Donald Trump’s America has the highest trade tariffs in the developed world by a wide margin. These barriers are becoming an economic way of life with each passing month.
Deutsche Bank says the trade-weighted average has risen to 4.2pc. This is double levels in Europe, Canada and Japan, and slightly higher than in China.
If he goes ahead with 25pc tariffs on the entire gamut of Chinese goods in June, the US will vault past Turkey and India. It will acquire a South American profile. This is fitting for the Caudillo del Norte since no US president has quite so resembled Juan Peron.
Mr Trump is for now delaying tariffs on European and Japanese cars under a “Section 232” national security clause. But the Sword of Damocles still hangs over the German and British auto industry.
There has always been ambiguity over Mr Trump’s real aim: is he waging tariff warfare in order to lever his way into closed foreign markets? Or is the purpose to force “traitorous US corporations” to repatriate plants and supply chains – as advocated by his trade guru, Peter Navarro?
“He wants a trade war for its own sake,” said Adam Posen, head of the Peterson Institute in Washington. “His goal is to impede China’s development, but also to shift goods production home. It’s not to make a deal.”
In the case of China, White House hawks seem bent on provoking Beijing into tit-for-tat escalation in order to justify a pre-emptive assault on the Chinese technology-military complex. They think the Chinese regime is gaming the international system, stealing its way to ascendancy, and mobilising all means for hyper-nationalist objectives through its Made in China 2025 programme.
Symbiotic economic coexistence is therefore impossible. In such a Hobbesian struggle the US must block the rise of China and seek to control the cutting-edge technology of the 21st century while it is still possible. Mr Trump oscillates back and forth but these maximalists seem to have his ear.
What has become clearer over recent weeks is that Mr Trump also likes tariffs for themselves. They are becoming addictive. In his mind they are “working”.
“In one year tariffs have rebuilt our steel industry – it is booming! We placed a 25pc tariff on ‘dumped’ steel from China & other countries, and we now have a big and growing industry,” he tweeted. Let us overlook the collateral damage caused by rising costs for US consumers of steel.
Mr Trump is sticking to his view that trade wars are “good and easy to win” if you have a chronic deficit and your antagonist has chronic surplus. “China buys MUCH less from us than we buy from them, by almost $500bn, so we are in a fantastic position. Make your product at home in the USA and there is no tariff,” he wrote.
Mr Trump is not entirely wrong about the asymmetric effects of protectionism in a skewed global market. The widely held view that the Smoot-Hawley Tariff Act of 1930 caused the Great Depression is an urban legend. It was the violent monetary contraction by the Federal Reserve in 1930 that gutted the US banking system.
The British Empire enjoyed an industrial boom after leaving the gold standard and retreating to Imperial Preference in the early Thirties. It let us reflate in a closed system, able to stop precious demand leaking out to those “deflators” still refusing to stimulate their own economies. It is why Britain was materially capable of fighting fascism in 1939.
Protection was necessary because the undervalued surplus powers – then America and France – were violating the 19th century rules of the gold standard. They were failing to recycle the wealth and boost imports. Are we in such a global deflation trap today? We were during the eurozone austerity crisis. There are whiffs of it again now with 10-year bund yields falling to minus 0.12pc.
Nor is Mr Trump entirely wrong in claiming that China is losing this trade war. RBC says the $18bn (£14bn) collapse in Chinese exports to the US in the first quarter slashed 2.4pc (annualised) off China’s growth rate. The underlying pace is barely above 4pc. “March strength was an illusion,” says Wei Yao from Societe Generale.
“Trade tensions have caused real damage to the manufacturing sector, exports, production and, most worrying, investment.”
The blitz of fiscal front-loading by local governments is fading. The one-off inventory surge due to VAT changes is now a headwind. Fixed investment in manufacturing turned negative in April. Capital Economics says the fall in retail sales growth to 7.2pc year-on-year is the lowest level since the SARS outbreak in 2003. China risks a double dip.
Meanwhile, Germany’s dead cat bounce in March is already over. “It is a rebound mirage,” said Citigroup. “The manufacturing sector is still in crisis. Domestic demand is holding up well, but will not resist indefinitely. We now think a small contraction of output is likely in the second quarter.”
Where Mr Trump is certainly wrong is in calling the US economy “fantastic”. You can steal a year or two of bumper growth by running budget deficits of 5pc of GDP at the top of the cycle when they should be near balance, but even Trumpian fiscal vandalism has its limits. This stimulus is turning to drag.
Turbo-charged growth of 3.2pc last quarter was another illusion. It was distorted by an inventory jump – beware of that mini-cycle – and Pentagon spending. The better metric was a drop in final sales to US consumers to a six-year low of 1.3pc growth. The US is now slowly deflating. Manufacturing fell in April. An industrial recession is setting in. Real M1 growth has fallen to zero.
If you stand back and look at the whole world through the prism of the OECD’s leading indicator – an early warning gauge of activity six months ahead – it is below the boom-bust line in Japan, Germany, Italy, France, Britain, Canada, China, Asia’s Major Five, and the US itself. It is still falling in most countries.
Any further moves by Mr Trump to disrupt the world at this delicate juncture will push Europe over the edge and set in motion a recessionary chain reaction. He may already have baked a slump into the pie by the end of this year. If so, he will not survive the electoral consequences. There is a silver lining in every disaster.