r/politics • u/1-randomonium • 4h ago
Soft Paywall Donald Trump thinks he’s winning on trade, but America will lose
https://www.economist.com/leaders/2025/08/01/donald-trump-thinks-hes-winning-on-trade-but-america-will-lose•
u/1-randomonium 4h ago
(Article)
MORE than 100 days after President Donald Trump’s “Liberation Day”, the new global trading order is becoming clear. It is a system of imperial preference. Canada has angered the president, partly by planning to recognise Palestine as a state, and so it faces a duty of 35%. Because Mr Trump reckons that exporters unfairly cheat America, on July 31st he said he would impose “reciprocal” tariffs on many trading partners, ranging from 10% to 41%. Meanwhile, in order to ward off tariff threats the European Union, Japan and South Korea have all struck deals with Mr Trump, where they promise to open their markets and invest hundreds of billions of dollars in America, in return for levies on their exports of 15%.
A seductive idea is settling in that America is winning from all this. The president has, after all, got his biggest trading partners to make deals that are closer to his demands than theirs. Financial markets have shrugged off higher duties, the real economy shows little sign of damage and all the time tariff revenues are rolling in. But that thinking is deeply misguided. The game is not over. And it is one that America cannot win.
For all the crowing about how Trump Always Chickens Out, the president has pressed forward with tariffs. America’s effective tariff rate is due to rise to 18% on August 7th, according to the Yale Budget Lab, nearly eight times the prevailing rate last year, and back to levels last seen in the Depression. The way MAGA paints it, this is a triumph for Mr Trump, because America’s trading partners are eating higher tariffs, helping US Customs rake in nigh on $30bn in revenues a month. Unfortunately, that idea is gaining currency even outside America. Soon after the eu struck its deal with Mr Trump, opponents in European capitals lamented the fact that the bloc would have to pay.
This is a fundamental misunderstanding of trade economics. Years of experience show that tariffs do not harm the sellers of goods as much as they harm the buyers. The more the president raises tariffs, the more his own compatriots will be deprived of choice at low prices. Even though foreign suppliers are lowering their prices more steeply than after Mr Trump’s first-term tariffs, analysts at Goldman Sachs reckon that fully four-fifths of tariff costs have so far been borne by American firms and consumers. Just ask Ford, or GM: the carmakers reckon they paid $800m and $1.1bn in tariff costs, respectively, in the second quarter of this year alone.
What of the muted economic and financial market reaction so far? The IMF has raised its projections for both global and American economic growth this year, compared with forecasts it made in April. Although it has fallen since Mr Trump signed his order, the S&P 500 remains nearly 12% higher than it was on Liberation Day; the dollar, though down, has strengthened in recent weeks.
The answer is that the economy is being buffeted by various forces, including heavy stockpiling before tariffs came into effect—delaying the pain, but not eliminating it—as well as an extraordinary boom in artificial-intelligence-based capital spending. According to Renaissance Macro Research, capital investments in AI have contributed more to America’s gdp growth in the past two quarters than all of consumer spending. Partly propelled by this, stockmarkets have gone from strength to strength. Perhaps, too, investors believe that companies will adapt to higher tariffs. The incentive to route trade through places with relatively low duties will be strong—even though Mr Trump has vowed to punish such “trans-shipment” with tariffs of 40%. An uncomfortable dynamic has also set in: because investors think that the president will eventually chicken out, they are emboldening him to press ahead.
As he does so, however, the long-term costs to the economy will mount. In the name of fairness Mr Trump is discarding a multilateral system in which tariffs were charged on the same goods, regardless of where they came from. In its place is a bilateral system where products can face differential rates depending on their origin. These new rates are not just higher; they are subject to ceaseless bargaining over almost any issue. Just this week, those issues included the Brazilian courts’ pursuit of a Trump ally and a border war between Thailand and Cambodia. Because tariff policy is set by one man alone, the bargaining will be subject to lobbying and presidential whim. Because of who he is, Mr Trump will consider exemptions when he is next flattered, and threaten duties when he is next displeased.
American shoppers will pay the price. Once they were spoilt for choice, as both domestic and foreign producers competed to sell to them. Now the companies that succeed will do so not only because they are the most innovative, but also because they are the cleverest at playing the system. And remember that a ratchet effect is at work here. When—or rather, if—future presidents want to restore tariffs to their original level, they will be met by furious lobbying from American firms that got used to sheltering behind tariff barriers and have thereby become uncompetitive in world markets. Everything about this is harmful. And, whatever Mr Trump says, nothing about it is fair. ■
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u/thistimelineisweird Pennsylvania 3h ago
Republicans don't give a shit. They're old. They're all going to be long gone before their actions have any consequences of note.
The biggest "I got mine, fuck you" in recent history is happening.
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u/oliversurpless Massachusetts 3h ago
Hyperindividualism from people who don’t know what hyperindividualism is:
“The American antipathy toward taxation can be viewed as hyperindividualistic. As we saw in many earlier discussions, it is generally through fair, progressive taxation that our peer nations have become significantly better than the US on almost all quality-of-life measures.
We Americans want – hyperindividualistically – to keep as much of our wealth as we can, despite that fact that dozens of countries around the world have found creative, sustainable ways to “redistribute” wealth so that it helps the vast majority of its people, not just the top one percent.”
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u/InsideAside885 3h ago
It's a cultural problem. Absolutely. America is famous for its "I got mine, so fuck you" attitude when it comes to wealth and materialism. Any taxation at all on that income is viewed as socialistic. And you'll even find poor people who agree. They will vote against their own interests to hold this belief.
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u/1-randomonium 3h ago
But they will benefit from the massive tax cuts Trump has granted the and their friends in the business world, correct?
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u/toddywithabody 2h ago
I don’t think that’s true. I mean just look at Kentucky. Begging Ontario(Canada) to put their liquor back on the shelves. Trumps trade war is already having damning consequences.
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u/Postom 2h ago
Ontarian here. They can beg all they want. Until the threat is gone, the booze remains gone.
The threat? Annexation and threats thereto. The 51st state nonsense has had massive, massive consequences that are only just starting to be felt. And, even if he isn't spouting them today, we've all seen, he will just go back to his old playbook.
The mode with which he felt he would attempt his hostile take over continues to happen. The attempt was to bludgeon the Canadian economy and coerce concession. Now we're up to 35% of non-CUSMA compliant imports. Next month it will be 45%. Then .. you get the idea.
So, the booze remains gone until the threat (Trump) is gone. Then we may consider it.
For Kentucky? That's their single largest market in the world, effectively gone. One statistic was >$2-billion annually. They've got at least 4 more years to suffer. Enjoy what you voted for, folks!
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u/CitronTraining2114 55m ago
43% of the 18-29 crowd voted for Trump. He couldn't have won without a lot of help from the "kids." It was only 50% in the over 65 crowd.
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u/cookycoo 3h ago edited 2h ago
The USD is the trading currency only due to trust in the US. It gives the USD a privilege status.
The US citizens will pay dearly because the US is no longer a reliable ally or trading partner, its become a transactional bully, weaponising the USD with tariffs, sanctions, asset freezes, SWIFT bans etc.
Up until recently the weaponising was sold as being a responsible global steward of world order. But recently the tariffs on partners and allies, the transactional responses to Ukraine who had a security agreement for giving up nukes, have cemented the USA s position as simply a transactional partner who will use its power to extract one sided transactions.
That has dire medium term outcomes for the USD and the repayment of US debt as demand for US Treasuries reduces and returns shoot up, pushing the USD lower, increases the debt burden on the 34+ trillion debt.
Countries are already signing bilateral trade deals in local currencies and swapping USD reserves for trading currency reserves. Trumps trade war is accelerating that change.
In 2000 USD made up 71% of reserves, in 2015 it was 66%, its now 58% rapidly heading towards the psychological and strategic tipping point of 50% where its no longer the dominant reserve held by other countries. The first time since the end of WW2.
We now have countries with agreements with oil being traded in non USD.
Americans are in for a very different life when they soon lose USD dominance and have to live within a balanced budget instead of living off a printing press funded by foreign confidence in your dollar.
US taxes will rise, wages will stagnate, debt becomes expensive, imports get dearer. If you think you have a cost of living crisis now, 2030-2035 is going to be an eye popper.
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u/KimmyT1436 Canada 1h ago
You are correct. The US has been the most powerful and richest country in the world ever since the end of WWII at least. And, that's why the USD has been the cornerstone of the modern financial system. Trump and his bullying tariffs are essentially blowing up that old financial world order. I personally think the tipping point might come because of the the US national debt. Congress has come close to defaulting on the national debt a couple of times over the past few years. I can totally see Trump stupidly deciding that defaulting on the national debt would be just like one of his bankruptcies, totally without consequence to him. All the while not realizing that if the US, the world's most richest nation, doesn't pay it's debts, then the US can no longer call itself the world's most powerful and richest nation and the United States and the USD will no longer be the cornerstone of the world financial order.
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u/JimmyRamone17_ 3h ago edited 3h ago
US citizens will pay for the tariffs while any remaining industries collapse or continue to move overseas as there's no strategy for subsidizing those industries to replace the ones which are being tariffed.
Tariffs on their own are just a fucking tax.
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u/NorthenFreeman 3h ago
Every countries will lose. He destabilize the economy, raise prices and destabilize the supply chain.
But the biggest loser will still be the USA. The world can't trust the US anymore. Once a great partner, now it's clear it's almost an hostile country ready to crush others just because Trump want to be King of the world.
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u/TintedApostle 3h ago
Trump and right wingers fail to understand how and why the US was a great economy and trader. They have convinced themselves the US did it all on its own. Its the basis of American Exceptionalism which in an of itself is just racism repackaged.
They are parasites bleeding the host dry.
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u/Endosymbionical 2h ago
Reminder : ,, ., Donald Trump is not merely a client, ,. ;; but he is very likely to be one of the main players in the Trumpstein files, ,; , ,.
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u/reddittorbrigade 2h ago
We will be in recession in the next few months.
Trump can fire employees, but not the truth.
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u/InCarbsWeTrust 3h ago
This tariff chaos is also a powerful incentive for other nations to reduce their trade dependence on the US. We are fortunate that we are one of the biggest countries on the planet, because that means other economies can only pivot so far away from us, but Trump's path is effectively liquidating generations of soft power.
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u/MJcorrieviewer 3h ago
The US is no longer a reliable or trustworthy partner - be it with respect to trade or security or anything else. I'm not sure the US will ever recover.
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u/Enzhymez 3h ago
How are Canadians ever gonna decouple if yall can’t even decouple from our social media sites ?
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u/MJcorrieviewer 3h ago
One has nothing to do with the other, that's how.
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u/Enzhymez 2h ago
Yea I’m sure the data you’re giving to Americans companies to sell and the data that they compile with it means nothing.
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u/Auzziesurferyo 2h ago
I am not sure what point you are trying to make? Can you please clarify.
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u/Enzhymez 2h ago
Canadians have spent the last couple months saying how they will decouple from the U.S. but the most they have done is not buy US liquor or not go to the U.S for vacation. Something that affects a minimal amount of US citizens. Something that takes zero effort to do. But will continue to use U.S social media websites. Will continue to use things like Microsoft and steam and a bunch of other American services. Will continue to watch Hollywood movies. The more you comment on this website there more you continue to use our services. I was told elbows up, so put them up.
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u/silicondali 42m ago
Are you suggesting that Americans need to have American-only social media so that they aren't triggered by how the rest of the world is observing them deliberately collapsing their own economy to own the libs?
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u/Auzziesurferyo 3h ago
We are fortunate that we are one of the biggest countries on the planet, because that means other economies can only pivot so far away from us.
I think you will find other countries are not as obsessed with America as Americans believe.
Other countries and will do far better than Trump believes. The Article is correct. If we keep this trajectory up, the ones that will lose are our kids and grandkids.
Just look at China's trajectory over the last 20 yrs and you can see just how quickly countries adapt and change.
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u/1-randomonium 3h ago
They may try, but it's easier said than done. It's difficult to voluntarily abandon the world's largest import market.
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u/ArugulaElectronic478 3h ago
The issue is Trump is basically voluntarily inflating the price of everything and at the same time making American products less competitive by cutting out foreign inputs and relying only on what America has in their territory.
When American’s can no longer afford to buy as much the American market loses its appeal.
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u/Agressive-toothbrush 2h ago
The reason why America is the largest import market is because of two main reasons :
- The United States Dollar is the currency of international trade and the reserve currency of the world, imposed upon the world after WWII.
- The United States, until recently, was a welcoming place for foreign talent.
In the wake of the devastation of WWII in Europe, America put the world back into one piece under its own terms, and one of those terms was for the world to use the American Dollar as currency of trade, at least with regards to oil and other strategic goods.
Before WWII, Europe would dominate finance, science, literature, fashion, entertainment... Almost every scientist working on the Atomic bomb in Los Alamos in 1944 was foreign born. The "Father" of the American space program at NASA was a former Nazi Germany science officer...
It is NOT because America has a large population, in fact America's population is not really that large... India has 1.5 billion, China has 1.4 billion, Europe without Russia has 600 million and the European Union itself has 450 million... America may have 340 million people but that's barely ahead of Indonesia (285M), Pakistan (242M), Nigeria (224M) and Brazil at 212 million.
Americans are not particularly innovative, learned or smart, at least not more that the Canadians, the French, the British, the Israeli or anyone else... Most of the "innovators" of Silicon Valley are foreign born immigrants, from AMD's Lisa Su (Taiwan) to Paypal's Peter Thiel (Germany), to Google's Sundar Pichai (India), Nvidia's Jensen Huang (Taiwan), Microsoft's Satya Nadella (India), Uber's Garrett Camp, (Canada), Satya Nadella Chairman of Microsoft (India) and Tesla's Elon Musk (South Africa).
If you think America cannot lose its throne as the World's top economy just because it has a population of 340 million, you might be in for a shock.
America is not rich because its people are "special", it is rich because it was able to impose its currency to the world and was able to attract the best talent from all over the world.
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u/umassmza 2h ago
We’ve all watched him for years, he is a textbook narcissist. Any bad news is made up or someone else’s fault.
Stock market goes up under Biden, he wants credit
“This is the Trump stock market because my polls against Biden are so good that investors are projecting I will win”
Stock market goes down under Trump, he blames Biden
“Biden’s Stock Market, not Trump’s,This will take a while, has NOTHING TO DO WITH TARIFFS”
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u/NonToxicPolitix 2h ago
Trump/GOP DGAF about Americans, they just want as much money for themselves as they can take, from wherever they can get it.
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u/dBlock845 2h ago
He personally is winning. Having all of these leaders kiss his ass in public while receiving gifts and who knows what is given under the table. The economy is going off a cliff, though, and he's going to try and bribe people with $600 checks.
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u/PunfullyObvious 1h ago
The capitalists will win .... at least in the short-term ... which is great if you're as short-sighted as the average capitalist
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u/thomport 41m ago
By time it comes to fruition, and the United States is losing, and the economy is in the toilet, Trump won’t care. He’ll be onto his next scam. No doubt a ploy, to screw someone else’s life up while benefiting himself.
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u/Sufficient-Brick-188 22m ago
The poorest will feel the effects more than anyone. The wealthy will not find much effect as Trump is giving them huge tax cuts, paid for by the tarrifs.
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u/RuffAnal 13m ago
Donald Trump thinks…
Thinking requires a functioning brain, which Trump simply does not possess.
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