Trump’s tariffs make no sense. Or do they?

COMMENT/ANALYSIS

Detroit, home of the US auto industry, has been shrinking for years. I took this video during a visit in December.

Ever since 2nd April when Donald Trump’s cardboard chart brought global stock markets to their knees the world’s brightest and best have been trying to discern an organising principle behind his new tariff policy.

Supporters of the president argued that it was all part of a grand plan to bring manufacturing jobs back to America and make the country less dependent on the sweatshops of south-east Asia and China.

But the rationale behind such a move was rubbished by analysts who explained that manufacturing jobs today only make up around four percent of all American jobs and pay, on average, $10,000 a year less than those in services.

Then there were those in the Trump camp who said that by slapping a 25 percent tariff on aluminium and steel imports (many of them from Canada, once the US’s most stalwart ally) it would revitalise domestic production.

But industry experts pointed out that there are as many as 50 times more jobs in US companies that use aluminium and steel to make products than there are in those that produce them.

By adding to their manufacturing costs the import tariffs actually make it more expensive to produce goods in the US and they become even less competitive.

And finally there was a clutch of pro-Trump commentators who told us that this wasn’t really about tariffs at all. We were simpletons if we thought he was serious about keeping tariffs on.

It was all just a ploy to get other countries to give the US more of what it wanted in trade deals. This chimed with the views of his big money backers who foresaw in Trump 2 an era that would strip away regulation but who never really believed his rhetoric on tariffs.

“He’s a businessman,” we were told time and again. “He’s transactional but he’s not stupid.”

So far that argument has also come to nothing. US tariffs are currently 10 times higher than they were last year and America is in a knife-fight with its key supplier China.

Even Elon Musk, Trump’s cheerleader-in-chief, called Peter Navarro, the author of the tariffs policy that Trump enacted, “dumber than a sack of bricks.”

Two weeks after Trump fired the starting gun on the global trade war we are now in, let’s take a brief recap.

On ‘Liberation Day’ Trump imposed sweeping tariffs against almost the entire world - both erstwhile allies and enemies - using a one-size-fits-all formula derived from a calculation based on America’s trade deficit in goods. They varied from around 10 percent to upwards of 50 percent.

(There was, incongruously, no adjustment made for computer technology, entertainment and financial and other services in which America is far more dominant and runs a trade surplus with many countries.)

Russia, for some reason, was spared tariffs even though Ukraine, which has much less trade with the US, was tariffed, as was an uninhabited island in the southern seas where only penguins and seals live.

When the US stock markets began to tank and even Treasury bonds, once considered a safe haven in times of crisis, headed for the doldrums, Trump paused most of the tariffs for 90 days to, he said, give other countries time to negotiate.

His acolytes struggled to explain the change-of-heart, with some claiming improbably that doing so had been Trump’s intention all along.

The reversal may have saved the US economy from imminent collapse but the chaos and unpredictability has caused lasting damage.

To add to the self-inflicted wound of the first round of tariffs – one economist termed it ‘shooting yourself in both feet’ - Trump doubled down on tariffs on China. When Beijing retaliated he pushed them up even further and, as of writing, they stand at 145 percent.

And then Trump backtracked again. He paused tariffs on phones and computers from China – Apple make many of their products there and their shares had been taking a beating – but said they would come under a new regime that is yet to be announced.

Meanwhile China, whose own economy is also hurting, began to ratchet up the pressure, dragging its feet on export licenses for rare earths and minerals that the US needs for its weapons, high-tech and auto industries.

The American economy, which came out of the Biden years vibrant and with strong fundamentals, is now, many think, heading for recession. The price of goods is rising and consumer confidence plummeting.

Policy experts were baffled.

Eventually if there was one creed most coalesced around it was that Trump was simply – in the words of departing Canadian prime minister Justin Trudeau – being dumb.

But was he being dumb? Or are are we missing something?

First of all let’s look at what we know about Trump.

Above all else – anyone who has ever met him says - he feeds off constant attention. And, schooled in the world of reality TV, he has learned exactly what keeps his audience engaged, his ratings up, and the spotlight focussed on him.

He has developed a winning patter - even most of his detractors admit - a memorable scowl, and larger-than-life persona.

What better way to ensure ongoing attention than by having a trade policy that he can change day-by-day and has the power to raise or crash stock markets, economies and even the fate of governments around the world.

We had a flash of his thinking after he and his sidekick JD Vance bullied and berated Ukrainian president Volodymyr Zelensky in the White House in late February.

While most focussed on what it would all mean for the Ukraine-Russia war, Trump’s thoughts were clearly elsewhere. “This is going to be great television,” he said even as the cameras were still rolling.

If commanding attention is Trump’s primary aim - at a dinner in London earlier this year Trump’s leading biographer told me that nothing matters more to Trump than being in the spotlight – he is playing a blinder.

I was recently talking to a former journalism student of mine in Budapest who now works for a national newspaper. “More than half of the articles we write have Trump in the headline,” he lamented. And the same is true for many newspapers around the world.

A second characteristic of Trump we can probably all agree on is that he loves flattery and praise.

His cabinet meetings are more redolent of Communist Party congresses in Stalinist eastern Europe than those of a vibrant western democracy. Indeed some of his top officials have become virtuosos in the art of brown-nosing.

After Trump humiliated Zelensky, Marco Rubio, the Secretary of State, said: “Thank you for standing up for America in a way that no President has ever had the courage to do before. Thank you for putting America First. America is with you!"

Bill Ackman, a billionaire investor and prominent Trump backer criticized the new tariffs as policies that would bring “an economic nuclear winter.” But by later in the week, when Trump paused some of them, Ackman had clearly had a rethink.

“This was brilliantly executed by @realDonaldTrump,” he wrote. “Textbook, Art of the Deal.”

And so - from Trump’s point of view - what better way to elicit flattery and praise than to sentence countries to a term in the economic gulag, but dangle a reprieve if they came begging.

"I'm telling you, these countries are calling us up, kissing my ass,” Trump said at a fundraiser earlier this month. “They are dying to make a deal."

Perhaps equally importantly, as well as stimulating attention and sycophancy, Trump’s tariff policies have achieved something else. They have opened the tap on an almost unlimited source of potential graft.

Even during Trump’s first term, a recent study concluded, donors who opened their wallets to him received more government contracts than those who gave to the Democrats. And that was before his presidential training wheels came off.

Now almost every world leader, company CEO and industry representative will beat a path to the door of the Oval Office - either in person or through intermediaries - bearing gifts, favours and flattery.

British Prime Minister Keir Starmer came with an invitation for Trump to hang out with King Charles in Buckingham Palace. Putin sent a commissioned portrait of the great man himself which Steve Witkoff – the US envoy to Russia – said was ‘beautiful’ and left Trump ‘deeply touched’.

If all that were not cringeworthy enough three Republican congressmen have introduced a bill calling for Trump to replace Benjamin Franklin on the $100 bill, usually an honour only bestowed on those no longer living. Others talk of having his likeness carved onto Mount Rushmore.

This is all redolent of the early Putin years when I was posted to Moscow as bureau chief for a British newspaper. In late 2002, on the occasion of the former KGB man’s 50^th birthday, one central Asian leader, keen to impress, gave Putin a mountain.

To maintain that Trump will not use all this largesse for his own advantage beggars belief.

We have already seen Trump call on supporters to buy Tesla electric cars (owned by Musk), Trump Towers being built abroad on favourable terms, and Trump launch his own meme coin.

So perhaps we have done enough head-scratching over the rationale behind Trump’s tariffs. Perhaps it has never been about what is good for America, its people or its economy - but about what is good for Trump.

Even many of those who were willing to give him a chance are coming to accept that Trump is attention-seeking, grandiose, mercurial, vindictive and venal.

Tariffs, then, might give him the perfect tool to indulge himself. And if that is the case there is plenty of method to be found in this apparent madness.