The global economy is not living rent-free in the mind of Donald Trump.
It is costing the world a fortune, and Trump is finding new ways to increase the price that is being borne not only by US consumers but everyone from Australian manufacturers to Indian rice farmers.
That he slapped 12.5 per cent tariffs on 60 nations, which account for about 99 per cent of US imports, at the same time as his efforts to prosecute a war in the Middle East drove oil prices beyond $US100 ($140) a barrel speaks to the unhinged approach of Trump to his economy and to economic policy in general.
He also did it on the same day that investors cast a more critical eye towards the huge amount of money being spent by tech firms on the AI revolution that is keeping the US economy – and increasingly the Australian economy – afloat.
Bloomberg’s “Magnificent 7 Index”, which tracks the value of Apple, Microsoft, Amazon, Nvidia, Meta Platforms, Tesla and Alphabet, fell by almost 5 per cent overnight. That’s $US797 billion in market value or $1.1 trillion.
After the Supreme Court knocked down Trump’s 10 per cent tariffs in February, he was always going to look for a new way to put a tax on American imports.
His trade ambassador, Jamieson Greer, was given the job of concocting the excuse. He delivered it this morning in the form of a claim that US-based companies were being disadvantaged by businesses in the rest of the world which effectively relied on slave labour to undercut their US competitors.
The “evidence” is not even a fig leaf. After a sham of an inquiry, the real reason for hitting nations with these tariffs is evident in the public statement accompanying their announcement. They were done “in accordance with the specific direction of the President”.
Trump could be excused if this was truly about driving forced labour out of the global trading system. But this is the man who, in April last year, launched his “liberation day” tariff assault in the belief that import taxes were the path to economic success.
Manufacturing jobs, he declared would return. Since his announcement, about 100,000 manufacturing jobs have gone.
And if he truly believes that tariffs are good for US consumers, he wouldn’t have carve outs.
The world’s most famous hamburger fan has excluded beef, including Australian beef, from the tariffs. So is coffee. As are jet fuel and oils that are mixed in with the US’s own petroleum products.
One of the reasons Trump had to abandon his liberation day plans was that China proved it could match the US tariff-for-tariff. His failure to foresee that China would not roll over carries an eerie similarity to his failure to understand that Iran could close the Strait of Hormuz.
In an update to its global economic outlook released a fortnight ago, the International Monetary Fund – which downgraded its key forecasts – noted there were four key risks that could drive growth down even further.
The most imminent risks were a “re-escalation” of war in the Middle East, “exuberance” in markets over AI, an increase in global tariffs and failure by certain governments to curb their public spending.
Sadly for the IMF boffins, their economic nightmares are coming true.
Oil prices at $US100 a barrel. Markets wiping $1.1 trillion from the value of big tech firms. Trump, who started the week with a fresh tariff war against Canada in part due to huge wildfires tearing through the Great White North’s wilderness, extending those tariffs to the rest of the world. And fresh evidence of the diabolical budget position of the US.
The US budget deficit through the first nine months of the US financial year was $US1.4 trillion and is larger than it was for the same time last year.
Interest rates on US government debt this morning climbed to their highest level in a year on expectation that Trump’s tariffs and the jump in oil prices will force the Federal Reserve to tighten monetary policy.
That means more budget pain. Net interest payments now account for 15 per cent of US federal budget spending, second only to Medicare. With government debt to reach $US40 trillion, or 125 per cent of US GDP, within months, the interest bill is only getting larger.
This decade has been one of the most economically precarious in decades. From Covid and its supply-chain fuelled inflation, to Russian President Vladimir Putin’s war against Ukraine, a global slump in productivity growth to the early signs of AI’s impact on the jobs market, nothing has been stable.
But the “very stable genius”, Donald Trump, has demonstrably made it even worse.
Earlier this month, Reserve Bank chief economist Sarah Hunter told a conference of fellow economists the mental toll of dealing with so many shocks.
“In 2018–19, I wasn’t rushing to my phone to check what was going on because the world wasn’t moving that fast, and I didn’t feel like I needed to be that immediate when I woke up for the day,” she said.
“Now, I don’t remember the last time I didn’t check my phone when I first woke up to see if there’s anything I need to be aware of.”
Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.From our partners
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