Shock and Tariff
Or "How to Lose a Global Economy in 10 Weeks"
Happy birthday Erica!
This week, Donald Trump made good on his promise to levy tariffs—on everyone, including uninhabited islands. I invited Heather Hurlburt to help make sense of the maddening moment. From 2022-2024, she served as Chief of Staff to US Trade Representative Katherine Tai. Who knew I’d learn so much about Smooth Hawley!
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In the aftermath of President Trump’s “Liberation Day” tariff announcement, most public commentary has focused on the immediate: Can the EU negotiate? How much will my next iPhone cost? But as big as that is, the administration’s play is much bigger. It represents the opening shock and awe in an effort to remake our politics and economics at home *and* reshape the relationship between global economics and security.
Here are some things you should know:
Scope and scale: Trump’s moves were the biggest one-day tariff hike in 70 years. They left the US weighted average tariff higher than Smoot Hawley, the 1930 tariffs often accused of helping bring on the Great Depression. This comes on the heels of 25 percent tariffs on foreign-made autos, which went into effect Thursday. The administration also announced it would end an exemption that had made small packages of foreign goods (also, small packages of fentanyl) tariff-free. We will see whether our underfunded US Customs is able to implement it on the 4 million packages that arrive every single day, but if so, be warned: it will slow delivery and hike prices on fast fashion, on-line marketplace purchases, and all those little tchotchkes you ordered late at night (like the gold body paint I told a friend to pre-buy for her party months away).
Effects on consumption versus effects on manufacturing: The tariffs will make things such as wine, iPhones, clothing more expensive – unless foreign manufacturers or US importers decide to eat the price hike for you. Don’t hold your breath.
More importantly, the US imports millions of parts and components for use in our own manufacturing industries, from electronics to car parts to fabric and leather. If they're more expensive, the made-in-America final products are more expensive — thus hurting exactly the jobs that tariffs in principle could help protect.
Also, don’t sleep on the chaos as importers and US Customs try to sort out what the new rates are and how they apply, with much less than the usual months-long phase in periods for much smaller tariff moves. Less than 24 hours after auto tariffs took effect Thursday, automaker Stellantis temporarily laid off 900 US workers, in a cascading effect from plant closures in Canada and Mexico.
But will tariffs bring manufacturing jobs back: Economists and policy folks have been duking it out MTV Celebrity Death Match-style for a while now about whether and to what extent tariffs can support domestic manufacturing, whether they help or harm innovation, and whether the cost in higher prices is worth it. What is clear is that in addition to tariffs you need predictability, the rule of law, and domestic investment in the industries and workers you want to save. But this White House and Republicans in Congress haven’t proposed *any* new domestic investment; instead, they have disinvested in infrastructure and education, and disrupted the investments made by the previous Congress and Biden Administration.
What happens next: We’ve already got big declines in global markets and companies announcing layoffs or scaling back production. Next, expect the speed, scale and uncertainty will create chaos in global supply chains... and you remember how fun that was in 2020-2021. JP Morgan estimates the tariffs’ effects will take us “perilously close to slipping into recession,” and that's without factoring in retaliation from affected countries. Trump’s team is betting that most large economies will instead negotiate deals instead of responding with their own tariffs, that relatively little of the tariff costs will be passed on to consumers, and that global markets will quickly pivot to excitement around all the new manufacturing they will attract to the US. Instead, expect a messy mixture of retribution and negotiation from the rest of the world. Overall business will weaken, not merely out of uncertainty but the administration’s other actions, including the disregard for the rule of law and mistreatment of foreigners.
Was this just an opening ploy: Lots of commenters want to think that this is just about negotiating tactics. But, as I wrote at greater length for Chatham House, that misses the point. Trump’s close advisers believe they have a playbook that will reshape the domestic economy and domestic politics in their favor, and re-make the global connections between economics and security in a way that is more to their liking. US history is full of economic theories that reshape our politics even if they don’t technically ‘work.’ If you want to nerd out on this more, the FT’s Gillian Tett has a useful primer on the theory of a so-called ‘Mar-A-Lago Accord.’
Is any of this legal: Perhaps you’ve gotten this far and are wondering how Trump can make these moves. Yes, the Constitution does give Congress, not the President, the power to tariff. The White House has invoked a century-old emergency powers law called the International Emergency Economic Powers Act, IEEPA that gives the president broad authority to make economic actions—in a national emergency. My former Biden Administration colleague Peter Harrell makes a strong case that this is not at all what that law was intended for, but that the private sector is too intimidated to sue. Speaking of Congress, Senators Chuck Grassley (R-IA) and Maria Cantwell (D-WA) have introduced a bill that would require Congress to approve all tariffs, but no one thinks House Republicans are interested in challenging Trump on this.
And what about the World Trade Organization, where the U.S. committed to tariff levels that we would only alter in negotiation with others, and its place as a pillar of the rules-based international order? The WTO works by consensus, and Washington hasn’t actually withdrawn, although it is true that it is not paying its bills. Will other countries be able to come together and mount some kind of unified stand? This is one area where the Trump team’s skepticism about international cooperation seems likely to be fully justified. —Heather
Heather Hurlburt is an Associate Fellow for the US and the Americas Programme at Chatham House. From 2022 to 2024, she served as Chief of Staff to US Trade Representative Katherine Tai.
Elsewhere in the World.....
On our radar...
Tariffs
What happens when you shrink the federal government, deport immigrants, both legal and illegal, and levy tariffs? You get a recession, writes Kathryn Anne Edwards. She goes through the history of the past 13 recessions. An interesting read. (Bloomberg)
Trump’s trade war will hurt everyone from Cambodian factories to US shoppers, writes Lisa Toohey. (The Conversation)
The BBC has put together a stunning graphic that shows the percentage of imports into the US by country, and what the Trump administration has levied in return. (BBC)
Watch: This video streamed before “liberation day.” It’s still worth a watch as Shannon O’Neil and Allison Schrager discuss tariffs and really don’t need the male moderator. (Bloomberg)
Myanmar earthquake
Last Friday, an earthquake hit Myanmar. Thousands have died. Cities have been razed. Information and aid have been hard to access, given the country is under military dictatorship. Erin Murphy. She notes that hours after the earthquake, the military resumed strikes against ethnic states in the north. She helps put Myanmar and this tragedy in perspective (CSIS)
Marine Le Pen: Guilty
In France, far-right politician Marine Le Pen was found guilty for embezzling EU funds. According to French law, she, in addition to having to serve prison time, may not run for public office for five years. That makes her ineligible to be a candidate for the 2027 race. That risks emboldening anti-establishment narratives across Europe, and the US, write Célia Belin, Camille Lons, and Pawel Zerka. (ECFR)
Allow me to editorialize here… The Economist along with a few others have commented that Le Pen should be allowed to run for office. Except the law explicitly says she can’t. If we’re all eager to preserve democracy, let’s start with upholding the rule of law.
US
DOGE has gotten rid of USAID and the Education Department. This week, the Department of Health and Human Services let 10,000 employees go. But before you think the money saved will go to pay down the debt, consider that Team Trump will study what it will cost to take over Greenland. Denmark spends $600 million to subsidize services on the island each year, write Lisa Rein, Natalie Allison, Michael Birnbaum, and Jeff Stein. (Washington Post)
Trump is preparing a new travel ban. This one would bar Afghans from coming into the US. Khushali Haji says this would cut off an important pathway for those escaping the Taliban. (Documented)
Africa
Warnings about renewed war in South Sudan should come as no surprise, writes Clémence Pinaud. The war the country previously fought never really ended. (Foreign Policy)
In Kenya, last September, a court ruled that content moderators on social media platforms could take social media companies to court for violating human rights. Mercy Mutemi wants you to know that Meta is not happy with this, because it will end its exploitation of workers. (Al Jazeera)
The Americas
Haiti consumes 187 pounds of rice per year; America only 26—all because of “Miami rice”—rice imported from the US. These rice imports elbowed out domestic production and were supposedly intended to help Haitians industrialize. It didn’t. Marcia Biggs brings us the report. (News Hour)
Here’s something that will raise your brows. Hezbollah has networks in Latin America, writes Marzia Giambertoni. (Real Clear World/RAND)
The Middle East
In Turkey, as Istanbul’s mayor remains in jail, hundreds of thousands have taken to the streets. The massive protests are one last chance to save whatever little is left of Turkish democracy, Fariba Nawa reports. (Christian Science Monitor)
Remember when the Middle East was the biggest problem? With so many changed factors in the region—a weakened Iran, a new government in Syria, a cowed Hezbollah—now is the time for the US to focus on strengthening corrupt and weak bureaucracies, which enabled Iran, writes Dana Stroul. (Foreign Affairs)
She also admits that that will be harder under Trump. “(a)n approach that rests on just one foreign policy tool—military action—will not allow the United States to capitalize on Iran’s weakness,” she writes.
Europe
Finland, which recently became a NATO member, announced it would withdraw from the Ottawa Convention, which bans antipersonnel landmines, citing threats from Russia. Laura Kayali reports. (Politico)
Is Germany looking to re-establish its pre-war relationship with Russia? Katja Hoyer thinks so. (UnHerd)
Technology
If the Trump administration is committed to leading the world in AI, the new administration needs to focus on deep collaboration with allies to shape their regulation, promote US open source technology, and counter China’s AI influence, writes Christina Knight. (Lawfare)
Under the Radar
Wednesday was Autism Awareness Day. Last year, Cortney Weinbaum spoke about the importance of adapting today’s military to include those who are neurodivergent. I wanted to make sure to bring attention to this and underscore its importance. (ABC News)
During World War II, thousands of Polish refugees, mostly women and children, were displaced by Soviet and Nazi aggression. Many ended up in British territories, including Uganda, where they settled in remote camps, facing hardship but also benefiting from racial hierarchy. Anna Adima tells their stories. (NewLines)
Opportunities
The Public Rights Group is hiring for a Chief of Staff and a few other posts.
At the Malala Fund, there is an opening for a Chief of External Affairs.
Spark Microgrants has two C-level positions, President and Chief of Staff.
A special plug for a new Substack, EnQuire. Sarah Murray is a freelance journalist, who mostly writes for the Financial Times. In EnQuire she explores two questions: How does the world work? And what makes us human?
Editorial Team
Elmira Bayrasli - Editor-in-Chief
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