Donald Trump Taking risks Will the world economy be in crisis through the imposition of tariffs?
Or is he just pretending he’s willing to do it to get a better deal?
On trade and many other issues, it’s clear that Trump enjoys being seen as an unpredictable and dangerous figure, and believes that image helps him intimidate others into giving him what he wants — akin to Richard Nixon’s “belief.”crazy theory“
The theory that Trump’s most extreme threat is play-acting or bluffing is comforting in some ways. But there is a real risk of a president committing to the crazy bit — if it really is a bit.
Taken at face value, Trump believes his tariffs have no downside. He says they will boost domestic industry, bring jobs back to the U.S. and raise substantial revenue. The tariff, he says, is “The most beautiful word in the dictionary“She A proposed 10 to 20 percent tariff on all imports into the United States, and negotiated 60 percent or more Tariffs on Chinese imports.
Yet economists and financiers warn that if something like Trump’s tariff proposal is actually implemented, they could do well. Cause a trade warResurgent US inflation, and a market panic, are tanking the US and world economies.
Many in A favorite hop of the American business and finance eliteE Trump understands these concerns, is trying to win concessions from other countries, and after being sworn in will bring back his tariffs to more reasonable levels.
And a story this week from Jeff Stein of the Washington Post seems to support that theory. Stein said that Trump’s adviser Consider scaling back his tariff plan; Instead of imposing tariffs on all imports, they can restrict them to “certain sectors”.
problem? very fast, Trump has vehemently denied the storycalled it “wrong” and “another example of fake news”.
Of course, if you are bluffing, what will he say? So what’s really going on?
Trump’s worldview: zero-sum conflict, dominance versus weakness
As I’ve written, Trump sees the world in terms of zero-sum conflict, dominance versus weakness, leverage and reputation. He believes that with threats he can intimidate other countries into changing their behavior. He probably believes that appearing irrational and dangerous strengthens his bargaining position, especially against smaller countries, since the United States has such a power advantage over them.
Nixon’s insanity theory exemplifies this type of thinking. Dan Drezner, a political scientist at Tufts University’s Fletcher School of Law and Diplomacy, recently wrote, Nixon believed that if he felt dangerous – as he is willing to do anything, including using nuclear weapons – he can intimidate foreign adversaries like North Vietnam into making concessions.
Trump may be applying insanity theory to trade negotiations with his mega-tariffs as his nuclear threat. If so, he’ll see his reputation for battling uncertainty as an asset — which explains why he’ll hotly push back at any report that he’s actually backing down.
The insanity theory explains much of Trump’s behavior in his first term — recall how he “Fire and fury” threatens to rain on North Korea before eventually striking a deal with Kim Jong Un. On trade policy in particular, Jonathan Swan reported for Axios in 2017 that Trump has clearly told aides that this is his strategy, urging them to tell foreign leaders that “If they don’t make concessions now, this madman will walk out of the deal“
The idea that Trump is really just a play-acting lunatic is a somewhat comforting belief. It implies that Trump personally knows full well that his tariffs could cause global economic chaos, that he can’t actually go along with them — that he’s just crazy like a fox.
And maybe that’s true and it will all work out.
But there are some comforting aspects to the insanity explanation of Trump’s actions.
Three reasons not to be too comforted by the crazy theory
The first risk is that foreign leaders may also conclude that Trump’s most extreme threats are bluffs — and that could force him to follow through on some measure of realism to re-establish his credibility.
It’s a dynamic we’ve seen play out in Trump’s first term. A few years ago, foreign leaders generally took the measure of Trump and concluded that he was not as dangerous and unpredictable as he sounded. The crazy trick doesn’t work if everyone else realizes you’re just pretending. And Trump was particularly upset with one country he felt was acting increasingly provocative: Iran, which was locked in a shadow conflict with the United States.
So, in a January 2020 event largely forgotten by the general public, Trump was one of Iran’s top leaders, Qassem Soleimani, murdered. It was a heinous and highly provocative move, which violated rules against targeting high foreign government officials. But as I argued at the time, that doesn’t necessarily indicate that Trump is truly a war-monger. He was trying to reassert hegemony in relations with Iran, proving that he would indeed follow through on his threats.
So even if Trump’s larger strategy is a bluff, he’s trying to prove he’s not actually bluffing, we can be in for a bumpy ride.
This brings us to the second risk – that Trump may be too successful at pretending to be crazy and cause a market panic that may be difficult to recover from.
The current consensus among investors is that, while Trump is serious about tariffs, he may not be serious about the mega-tariffs he’s proposing. As noted, foreign leaders believe this too, and Trump seems intent on changing their minds.
But it’s very difficult to send a credibly scary crazy message to foreign leaders while simultaneously sending a reassuring message to the market. So if investors conclude that they are underestimating the potential for Trump’s real money, the economy could suffer, either through market panic or price increases.
Finally, the third risk is that the insanity theory regarding Trump and tariffs is wrong. That is: maybe he’s actually tariff-piled, and totally means what he says.
Sometimes world leaders simply get bad information, are convinced of bad ideas, and are encouraged to shift risks by assuming the worst will not happen. For example, Vladimir Putin apparently faith (like most outside analysts) that the Ukrainian government would quickly collapse after he invaded – if he had known the war would be so long, expensive and deadly, he wouldn’t have started it. The same goes for George W. Bush’s madness in starting the war in Iraq.
So perhaps Trump is not knowingly playing a dangerous game. Perhaps, in his own mind, he doesn’t actually think the economic risk is real.
Now, there is a gray area between “Trump means it” and “Trump bluffing.” Trump may currently mean what he says, but in practice, he may be persuaded to change course by persuading advisers or plunging markets.
During Trump’s first term, his advisers often talked him out of the idea of being dangerous and irresponsible. But sometimes, Trump goes ahead anyway. Throughout his attempt to steal the 2020 election, he lived in a different reality universe, had a different idea of what he could get away with, and stopped listening to the voices that advised caution.
If I had to guess, I’d say Trump is probably either bluffing or being talked into. But am I absolutely sure? I can’t say I am, and I don’t think anyone else can claim to be completely sure.
And that may be exactly what Trump wants.
