On 2 April, US President Donald Trump imposed what he called “reciprocal tariffs” on almost all other countries. He called it “Liberation Day” and America’s “Declaration of Economic Independence”.
“For decades, our country has been looted, pillaged, raped and plundered by nations near and far, both friend and foe alike,” Trump said. In the same speech, he announced that the US trade deficit with the rest of the world was a threat to US national security.
The “Liberation Day” tariffs were displayed on a chart of tariffs imposed on different countries, including very high tariffs on China, the European Union, and an across-the-board 10 per cent tariff on other countries, including Egypt, which has a trade deficit with the United States.
The Trump tariffs, and the way they were announced, led to several controversies, including possible errors in the mathematical formula used to calculate them, the lack of tariffs on Russia, and the tariffs on so-called “penguin islands” off the shore of Australia. There is also the earlier controversy about the taxes imposed on Canada in January, followed by retaliatory tariffs by Canada and Canadian threats to cut off electricity exports to the United States, which led Trump to take a step back and call for negotiations.
Trump’s new tariffs led to a global wave of panic, due to their forecast effects on international trade and the global economy. US and global investors and consumers rightfully feared that Trump’s tariffs would cause a decline in global trade, an increase in costs for consumers, and, potentially, a downward economic spiral similar to that which happened during the Great Depression of the 1930s.
As a result, US and global markets, and even the US dollar itself, then plunged. The dollar usually strengthens at times of crisis since it is seen as a safe haven. This was seen during the 2008 world financial crisis, during the Covid-19 lockdowns, and during the global supply chain crisis in 2021 that followed.
Today, however, the world is living through a crisis, but the dollar is getting weaker because investors worldwide are selling dollar assets. Trump’s policies have led to a decline in global confidence in US decision-makers and, by extension, in the US dollar itself. Even so, to be fair the dollar’s decline is not deep, and people around the world have been putting their faith in the US dollar as a safe haven for the past 80 years. A few days of instability cannot reverse this eight-decade trend, even if it is still worrying to the global markets.
In response to the panic at these economic developments, Trump initially dug in on the tariffs and tried to address people’s fears. In the days following the tariffs announcement, he posted tweet after tweet trying to instill confidence in investors and consumers. “Be strong, courageous and patient! Greatness will be the result! Everything is going to work out well,” he said.
However, on 9 April Trump reversed course and announced a 90-day pause on the tariffs. When asked about the reason for the flip-flop, he said that it was because people were getting afraid. “They were getting yippy, you know. They were getting a little bit yippy, a little bit afraid,” he said.
GETTING YIPPY
Despite Trump’s statement that he ordered the 90-day pause in the tariffs due to the American people getting “yippy”, the pro-Trump US network Fox News kept lavishing praise on him, saying that the pause was all part of his plan and that he was a master negotiator who was applying the lessons of his book The Art of the Deal published back in 1987.
Trump himself claimed during a gala dinner on 9 April that the presidents and prime ministers of other countries were calling him and begging for a deal. However, his critics were left wondering what deal Trump had made out of the tariff announcements. No specific deals have been announced yet.
One controversy regarding the Trump U-turn was that only four hours before he announced the 90-day pause on tariffs, Trump posted on his social-media channel Truth Social that “this is a great time to buy!” In response, many investors rushed to buy stocks in Trump Media owned by the Trump family, causing its shares to increase in value by almost 25 per cent or twice the gain of the broader market after the 90-day pause announcement.
This then raised concerns of insider trading: did Trump know, while he was posting that it was “a great time to buy”, that he would announce a 90-day pause a few hours later? The White House declined to give a direct answer to such questions and declared that it was “the responsibility of the president of the United States to reassure the markets and Americans about their economic security in the face of non-stop media fearmongering,” referring to US media outlets that have criticised Trump such as CNN and CNBC.
In any case, the 90-day pause did not end the uncertainty. While it temporarily reassured the markets, uncertainty still hangs in the air.
One uncertainty that still looms is the US-China trade war. Trump announced that he would raise US tariffs on imports from China to 145 per cent. In response, the Chinese government announced a reciprocal 125 per cent tariff on US imports to China. However, in another U-turn by Trump, US Secretary of the Treasury Scott Bessent then announced on 23 April that there would be a de-escalation in the tariff war between China and the United States.
Another uncertainty is looming over the public feud between Trump and Chair of the US Federal Reserve Jerome Powell. Trump wants Powell to reduce interest rates to encourage investment, while Powell, who is critical of Trump’s economic and trade policies, wants to keep interest rates high to curb inflation.
In response, Trump has hinted that he will fire Powell. It is probably not within the powers of the president to fire the chair of the Federal Reserve. But the possibility of this happening would be a precedent in US history and could jeopardise the independence of the US central bank, which takes decisions based on economic data, not on the political needs of the executive branch of government.
This feud has been another cause for panic among American and global investors. In response, on 23 April, Trump announced that he would not fire Powell.
WHY TARIFFS?
The question on everyone’s mind is: why is Trump imposing tariffs? And why is he announcing his policies and his feuds with his critics in such unusual ways?
Many American investors have reportedly secretly wondered if Trump is insane. Is he? Or is there method in his madness?
Trump has been a big believer in tariffs and trade wars since his first term as president in 2017-2021. He famously escalated the trade war with China to new heights during his first term, and he was supported in this by his economic advisors, including, most notably, White House Chief Strategist Steve Bannon, a great advocate of trade protectionism to insulate US industries from foreign competition.
The situation is similar in Trump’s second term, and there are economists who have provided support for Trump’s tariff policies. The main think tank behind Trump’s tariff policies in his second term is American Compass, which has close ties to Vice President J D Vance and Secretary of State Marco Rubio, both of whom have spoken out about protecting American industries and American workers from foreign competition.
American Compass is headed by economist Oren Cass, who is a critic of the Republican Party’s traditional support for free trade and free enterprise regardless of its effects on American workers. He calls for more government intervention to correct the negative effects of free trade on American workers, who, he says, have lost their jobs owing to foreign competition.
Cass is specifically critical of China, saying that China is cheating on free trade and stealing US technology and intellectual property rights and is manipulating its currency the yuan. As a result, free trade with China is not actually free, he says. He calls for government interference in the markets to protect US workers and manufacturing, and he believes that tariffs are an effective way of achieving this goal.
He also believes in tariffs as a pressure card to force countries to renegotiate the global political and economic order in America’s favour and to help the US to build a new world order based on new political realities such as the rise of China and the losses the US economy has suffered from foreign competition. He is critical, however, of the way the Trump administration announced these tariffs, and he has stated that in situations like these the US government has to provide certainty, consistency, clarity, and stability.
Regarding the weakening US dollar, it may be true that the Trump administration has weakened the dollar, thinking that this will make US exports cheaper and therefore increase its exports. Indeed, Trump called the strong dollar in 2024 “a big currency problem” in an interview with Bloomberg because it prevented an increase in US exports.
Again, there are economists who have provided Trump with intellectual support for such ideas. Most notably Stephen Miran, Trump’s current chairman of the Council of Economic Advisers, wrote a report in November 2024 titled “A User’s Guide to Restructuring the Global Trading System” in which he hinted that a 15 per cent drop in the value of the US dollar was needed to increase America’s exports.
This arrangement of increasing tariffs, weakening the US dollar, and building a new international economic order is also part of the so-called Mar-a-Lago Accord, a policy devised by Trump, Miran, and Secretary of the Treasury Scott Bessant.
Another question concerns the reason for the unusual way Trump announced his tariffs, followed by his tweets, and then his U-turns and the continued uncertainty. All of this has caused panic and instability in the US and global markets. Is Trump purposefully being overdramatic to distract the American public from the fact that he cannot reduce grocery prices on day one of his presidency like he promised in his 2024 presidential campaign?
Trump got elected in November 2024 in large part because of high inflation rates under the former Biden-Harris administration, which made many Americans unable to keep up with the rising prices and fearing that they would not be able to put food on the table or pay their rent or their children’s school fees.
Trump promised that he would get inflation down from day one of his taking office, even though it was a natural and expected result of the US economic recovery that followed the removal of the Covid lockdowns in 2021. Trump of course has not managed to get US inflation down, and he does not seem to have a coherent policy to do so.
Is his unusual behaviour in announcing the tariffs and his other unusual announcements such as Canada becoming the 51st US state and hinting that he would use the US military to take over Greenland from Denmark part of a plan to distract the American people from his lack of real solutions to inflation?
Many analysts claim that Trump loves to be in the spotlight, but sometimes he overdoes it. This was one of the reasons why he lost the elections to former president Joe Biden in November 2020, commentators say: the American people were tired of too much drama in his first term, and they were not satisfied with Trump’s handling of the Covid-19 pandemic.
OTHER QUESTIONS
Could Trump be following former US president Richard Nixon’s “madman theory” of negotiations, giving the world the impression that he is madman who will stop at nothing and thus scaring it into submission?
Or is he deliberately causing the chaos to make stock markets plunge and tweeting that this is a “great time to buy” to make personal profits (assuming that the insider information theory is correct)?
In any case, there is disagreement on whether Trump’s trade policies are good for the US. Tariffs and protectionism alone cannot rebuild US industries or provide jobs for American workers, most economists agree. In order to achieve these goals, the tariffs have to be accompanied by other industrial policies which are, politically and economically, hard to reach agreement on in the American political system, and neither the Trump administration nor any other US administration seems ready to apply such policies.
Tariffs lead to trade wars, which lead to recessions and the passing on of rising costs to consumers. Tariffs cannot pay for America’s trade deficit, due to retaliatory tariffs by other countries that will reduce international trade. It is also very unlikely that tariffs can generate enough revenue to pay for the US trade deficit, which stands at $100 billion.
Furthermore, most US economists say that the trade deficit is actually good for the US: it is paying money to other countries, and, in return, it is receiving the commodities it needs, since it is cheaper to import these commodities from abroad than to produce them at home. (American economist Robert Solow has made a famous joke to the effect that “I have a trade deficit with my barber. He doesn’t buy a darn thing from me!”)
The US can afford a large trade deficit because of the strong dollar and its position as a global reserve currency and safe haven. But the other major states’ imposition of retaliatory tariffs on US imports have raised the question of how long Trump can hold on to his policies. The 145 per cent tariffs on China, for example, are clearly unsustainable, as seen in Bessent’s announcement of a de-escalation. Regarding the aim of weakening the US dollar, this would also be a double-edged sword.
A few days ago, the International Monetary Fund (IMF) reduced its growth forecast for the US and global economies. It said that the global economy will grow by just 2.8 per cent in 2025, down from its previous forecast in January of 3.3 per cent. Similarly, its forecast for US economic growth was reduced to just 1.8 per cent in 2025, down from its previous forecast of 2.7 per cent. China is now projected to expand by four per cent in 2025, which is half a percentage point away from the IMF’s previous forecasts.
As US economist Dani Rodrik has said, tariffs are “not a Swiss Army knife” and not an all-purpose tool to solve America’s problems. They will just make the world a more unstable place.
*The writer is an associate professor of political science at the European Universities in Egypt (EUE).
* A version of this article appears in print in the 1 May, 2025 edition of Al-Ahram Weekly
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