Macroscope | Trump’s tariffs look set to backfire but that won’t stop him

While it’s hard to predict the outcome of US president-elect’s nationalist economic strategy, all signs point to self-inflicted damage

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A woman shops at a store in Rosemead, California, in 2019 amid price hikes induced by the first Trump administration’s tariffs on China. Photo: AFP

Published: 4:30am, 18 Jan 2025Updated: 5:22am, 18 Jan 2025

Are US president-elect Donald Trump’s threats of tariffs an admission of American economic defeat, a tacit acknowledgement that US manufacturers can no longer compete with foreign rivals and must now find protection behind tariff walls to meet domestic demand?

It seems so. Moreover, if Trump’s use of the tariffs as a weapon turns out to be as aggressive as he has threatened, it would represent a classic case of shooting himself and the US in the foot while wounding many others in the process.

Trump’s tactics will raise import costs and inflation – not least in the US – making it difficult for central banks to continue easing monetary policy and more costly for governments to fund the fiscal stimulus needed to offset growth slowdowns. Bond markets have apparently sensed this and yields are rising, hurting funding prospects.

These are my chief takeaways after moderating a recent panel discussion at the Foreign Correspondents’ Club of Japan on the potential economic impact on Asia of Trump’s second term. What came across was the sheer complexity of tariff-related issues in contrast with Trump’s simplistic approach to dealing with them.

This raises questions about the quality of political leadership in leading nations, especially – although not exclusively – in the United States. Populism has allowed people who are economic ignoramuses to be elevated to the heights of political power.

Deficiencies of intelligence or even plain common sense in such people are often accompanied by narrow nationalism and a tendency to lend an ear to advisers who preach a flawed doctrine of “peace through strength” rather than economic and physical security through good judgment and balanced policy.