The 7 kinds of worry that Trump’s pause 'relieved' (and 1 that it didn’t)

In 2002, the US had thought of a very different kind of Liberation Day. It wanted a “tariff-free world” by 2015, in which no one would have to pay taxes for buying things from other countries. That “every corner store in America would become a duty-free shop for working families” was seen as a promise, not a threat.The plan for a tariff-free world didn’t work out. But the global average of tariffs dropped from 8% to 4% between 2002 and 2022. That doesn’t make US president Donald Trump too happy. Because he says it didn’t help his country. So he raised average American tariffs to more than 22% to make America “good and wealthy”.But in about 13 hours after the tariffs went live, Trump changed his mind. He declared a 90-day pause — during which tariffs across the board would be 10%. (Not for Canada or Mexico, though, and definitely not for China.) There was some relief, stock markets went up but then sank again the following day. medium120161033 Because it is, after all, a pause and the uncertainty, some analysts say, is more punishing than the tariffs themselves. “Dumb,” “flat-out nonsense”, “mob boss approach”, and “sheer malignant stupidity” are some of the descriptors that have been thrown at this plan for reinstating American glory. For many different reasons — especially for what happens after the 90-day pause ends.#1 Small nations are afraid it would crush their export-driven economies“It will spell trouble for all nations, especially small ones like Singapore,” the country’s prime minister Lawrence Wong, himself an economist, said in a now-viral video he put out on his social media channels after Trump’s announcement. “We risk being squeezed out, marginalised and left out.”For Singapore, one of the world’s most open economies, exports are more than 170% of its GDP. Singapore applies zero tariffs to US goods, but Singapore’s goods will now face 10% tariffs. Why is it worse for smaller economies though? Because “small countries have limited bargaining power in one-on-one bilateral negotiations. So the major powers will dictate the terms,” Wong said in another statement on April 8 (Tuesday). Besides, it’s not easy for smaller states to pivot quickly. Because they have small domestic markets, and they need to sell their products (or services) to other countries if they want their economies to grow. It’s why most have struck a conciliatory note with Trump — which seems to have gone down well with him.Consider Vietnam. It used to be one of the world’s poorest nations. But in 1986, it opened its doors to foreign trade and investment. With its inexpensive labour, it became a manufacturing hub. And per capita GDP went up six times between 1986 and 2023, largely because of foreign buyers for its products and services. Today, almost 27% of Vietnam’s GDP is dependent on exports to the US. Which means Trump’s staggering 46% tariff on Vietnamese imports is a massive threat to its economy — but not one that Vietnam can do much about right away. So, it has offered to buy more American goods, cut taxes on American imports to zero, and go over things like its monetary policy and exchange rates so that its “non-tariff” barriers don’t bother the US.Likewise, Cambodia, hit with 49% tariffs, has offered to cut tariffs. Microchip powerhouse Taiwan, which faces a 32% tariff on its non-chip exports, has also offered zero tariffs, non-retaliation pledges, and more American investments. Thailand is considering an increase in American imports and a change in some import rules. And Malaysia’s prime minister, while saying that a “regional response” is being worked out, has warned that “the global trading system is under intense strain, more so than at any point in recent memory.”#2 Long-time US allies have been frustrated that Trump is ignoring mutual economic interestsThe European Union (EU) is America’s biggest trading partner and a long-standing ally. So, the 20% tariffs were seen as unfair. “There seems to be no order in the disorder. No clear path through the complexity and chaos that is being created as all US trading partners are hit,” European Commission president Ursula von der Leyen said about the tariffs in a statement. Soon, the EU got to work, sat together, and imposed counter-tariffs of 25% on American products. When Trump announced his pause, the EU followed as well and declared a 90-day suspension of their counter-tariffs.Japan, the closest American ally in Asia, was also shocked when it was hit with a 24% tariff. “We must call this a national crisis,” its prime minister Shigeru Ishiba said. He has called it “extremely disappointing and regrettable”, adding that Japan has never been unfair to the US. For now, he is trying to stitch together a tariff deal quickly and hasn’t sounded out any retaliatory plan. Long-time American ally UK, facing a 10% tariff, is also trying to work out a trade deal. Its prime minister Keir Starmer said he would “only strike a deal if it’s in our national interest” and that he would work towards lowering trade barriers with other trade partners.Stranger still is the situation Australia faces — it actually does buy more from the US than the US buys from it. And yet, it faces a 10% tariff. “A reciprocal tariff would be zero, not 10%,” its prime minister Anthony Albanese said. “The administration's tariffs have no basis in logic and they go against the basis of our two nation's partnership. This is not the act of a friend.”#3 Billionaire investors are afraid they'll bleed wealthA recession is a significant and long decline in economic activity. Investment bank Goldman Sachs predicted a 65% chance of an American recession within a year on Wednesday. When Trump announced the pause, it withdrew the forecast — reducing the probability to 45%. It’s lower, but it’s still a significant probability. Basically, tariffs lead to higher costs and lower trade. The slower economic activity leads to recession fears, which cause investor panic, which causes markets to crash, which erodes the values of assets. Some of this effect is already evident. The S&P 500 has lost close to $6trn in market value since the tariffs were announced. And the world’s richest people lost more than $200bn in just one day since the tariffs were announced.This pushed billionaire investors who have usually supported Trump to a position against him.Billionaire investor Bill Ackman, a Democrat supporter who switched sides and endorsed Trump in 2024, said the tariffs would take the US to a “self-induced, economic nuclear winter”. Another billionaire investor, Ken Fisher, a Trump campaign donor, now says that the tariffs are “stupid, wrong, arrogantly extreme, ignorant trade-wise and addressing a non-problem with misguided tools.” Even Trump confidante Elon Musk has posted about the problem with tariffs without directly referring to Trump’s tariffs, and said that he hopes Europe and the US move “to a zero tariff situation”. The Washington Post reported that Musk had urged Trump not to go through with the aggressive tariff plan.But it was the word of JPMorgan Chase CEO, Jamie Dimon, that got through to Trump when he decided to announce a pause. Dimon is a Trump supporter who asked tariff sceptics to “get over it” just in January, but now said price rise and recession is likely: “America First is fine, as long as it doesn’t end up being America alone.” It was Dimon’s stance that Trump says persuaded him to back down.The other factor was the bond selloff. Government bonds are papers that represent debt — you lend the government money, and the government promises to repay that with interest. Bonds are safe, because the government will always repay. So usually, people buy government bonds when they’re unsure about other money-making instruments. If people start selling them off, however, it is an indication of eroding trust in the government’s economic management. Bond prices drop, yields go up, borrowing gets more expensive. That’s what was happening after Trump’s tariffs were announced. “The bond market is very tricky. I was watching it … People were getting a little queasy,” he said while announcing the pause.#4 The Americans this is supposed to help are worried about costsThe actual payment of the tariff is made by the importer. But the importer, in this case an American company, usually passes on these costs to the domestic consumer by raising prices. Research has repeatedly shown that it is consumers who pay for tariff hikes. The idea is that these higher prices will encourage consumers to buy domestic products instead of foreign products. But that can’t happen for every single product that people need.Which means America might soon realise that it has not been “ripped off” by the rest of the world but its consumption habits have, in fact, been subsidised by the rest of the world.“Consumers might, at times, find there are no goods to pay for as companies from Europe to Asia halt shipments,” Bloomberg wrote. Or, when existing stocks run out, some products will get expensive even if there is no domestic alternative (or enough of it) at the moment. Like smartphones and laptops and hearing aids and car parts and clothes and bananas and coffee. And even if American manufacturing rushes to fill the void, there are raw materials and products that simply can’t be substituted. Which is a problem for American producers, businesses and consumers.Besides, analysts say that a stagflation — in which the economy slows down (stagnation) while prices keep soaring (inflation) — is quite likely if the tariffs stay. So, people have less money to spend and everything costs way more. They spend even less, investments slow down, and the economy stagnates further.#5 Economists are exasperated about the tariff mathsAn economist whose work the White House cited to justify its tariff formula was annoyed enough to write an opinion piece explaining that they “got it wrong, very wrong”. Because those “reciprocal tariffs” were aimed at eliminating trade deficits, which is simply not possible for smaller economies to work towards. How could they even buy more from America than America buys from them? medium120161086Also, the purpose of these tariffs, Trump has said, is to make money. “I get hit by the press about tariffs. We are making $2bn a day,” Trump said to justify his decision-making. In fact, the US trade secretary believes that the tariffs will raise anywhere between $300bn and $600bn a year. But for any tax to raise actual money, the base has to be high as well. The head of the World Trade Organisation (WTO) has warned that US’s protectionism could make global trade volumes drop by about 1% this year. (Global trade value in 2024 was $33trn.) If high tariffs pull down imports, any projected revenue gain would be pulled down as well. #6 Global policy experts criticise the undermining of trade norms“Trump is using American power in such a capricious, destructive and dumb way that it will almost certainly result in a lose-lose outcome for everyone,” Fareed Zakaria wrote in an opinion piece for the Washington Post. “He looks fondly on the late 19th century, when, as he described this week, the United States had only tariffs and no income tax, and America was stronger economically than it has ever been compared with the rest of the world. This history is nonsense.”The last time American tariffs were this high was in 1909. India was still “ruled” by an emperor, construction of the Titanic had just begun, and it had only been six years since the Wright brothers had successfully created the world’s first powered airplane. Let’s just say it was a different world. Why would anyone want to retrofit that high-tariff arrangement into today’s economy?Today, global trade works because economies try not to annoy one another and because they understand that there is a shared interest in maintaining stable trade relationships. These tariffs, Financial Times journalist Gideon Rachman wrote, show “Trump’s epic misunderstanding of how the global economy works … The failings of the mob boss approach to trade are now dramatically visible on the markets.”#7 American legal activists argue that the tariffs exceed Trump’s legal authorityTariffs are, after all, taxes. And American taxes lie in the domain of the legislature and not the executive. There are some exceptions that allow the president to decide what kind of tariffs will be imposed. And Trump invoked an emergency law used when the country faces an “unusual and extraordinary” foreign threat. A right-wing group funded by a billionaire industrialist and a rich legal activist who advised Trump on supreme court nominations is now suing to stop the tariffs (imposed in February on China and Canada and Mexico, not the latest one) by challenging this. “The statute … does not authorize the president to impose tariffs,” the group said in a statement. #8 The unresolved concern? Trade rivals see it as an aggressive tactic to suppress their growthWhen this term of the Trump presidency began in January, American tariffs on Chinese products were already at a significant 20.8%. Trump’s April 2 announcement took that to 54% and now, after a retaliatory hike by China and a counter-retaliatory hike by the US, it stands at a punishing 104%. In response, China imposed an additional 84% tariff on all US imports. And then the US raised tariffs on China to 125%. Trump was just as focused on tariffs for China in his last term as well.“Stop using tariffs as a weapon to suppress China’s economy and trade,” the Chinese government had said in a statement soon after the first tariff hike Trump announced. When Trump announced the second hike, China’s commerce ministry said, “China will fight to the end.”Maybe because China thinks it has less to lose at this point. About 70% of the world’s economies trade more with China than they do with the US. And China makes about one-third of all manufactured goods in the world. So, its analysts believe that the US needs China more than China needs the US. The New York Times reported that the US gets 73% of its smartphones, 78% of its laptops, 87% of video game consoles, and 77% of toys from China. Besides, economists say that the pain inflicted by increasing tariffs will start shrinking after a point — because exports were going to suffer anyway with the first hike, and beyond that exporters will simply stop selling to the US. medium120161064