Trump, tariffs and trade: This is going to hurt

Ask the surgeon about to operate on you whether it’s going to be painful, and they might say you’ll feel sore for a few days once the anaesthetic wears off.

With Donald Trump’s invasive medical procedures on global trade, no painkillers were administered, so the groans that followed were immediate and real.

We’ve learned much since April 2, when, with much fanfare, the 47th US president made his “Liberation Day” incisions and unleashed a blizzard of tariffs on trading partners that took most of them by surprise.

Not least, we learned that even Trump has to bow down before a “yippy” bond market, which went into meltdown on mounting fears his actions would spark a global recession. We learned that standing up to his bully-boy tactics, as China did, can pay off. And that flattery and gentle insistence (enter the UK’s Sir Kier Starmer) can also bear fruit.

But what also seems clear is that, once upended, the shifts rippling through the world’s trading patterns cannot be undone: the ‘decoupling’ of the US and China is firmly underway, Europe will attempt to strengthen its internal markets, and some form of ‘base’ tariff for America’s suppliers is here to stay. Maybe.

Oh, and the dollar’s supremacy as the world’s reserve currency could be time-limited (to be replaced by China’s yuan or even the euro?).

Fat-fingered trade

Haphazardly executed they may be, but President Trump’s intentions are clear. He wants to reverse America’s massive trade deficit, which reached $918.4bn last year, according to the US’s Bureau of Economic Analysis. (1)

In short, America imports far more goods and services than it exports, and Trump argues that his country’s trading partners have an unfair advantage (lower labour and manufacturing costs mean cheaper goods). He also reckons the relative weakness of their currencies versus the greenback tilts the playing field in their favour.

His ‘America First’ dream, then, is built on getting US consumers to buy more home-grown goods, and forcing big business to repatriate manufacturing and create American jobs.

Fall Out, Boy

There are a few things ‘The Don’ didn’t spot, though. China, his biggest target, stood firm. Was it China’s refusal to kowtow that was behind the May compromise that saw both sides back down and temporarily cut their mutual tariffs by 115 percentage points?

Perhaps, but the world’s second-largest economy has also been making trading overtures to other countries, including in Latin America. There is talk of closer bonds with a more reliable EU. China has been ringfencing its precious minerals, essential in consumer electronics, which should strengthen its position in future negotiations with the Oval Office.

As part of the UK’s (hardly substantial) trade deal with America, Sir Keir’s ability to negotiate either reductions or the cancellation of punitive tariffs on cars and steel has also made it easier for other countries to stand their ground.

And the great “reshoring” of American industry? US businesses, including Trump’s tech bros, have been reducing their reliance on China for years. Apple now makes its MacBook in Vietnam, and, to his consternation, has considered assembling its iPhones in India (that’s not Indianapolis, Mr President). Ouch.

1. Sources:
   US Bureau of Economic Analysis, February 2025
   https://www.bea.gov/news/2025/us-international-trade-goods-and-services-december-and-annual-2024