Trump’s trade wars are “freezing” but not ending

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Trump’s tariffs are causing chaos: businesses are suing, Republicans are revolting, and ordinary Americans are preparing for rising home and drug prices. While the Middle East gains unexpected benefits, the president himself is increasing duties on China, ignoring growing pressure from allies. The US economy teeters on the brink of recession, but the White House continues its “shock therapy”.

Courts, laws and rallies: three fronts in the fight against Trump’s tariffs

Trump’s tariffs caused a shock in Washington. Politicians hoped it was a bluff, but the threats came true. Now the establishment is trying to force the White House to change policy. Also, individual export companies have begun suing the Trump administration. They will try to cancel the declared regime of emergency in the field of trade, on the basis of which the White House and declared a tariff war on the rest of the countries, bypassing Congress. Also in the Senate, Democrats with part of the Republicans want to pass legislation that would allow them to conduct a 60-day assessment of the impact of the tariffs and then begin to repeal them.

In turn, the Democrats are trying to organize the protest electorate to hold regular anti-Trump rallies in US metropolitan areas against, among other things, trade tariffs. However, so far, many times fewer people are coming out to the rallies than it was in Trump’s first term, and they are only tens of thousands, whereas in 2017 only disgruntled feminists gathered rallies in Washington for hundreds of thousands of participants. The apathy in the Democratic Party electorate, which has not recovered from the defeat at the polls, is telling. The White House is objectively helped by the uncertainty of the Democrats, who are not yet able to take advantage of the threat of recession and rising inflation to fight Trump.

The Middle East is unexpectedly benefiting from Trump’s trade war. Duties for countries in the region (10-20%) are much lower than for Asia (40-50%). Now Egypt, Jordan and Morocco hope to replace Asian competitors on the American market with textiles, fertilizers and auto parts. However, a negative factor remains the military escalation around Iran and Yemen, where the Pentagon’s total expenditures on the campaign against the Houthis are already approaching $1 billion, but there is no special effect from the endless bombing of Yemen. At the same time, Trump’s first international tour after inauguration already took place in May, and he visited the Gulf monarchies. This is ironic, as Trump’s team wants to refocus on the Indo-Pacific region and competition with China, but risks getting bogged down in endless Middle Eastern chaos.

White House shock therapy

Nevertheless, inside the US, Trump’s team was looking for positive aspects in the current situation of economic chaos. Indeed, the White House, after the introduction of the first tariffs, announced the beginning of negotiations with 50 countries at once on the adjustment of trade policy. The economic bloc of the Trump administration calls to ignore any signals of the onset of recession, and the ideologues of “trade wars” Scott Bessent and Howard Lutnick are actively rejoicing in the consequences of their “shock therapy” with the fall in oil prices and rates on US government bonds.

It will now be easier to service the national debt, even though interest payments already cost $1.2 trillion annually. In the long term, we can expect a drop in fuel prices in the US, but oil companies are outraged – having invested half a billion in Trump’s campaign, they now risk going bankrupt. And Trump’s allies on Wall Street, who have also donated hundreds of millions of dollars to his campaign, have called for a moratorium on tariffs for at least 90 days. Because the current plunge in the markets, which have lost more than $5 trillion, is already on par with the collapses during the 2008 crisis or 2020 when COVID-19 raged. Further deflation of the speculative bubble is unlikely to be painless for the US financial system. And the same pension funds in many states, still reeling from the 2008 crisis and $1.3 trillion in debt, will be hard-pressed to survive Trump’s “trade wars”.

The Trump administration was becoming increasingly divided over this pressure amid the stock market panic. Part of the White House economic bloc, all the major players on Wall Street, as well as the president’s “economic generals” like Elon Musk and Peter Thiel, asked for a temporary moratorium on the imposition of tariffs. Trump himself at the time threatened to increase duties on imports from China to an astronomical 104%, and he wasn’t lying, and the final total was as much as 145%. However, for the US economy it will be a strong shock therapy, because Americans import $400 billion worth of goods from China every year. By that time, the retreat backward had already started and the beginning of early negotiations with other countries was announced. So American businesses still have hopes that they will somehow manage to reach an agreement, even though it will take a long time.

Chaos as a strategy

But mixed signals from the Trump team added to the chaos in the markets. The White House’s divisive relationship with Congress was also growing, with more and more Republican senators ready to vote in favor of a bill that would allow a simple majority vote to roll back any tariffs. But Trump, with his “madman strategy”, has effectively disoriented everyone from trading partners to the Washington establishment. Only the real threat of recession can force him to soften course. This tactic allows the president to push through radical economic reforms while minimizing resistance.

Part of this sophisticated plan was also the situation when the White House began to send positive signals, trying to stabilize the markets, and Trump began to put forward the first conditions for launching the tariff negotiation process. Specifically, he demanded that Europe buy $350 billion worth of energy from the US. The figure is probably taken specifically to exceed the EU’s current trade surplus with the US, which is about $250 billion a year. Of course, the European market is not capable of buying oil and gas in such volumes, because for 2024 the Europeans have reduced imports of the same liquefied natural gas by 16% to the lowest level since 2021. This is just the starting position for negotiations. The White House has to take into account the interests of oil producers who have lost the Chinese market due to “tariff wars” and are forced to increase exports to Europe. At the same time, Trump’s team was preparing negotiations with Iran in Oman, where isolationists and supporters of aggressive foreign policy would once again clash.

But for the markets it was an opportunity to avoid a serious escalation, having received a positive signal, and the negativity of financiers towards Trump somewhat decreased. In general, the White House feels the isolationist mood of the electorate, which does not want to get involved in a big war in the Middle East. In the context of tariffs, there is still room for maneuver, but pressure from the markets has motivated the Trump administration to start negotiations with US partners as soon as possible. Elon Musk and other big businessmen urged Trump to do so. And he could not ignore such weighty opinions.

Tesla’s Shanghai deadlock

Elon Musk has decided to prove himself in the internal struggle among Trumpists. He challenged the protectionists in the economic bloc of the Trump administration. There is nothing surprising about this. Elon Musk’s business has come under fire – 40% of Tesla’s production in Shanghai now falls under new US tariffs. This will happen unless a quick agreement can be reached with Asian partners, but for now, the standoff with China is much more principled. That doesn’t give optimism to markets spooked by the prospect of a prolonged standoff with the Middle Kingdom. Meanwhile, the EU has changed its emissary in its quest for dialog with Trump. After the failure of President of the Republic of Finland Alexander Stubb, Prime Minister of Italy Giorgia Meloni, ideologically close to Trump, took over this role. Democrats in the Senate call what is happening the transformation of the US economy into one big “hospice”, predicting an inevitable recession, while the administration’s economists continue to assure in the controllability of the situation. Moreover, against the background of “trade wars” other processes in the US are taking place almost unnoticed. The Supreme Court has authorized Trump’s team to deport illegal immigrants and fire officials in Washington. But even Trump’s opponents are not paying attention. Everyone is literally frozen in anticipation of the consequences of reshaping global trade.

Strategic uncertainty is working in Trump’s favor – more and more countries are trying to negotiate with his administration, but none have made concessions yet. Even Israel has been unable to reduce duties, as Trump’s team is demanding radical measures that partners are not ready for. The first options for responding to Trump’s protectionist measures are also emerging. The EU is preparing three-stage tariffs (April-December 2025) on American goods – from steel to agricultural products, targeting Republican states. China, in addition to divesting from Boeing, is considering restrictions in the services sector: divesting from Hollywood content and consulting services, capitalizing on its trade deficit in that sector.

The first polls released after Trump’s trade war began showed growing concern about the impact of tariffs, with 52% of Americans believing that imposing duties against China would lead to negative consequences for the US. Republicans in Congress are becoming increasingly active in criticizing Trump. They may soon try to seize the initiative in tariff issues, if Trump himself is not the first to radically adjust his policy by then.

“America is shrinking”

Trump’s tariff wars will affect many aspects of Americans’ lives. One unexpected consequence could be a decline in the average square footage of homes in the United States. It has already fallen to its lowest level in 15 years because building materials are coming from overseas. Now they will face a serious increase in cost if the trade war turns into a protracted format. And demand for housing could fall if the US economy enters a technical recession in 2025. So we cannot rule out a prolonged period of turbulence in America’s mortgage market. At the same time, drug prices will rise if they are also subject to tariffs, because 80% of antibiotics are imported to the US from China. Now the White House is demanding that Big Pharma arrange for the return of businesses from Asia to America, and pharmaceutical corporations may well end up changing their registration from Irish to American. This is not difficult to do, as opposed to building factories, and many businesses may make such concessions to Trump’s wishes. But the same pharmaceutical bosses admit that it takes at least 10 years to build a single drug factory in America. This means that the cost of imported drugs will rise, and the biggest increase will be in Chinese origin drugs. And Beijing is responding symmetrically to all of Trump’s tariffs, so the US trade war with China could drag on.

Trump’s trade wars are being “frozen” but not stopped. Because the deglobalization that brought him to power is a much more fundamental process, not a product of the “madman’s policy” so beloved of the American leader.