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Economists are trying to quantify what Trump’s trade wars could do to the economy. There’s little precedent
He really means it. Until a week or two ago, President Donald Trump’s conflicting statements left open a strong possibility that the leader of the free world was threatening sweeping tariffs as a cudgel to extract better terms from exporters, as well as succeed in pushing Canada and Mexico to curb the smuggling of lethal drugs across our borders, and that he wouldn’t unleash a trade war if he got all or even part of what he wanted. Now, it’s becoming increasingly clear that the president is determined to do exactly what friendly governments and consumers and businesses from New York to Sydney feared but didn’t really believe could happen in this day and age: reverse decades of global free trade, and build another “wall,” not the barrier along the Mexican border, but a protectionist barricade around America that repels even our closest allies and trading partners. That realization has sent stocks skidding. Following a peak of Trumpian euphoria reached in mid-February, the S&P 500 has tumbled 11% into correction territory as of market close on March 13, while the Nasdaq Composite has tumbled 16%.
Trump’s stated plan all along: impose tariffs of never-before-witnessed weight, mostly at 25%, on most if not virtually all imports from our four largest trading partners, China, the EU, Mexico, and Canada. It’s been a start-stop-reverse process. But now, Trump’s actions are matching his fiery rhetoric. Trump got going in early March by doubling import duties on China from 10% to 20%. In early March, he hit a broad range of products from Canada and Mexico with 25% tariffs. At the same time, he partially retreated by granting a one-month reprieve on one-third of exports from the Great White North and one-half from our southern neighbor covered by the USMCA free trade agreement he himself had negotiated in late 2018. A call to the Oval Office placed by CEOs of the Big Three automakers won them a comparable 30-day reprieve for cars and parts from Canada and Mexico. Now he’s targeting global steel and aluminum, EU textiles, apparel, and agricultural products, and sundry other categories for future tariffs.
Trump’s targets are already firing back. So far, the EU, Canada, and China have announced $100 billion in new tariffs on U.S. imports to counter Trump’s offensive. Mexican President Claudia Sheinbaum blasted the steel and aluminum levies as “offensive, defamatory, and without support” and vowed to unveil tough countermeasures shortly. Asked by reporters if he’d reconsider the tariff wave planned for April 2, Trump responded, “We’re not going to bend at all.”
Since World War II, America’s never remotely hit this many countries with tariffs this high. The experiment is all so new that even approximating the impact on things like GDP and employment is difficult. But according to the world’s past experience with even much more modest protectionist measures, the overall course is predictable—and amounts to a radical wrong turn.
Tariffs explained—and why Trump loves them
To grasp why Trump’s the first postwar president to embrace big tariffs at all, let alone as a central economic strategy, it’s critical to understand his worldview. For this self-proclaimed master of the deal, the overriding force restraining U.S. prosperity is the imbalance between the goods we make and consume stateside or send oversees, and everything else we buy from abroad. Put simply, Trump is haunted by our “trade deficit” for goods.
In Trump’s telling, our trading partners rig the system to maximize sales in their home markets for products made within their borders, and minimize competition from our exports. In the contest, we’re like tennis players forced to start every game down love-30. Meanwhile, says Trump, past leaders have left the U.S. naively open territory to the inflow of goods produced in Shanghai, Ontario, or Monterrey that grab sales from the cars and steel produced in Michigan, Wisconsin, and Pennsylvania. Trump regards the gulf between the dollars we’re dispensing for imports, and the lesser euros, yuan, and pesos we’re collecting on exports, as a deadweight that severely restrains GDP growth, shutters plants, and kills jobs.
His solution for shrinking that gap: the big tariffs that render goods from abroad much more expensive within our borders, digging a protective moat that encourages the stateside construction of factories for the likes of chips and autos—industries where U.S.-based players now struggle in outdueling cheaper versions made in China or Canada. Trump seeks to build a new paradigm where the U.S. manufactures a huge share of the products we now import, right in the U.S.A., notably across the industrial heartland. That way, our consumers and businesses would be sending hundreds of billions less of our dollars abroad to buy foreign-made goods, and spending the greenbacks here at home, sparking a boom in factory-building and a renaissance in American manufacturing. That dynamic would lower or eliminate that chasm between the immense dollars flowing out and the relatively piddling foreign currency coming in that so favors commercial counterparts and for Trump, represents America’s overriding economic problem. For the president, fixing that shortfall in trade represents the nation’s biggest opportunity for revival.
Trump doesn’t actually use the words “U.S. trade deficit” in his speeches or interviews. This macro, wonky term mainly appears in his policy papers, where his economic team vilifies the overall “trade deficit” and extolls the necessity of shrinking it. Instead, the president keeps pounding on how our import-export gaps with individual nations are victimizing the U.S. Those numbers prove that all our major trading partners are fleecing us, Trump insists. As he told Fox News’s Maria Bartiromo on March 9, the U.S. “has been ripped off from every nation in the world, every company outside in the world.”
To hammer home that point, Trump cites highly exaggerated numbers for the deficits with the four giants we do the most business with, again suggesting that these overstated gorges represent losses for the U.S. and bounty for the invaders. At the World Economic Forum in January, Trump declared that the U.S. has a “$200 billion or $250 billion” deficit with Canada, and that our northern cousin “wouldn’t be a viable country” benefiting from their surplus achieved at our expense. “We have a deficit with Mexico of $350 billion,” he declared in February on Fox News. At a cabinet meeting on Feb. 27, Trump told reporters, “The EU has really taken advantage of us … We have about a $300 billion deficit with the EU.” Also last month, he alleged on Fox News Radio that the U.S. faces a canyon in China’s favor “like we’ve never seen before” of “over $1 trillion.” Add it all up, and Trump is maintaining that the U.S. is suffering big-time from a $2 trillion trade deficit with the Big Four alone.
Those numbers aren’t even close. The true figures for Canada and Mexico are roughly one-third and half of what Trump claims, and his total for those four leading exporters to the U.S. is actually $709 billion, around one-third of Trump’s “rip-off” sum. (Our total deficit in goods was $971 billion, less than half what Trump claims for the Big Four alone.) The deficit with China hasn’t reached new highs at all, and is in fact going the other way: It’s shrunk by 40% in the past six years. Nevertheless, our divergence between imports and exports is huge and growing. The shortfall in goods expanded from $846 billion in 2019 to $1.2 trillion last year, and in January broke an all-time monthly record, vaulting to $156 billion.
The real issue is whether these deficits represent the near-crisis, and opportunity for repair so rich it merits “disruption,” that Trump’s advertising, or that the willingness of foreigners to finance our lavish government and consumer spending may be a good thing.
Why economists by and large despise tariffs
In the opinion of all the noted economists I interviewed for this story, and the extensive studies dedicated to the past impact of tariffs—the Trump 2018–19 version provides an informative case study—the president’s template will do nothing to achieve its goal of narrowing the gorge between America’s imports and exports. “It’s not clear why a trade deficit’s a problem in the first place, because nations are reinvesting the dollars we send them right back in the U.S.,” says economist John Cochrane of Stanford’s Hoover Institution. “Canada and Mexico have placed big bets on integrating with the U.S. It’s not great economic policy to hit them with tariffs and insult them at the same time we’re trying to convince them to cut imports from China.”
Adds Andrew K. Rose, former dean of UC Berkeley’s Haas School of Business and now dean of the NUS Business School in Singapore, as well as coauthor of a detailed study on tariffs: “Overall, Trump’s tariff policy is a disaster. Just look at the uncertainty alone. No one benefits from that, it just delays investment, and that’s unambiguously bad.” In seeking to enrich this nation, notes Rose, it’s the worst of trades “to go after your top allies in trade.”
Perhaps the best summary comes from Steve Hanke of Johns Hopkins University. “You can’t win a trade war,” he says. “Starting one, as Trump is doing, only ensures that both sides lose.”
It’s hard to estimate the potential damage to the U.S. economy for two basic reasons. First, though Trump’s stance is hardening, it’s impossible to predict how much of his current plan he’ll scuttle if he wins big concessions on trade, or if the impact is so crushing and the public and business backlash so strong that he decides to switch course. Second, we have absolutely no precedent for tariffs the size that Trump’s proposing. Still, studies suggest that even if Trump enacts portions of his agenda, the blow to U.S. prosperity will prove severe.
The mind-spinning part is that we’ve never seen an increase this big, in almost 100 years of U.S. history. The Smoot-Hawley tariff program of 1930, widely branded as a major force in deepening and perpetuating the Great Depression, hiked the levies on U.S. imports much less than the breathtaking wallop promised under the Trump plan. That law lifted rates just over five points, from 13.5% to 19.5%. Trump’s crusade would beat Smoot-Hawley twofold.
In the Middle Ages, cartographers tagged untamed, treacherous, unexplored territory by the slogan, “Here lie dragons.” Donald Trump will be dueling dragons soon, and his best move would be one he’s good at, declare victory, lower his broadsword, and retreat.
This story was originally featured on Fortune.com
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NATO countries are having second thoughts about buying America’s F-35 as the ‘predictability of our allies’ is doubted amid Trump’s seismic shifts
- Canada and Portugal have expressed willingness to explore alternatives to the F-35 stealth fighter as President Donald Trump has sown doubt about the US commitment to the NATO alliance. That comes as Trump presses ahead with his trade war and continues to call for Canada to become the 51st US state.
America’s F-35 stealth fighter is seen by some allies as a potential vulnerability rather than a cutting-edge weapon that can boost warfighting capabilities.
In recent days, Canada and Portugal have expressed willingness to explore alternatives to the Lockheed Martin plane as President Donald Trump has sown doubt about the US commitment to the NATO alliance.
On Friday, Canadian Defense Minister Bill Blair said the country is actively looking at other fighter jets amid growing political momentum to scrap a $13 billion deal for 88 F-35s that was signed in 2023.
Canada has committed money for its first 16 planes, which are scheduled for delivery early next year. Blair indicated that after accepting that batch of F-35s, Canada could turn to European aircraft to replace its aging fleet of fighters.
“The prime minister has asked me to go and examine those things and have discussions with other sources, particularly where there may be opportunities to assemble those fighter jets in Canada,” he told the Canadian Broadcasting Corp., alluding to a Swedish proposal for Saab’s Gripen fighter.
A defense ministry spokesperson also told Bloomberg that the deal hasn’t been canceled, but Canada needs to “make sure that the contract in its current form is in the best interests of Canadians and the Canadian Armed Forces.”
The review of the F-35 deal comes has Trump has imposed tariffs on Canada and vowed to make the country the 51 state of the US, sparking outrage and boycotts of American products.
Meanwhile, Trump has long been skeptical of NATO and complained that member countries aren’t spending enough on defense. Despite allies boosting their outlays in recent years, he has signaled it’s not enough and threatened to not come to their aid.
“If they don’t pay, I’m not going to defend them. No, I’m not going to defend them,” he told reporters in the Oval Office last week.
In addition, Trump has threatened a trade war with Europe and alarmed allies there by warming up to Russia and halting US military aid to Ukraine, prompting the EU to embark on a massive military buildup in preparation for a world without a reliable US security shield.
The seismic developments rocking the trans-Atlantic alliance, which were underscored by Trump’s recent shouting match with Ukrainian President Volodymr Zelensky, are top of mind as another NATO ally weighs a separate purchase of fighter jets.
While Portugal’s air force has recommended buying F-35s, outgoing Defense Minister Nuno Melo told Público that the country can’t ignore the current geopolitical environment.
“The recent US stance in the context of NATO and the international geostrategic dimension, makes us think what are the best options, because the predictability of our allies is a factor to be reckoned with,” he said.
He added that “this ally of ours” could limit use as well as maintenance support and access to components that are needed to ensure the aircraft are operational “in all types of scenarios.”
“There are several options that must be considered, particularly in the context of European production,” Melo said, with the defense ministry later adding that Portugal isn’t ruling out the F-35.
Reluctance among foreign militaries to buy the F-35 comes on top of concerns that the Trump administration is looking to slash US defense spending. As the Pentagon’s most expensive acquisition program, the F-35 has been a perennial punching bag and has previously drawn Elon Musk’s scorn as being inferior to drones.
The White House and the Defense Department’s joint program office for the F-35 didn’t immediately respond to requests for comment.
A spokesperson for Lockheed Martin said the company values its partnership and history with the Portuguese Air Force and looks forward to continuing that partnership in the future.
“The F-35 is the most advanced, survivable and connected fighter aircraft in the world, enabling 21st Century Security and allied deterrence,” Lockheed said in a statement to Fortune. “Questions about foreign military sales of the F-35 are best addressed by the US government.”
In a separate statement to the CBC, the company sought to dispel online misinformation that claims the F-35 has a “kill switch” that allows the US government to cripple the aircraft, saying “we deliver all system infrastructure and data required for all F-35 customers to sustain the aircraft.”
Still, an American promise is looking more doubtful as the US upends traditional geopolitics, according to Quantum Strategy’s David Roche, who told CNBC earlier this month that “NATO is dead” as Trump distances the US from long-time allies.
That makes Russia’s Vladimir Putin and China’s Xi Jinping the big winners, as they see confirmation of their views that democratic powers are on the decline, Roche explained.
“The big loser is actually the US, because nobody will trust a US treaty again,” he added, noting that a lot of so-called Global South countries will fall into China’s orbit as a result.
This story was originally featured on Fortune.com
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Democratic Party fractures in government shutdown fight as activists back primary challenges to supporters of GOP bill
The Democratic Party was fracturing Friday as a torrent of frustration and anger was unleashed at Senate Democrats, led by Sen. Chuck Schumer, who faced what they saw as an awful choice: shut the government down or consent to a Republican funding bill that allows President Donald Trump to continue slashing the federal government.
After Schumer announced that he would reluctantly support the bill, he bore the brunt of that anger, including a protest at his office, calls from progressives that he be primaried in 2028 and suggestions that the Democratic Party would soon be looking for new leaders.
Nine other members of the Democratic Caucus — a contingent of mostly swing-state and retiring senators — eventually joined Schumer in voting to advance the Republican funding proposal, providing crucial support to bring it to a final vote. It passed late Friday with Sens. Jeanne Shaheen of New Hampshire and Angus King of Maine voting with Republicans in favor.
Since their election losses, Democrats have been hunkered against a barrage of Trump’s early actions in office, locked out of legislative power and left searching for a plan to regain political momentum. But as Schumer let pass one of the rare moments when the party might regain leverage in Washington, the Democratic Party erupted in a moment of anger that had been building for months.
Many in the party felt the New York Democrat was not showing sufficient fight, arguing that a government shutdown would have forced Trump and Republicans to the negotiating table. Yet for Schumer, who has led Senate Democrats since Trump took office in 2016, the choice ultimately came down to preventing a shutdown that he believed would only hand Trump more power and leave his party with the blame for disruptions to government services.
“A shutdown would allow DOGE to shift into overdrive,” Schumer warned on the Senate floor Friday, referring to the Department of Government Efficiency effort led by Elon Musk.
Schumer voted no on the final vote for the funding bill, which only needed a simple majority to pass. Nonetheless, House Democrats released a stream of angry statements and social media posts aimed at Schumer.
Democratic Rep. Troy Carter of Louisiana shared a photo of Trump and Schumer engaged in conversation with the caption, “A picture is worth a thousand words!”
Even in the Senate, hardly any Democrats were speaking up in support of Schumer’s strategy Friday. It was a remarkable turn for the longtime Democratic leader, leaving him standing practically alone.
Speaker Emerita Nancy Pelosi, his longtime ally and partner in funding fights of the past, said in a statement, “Let’s be clear: neither is a good option for the American people. But this false choice that some are buying instead of fighting is unacceptable.”
Pelosi added that the senators should listen to the women who lead appropriations for Democrats, Rep. Rosa DeLauro of Connecticut and Sen. Patty Murray of Washington. They had proposed a 30-day stopgap plan instead of the Republican proposal that provides funding until September. The Republican bill will trim $13 billion in non-defense spending from the levels in the 2024 budget year and increase defense spending by $6 billion.
As House Democrats, who almost all voted against the bill earlier this week, concluded a retreat in northern Virginia Friday, they also called for their Senate colleagues to show more fight. House Democratic leadership rushed back to the Capitol to hold a news conference and urge senators to reject the bill.
“We do not want to shutdown the government. But we are not afraid of a government funding showdown,” Jeffries said.
He also repeatedly declined to answer questions about whether he had confidence in Schumer.
Other Democrats, such as Kentucky Gov. Andy Beshear, who is seen as a potential presidential candidate in 2028 and also visited the Democratic retreat, called for a broader movement. He mentioned the recent 60th anniversary of peaceful civil rights protests in Selma, Alabama, and argued that Democrats need to find “collective courage.”
“When those individuals marched, there wasn’t one voice,” Beshear said. “There was a collective courage of that group that changed the world. That day opened up the eyes of the country to what was really going on.”
Some were ready to start marching.
“We’re ready to get out of this building and head back to the Capitol at any moment and prevent the government from shutting down,” said Rep. Greg Casar of Texas, chair of the Congressional Progressive Caucus.
“Now is the moment for Democrats to draw a line in the stand and say that we stand very firmly on the side of working class people and against the ultra-rich that are trying to corrupt our government for themselves,” he added.
Meanwhile, some of the nation’s most influential progressive groups warned of serious political consequences for Senate Democrats and predicted a fierce backlash when members of Congress return home next week.
Ezra Levin, co-founder of Indivisible, which has organized hundreds of protests across the nation, said that nearly 8 in 10 of the group’s activists support primary challenges against “Senate Dems who cave on the GOP bill.”
He wrote on social media that the vast majority of those Democratic activists plan to express their anger at town halls or other public events next week. MoveOn, another progressive group that claims nearly 10 million members nationwide, predicted that its activists would also demand answers from Democratic officials in the coming days
“Clearing the way for Donald Trump and Elon Musk to gut Social Security, Medicare and Medicaid is unacceptable. It’s past time for Democrats to fight and stop acting like it’s business as usual,” said Joel Payne, a spokesperson for MoveOn.
Senate Democrats were also mostly unwilling to speak up to defend Schumer’s move. Sen. Raphael Warnock, a Georgia Democrat, even suggested that the party should be looking for new leaders in the coming years.
“I think come ’26, ’28, we’ll get some new leadership,” he said. His office later said Warnock was answering the question broadly.
Mostly, though, senators just lamented that they had been jammed by a Republican Party that has found a new sense of unity under Trump. For years, House Republicans have not been able to muster votes for government funding on their own, forcing them into bipartisan negotiations. This time, they passed the bill on party lines and left Washington.
“We’re stuck with two bad choices presented by a unified Republican front,” said Sen. Mark Warner, a Virginia Democrat.
He voted against the bill, yet said of Schumer’s decision: “These are tough, tough calls.”
This story was originally featured on Fortune.com
Incoming Intel Corp. Chief Executive Officer Lip-Bu Tan, who was named to the position this week, will receive compensation valued at about $69 million if he reaches targets over the coming years.
The package includes a salary of $1 million, plus a 200% performance-based bonus, the chipmaker said in a filing Friday. It also includes $66 million in long-term equity awards and stock options and new-hire incentives.
Separately, Tan agreed to buy $25 million in Intel shares in the first 30 days of taking the job. “Lip-Bu’s purchase reflects his belief in Intel and commitment to creating shareholder value,” the company said in a statement.
Earlier this week, Intel announced Tan was filling the role left vacant when the board ousted his predecessor, Pat Gelsinger. The semiconductor industry veteran, who previously served as an Intel board member, is tasked with trying to return the company to the forefront of an industry that it dominated for decades.
Tan, 65, will assume the role on March 18, the company said Wednesday. He will rejoin the board as well after stepping down in August 2024.
Intel’s stock has rallied this year, gaining 20%, including a surge of 15% on Thursday following the announcement of Tan’s appointment.
This story was originally featured on Fortune.com
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