Stop the trade flow, and you stop the economy.
Damage to the U.S. economy is happening in slow motion. Without products to sell in stores, retail employers (responsible for 10% of all jobs in the U.S.) will shed employees, a cascade of negatives now showing up in both statistics and “for lease” signs. Small businesses from Alaska to Maine without imported goods to use in the factory or sell at the shop will close. Bankruptcy sales will proliferate. Now consider that job losses have a multiplier effect, further reducing economic output.
The damage to the U.S. economy is happening in slow motion. The impact will soon be obvious.
Before you become euphoric about the Trump administration relenting on some of its tariffs, consider the damage that has already been done to the U.S. economy. Challenger, Gray & Christmas reported that U.S. employers cut more than 275,000 jobs in March, with more than 216,000 of those layoffs coming in the federal government, spearheaded by Elon Musk’s so-called Department of Government Efficiency, or “DOGE.” The numbers Challenger estimates are staggering and so far not reflected in Bureau of Labor Statistics data.
The impact on the U.S. economy will soon be obvious. Economies run on flows from wages, and from federal government grants for thousands of immediate needs. Without this flow and with the layoffs and cuts to wages, the U.S. economy will continue to slow and could be in a recession by the summer. Let’s not forget the immigration raids that must be spooking farmers and their workers.
Read: The trade deficit hit a record in March as companies rushed to import goods ahead of tariffs
For U.S. manufacturers, building a network of new suppliers is complex due to the specific nature and qualities of the parts used in manufacturing production, even if there is an American company that might, with time and detailed drawings, make the foreign part at competitive prices, the risk to current production is too great and costly to make this feasible. If attempted then during this transition, hourly employees would be laid off and production lines stopped. Local communities, many of them in the Trump-friendliest states, would suffer.
The uncertainty of the chaotic Trump plan also clouds the American economy. Federal Reserve Chair Jerome Powell is holding interest rates steady, inviting Trump’s ire. If and when Trump manages to renegotiate a trade deal, it won’t be worth much unless it’s with America’s most valuable trading partners, including Canada, Mexico, China, South Korea and Japan, as well as the European Union. I suspect that most of the “deals” may be with countries that the U.S. barely trades with, including India.
Live coverage: Bank of England governor says he doesn’t know what is in the U.S.-U.K. trade deal
For China, the U.S. is not the only country that matters.
China and the U.S. are scheduled to conduct trade talks this weekend in Geneva. But China knows that it does not need to do more than agree to meet to discuss the future of U.S.-China trade relations. Sending negotiators to Geneva costs nothing beyond airfare and hotel bills.
For China, the U.S. is not the only country that matters. China could add pain to Treasury Secretary Scott Bessent’s day job by dumping its cache of U.S. Treasury debt on the bond market, driving the U.S. dollar lower and short-term rates higher, and further weakening the U.S. stock
markets. China might also find it useful to join a coalition of countries suffering under American economic bullying and redirect trade and manufacturing capacity elsewhere in the world.
Read: Why China is in no rush to seek a U.S. trade deal
Tax cuts in jeopardy
Also in jeopardy: the path for congressional Republicans to keep their 2017 tax cuts (which are especially generous to corporations and the wealthy) from disappearing. Even though income-tax rates on lower-income workers will rise marginally, the necessary deep cuts in healthcare, food assistance and other parts of the U.S. government will likely prove too politically dangerous for Congress to pass before the tax cuts expire.
Trump, who must have slept through macroeconomics at Wharton, bases his thinking on microeconomic principles only.
Trump, who must have slept through macroeconomics at Wharton, bases his thinking on microeconomic principles only. Before 1933, economists and politicians focused on industrial relationships and monetary policy. When President Herbert Hoover and Congress tried to balance the federal budget with deep cuts, and the Federal Reserve raised rates and slowed the flow of money, the Great Depression was fueled.
The Trump administration is channeling Hoover. The 1932 U.S. election was a disaster for the Republican Party. Republicans would be wise to let the 2017 tax cuts expire and not touch Medicare or Medicaid. This would reduce the U.S. budget deficit, and Republicans could avoid repeating Hoover’s errors.
David Blond is an economist specializing in global economic analysis. He was a senior economist at the Pentagon during the Carter and Reagan administrations.
Also read:
Trump is taking us back to the slow-growth, high-inflation 1970s — or worse
PER MARKET WATCH TODAY'S COPY
You act like police stations and the ghettos are burning. Nope. Wall Street is fine. Main Street is fine.
