This is a commentary text. Analysis and positions are those of the writer.
Published 17.09
Quick version
Donald Trump's trade war, including planned tariffs against Canada,
Mexico, and China, is criticized by economists and described as "the
stupidest in history" by the Wall Street Journal.
The tariffs threaten to raise prices on several goods and negatively
affect American industry by disrupting supply chains, especially in the
auto industry.
The bond market could become a decisive factor affecting the US economy
under Trump, as rising national debt makes the country vulnerable to
interest rate increases.
Donald Trump. Photo: Evan Vucci / AP
The unanimous condemnation of Donald Trump's trade war by a chorus of economists and experts only strengthens his view.
But the real war remains.
Donald Trump challenges the world's greatest power.
The Wall Street Journal is perhaps the world's most influential financial publication.
"The stupidest trade war in history," is the editorial's blunt assessment of Trump's weekend announcement of tariffs of 25 percent on Mexico and Canada and an additional 10 percent on China.
A long list of other newspapers, analysts and economists are just as enthusiastic. The warnings about what this could mean for the United States and the world are pouring in.
What isDonald Trumptrying to achieve with the tariffs?
His Treasury Secretary Scott Bessent went through this when he was recently questioned by the Senate, writes Bloomberg:
Boost American manufacturing by changing the terms of trade that Trump believes have disadvantaged the United States.
Revenue for the treasury (including to finance tax cuts)
A means of putting pressure on other states that works better than sanctions.
In this case, according to Trump, Canada, Mexico and China are supposed to reduce the influx of immigrants and drugs.
As a tool to shake up opponents, it seems to have already worked. What many are asking is why this weapon is being used against one of the United States' closest allies.
On the first two points, there are more question marks about whether Donald Trump will achieve his goals.
The Wall Street Journal points out that tariffs against Mexico and Canada in particular are a particularly bad idea because American manufacturing (which Trump wants to strengthen) is based on deliveries of parts back and forth across the border.
The auto industry, which accounts for just over 11 percent of the US manufacturing industry and nearly 10 million jobs, is based on imports of parts from Canada and Mexico but also exports to these countries.
When it comes to revenue, it also looks like it will be difficult. Donald Trump has even hinted that tariffs could replace income taxes as a source of revenue.
Tariffs account for a small part of what the US government collects, $80 billion in 2023, while income taxes brought in $1,200 billion.
It would take sky-high tariffs to raise the sums, and then imports will naturally slow down, which means there will be less money.
Forecasts have already been released that indicate that the tariffs will increase the prices of a number of goods and thus push up inflation, an effect that is expected to be even stronger if the EU is also drawn into the trade war.
Tomatoes, avocados, toys and cars are just a few things that are predicted to become more expensive.
This is the opposite of Donald Trump's election promise to lower prices for ordinary people.
But Donald Trump's speech is not only about the economy but also about the "strongman" policy he uses. I do what I do because I can, as this tactic could be summarized.
The business community, which would normally have protested loudly, seems to have already adapted to the new reality and is holding back criticism so as not to attract the evil eye.
The question is also how far politicians in Europe dare to go, given the sensitive security situation and dependence on US military power.
There remains one force that could make Donald Trump change his mind, and it is already on its toes.
The Financial Times has described it in terms of a patrolling policeman.
We are talking about the bond market.
This global giant grades the finances and economic prospects of states every second. The result is shown by the high interest rates that countries have to pay on their loans.
The bond market was behind the euro crisis in 2011, and effectively got Britain's Liz Truss ousted a couple of years ago. It recently caused political turmoil in France.
It is possible to question how reasonable this arrangement is, but it should also be remembered that the bond market ultimately consists of ordinary people's pension capital.
What makes the bond market particularly interesting under Trump's rule is that it is immune to various types of pressure and scare tactics.
The reason why this global financial police has started making the rounds in the neighborhood is the large debts that the world's countries have incurred. In total, the world's government debts amounted to 95,000 billion dollars at the end of 2024, or 97.5 percent of GDP.
In the coming years, they are predicted to increase to 130,000 billion dollars in 2028, according to the Institute of International Finance.
The US debt has exceeded 36,000 billion dollars, or 120 percent of GDP, which makes the country vulnerable to rapid interest rate increases.
The threat of tariffs has already caused the US Federal Reserve to wait with more interest rate cuts. If inflation in the US starts to pick up, increases may be necessary.
The bond market seems to have had its say on Trump's policies long before then. As has the stock market.
Interest rates have already risen slightly and the stock market fell on Friday.
Trump usually measures his success by how the market reacts, and so far it has swung the tide for his election victory. But it is a friend who can quickly turn into an enemy.
Of all the power centers and norms that Donald Trump is challenging, the interest rate police may prove to be the toughest opponent.
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