is that countries attempting to negotiate with Trump agree to deals which are not compatible with the rules of the multilateral trading system,” he told me. The principles of equal treatment, fair competition and predictability that have underpinned growth since 1946 are at risk, not only from Trump’s vandalism but from the willingness of other countries to work around him. “The worry is that this may have systemic consequences,” said Gasiorek. “If countries start deviating from the rules of the world trading system, then that world trading system could unravel.
“We’re going to live now in a world of much more interventionism,” he added. “I think we have to assume that for now, the US is not going to play by the rules of the game. The rest of us therefore need to, and need to adapt those rules for the current circumstances.”
One possible outcome of Trump’s trade war is a sort of Brexit for the wider world: in response to issues that conventional politics failed to fix, populism will have imposed a ham-fisted solution that is not the catastrophe one side predicted, nor the opportunity the other claimed. Like Brexit, it may play out as a long period of uncertainty and under-investment, and leave behind it the disquieting realisation that the only people to really benefit from the situation were the charlatans who created it.
[See also: Why China is winning]
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This article appears in the 23 Apr 2025 issue of the New Statesman, Divide and Conquer