Trumps Trade War: A Battle Without a Magic Bullet

When President Trump launched the US strikes against Iranian nuclear targets on June 21st, he had a unique advantage: giant "bunker buster" bombs that could penetrate deeper than any weapon short of a nuclear one. This allowed him to declare victory after a few bombing runs that barely lasted a day. However, in his trade war with dozens of trading partners, Trump has no such decisive weapon. He often bluffs, claiming that other nations will suffer grievous harm if he raises tariffs on the goods they import to the US. But in these battles, Trump is often bluffing, and his adversaries know it. Trump's willingness to attack Iran provides lessons on how he handles risk and negotiates in challenging situations. It may also dispel a myth or two about how he's prosecuting the trade war. For one thing, Trump doesn't always "chicken out." The so-called TACO trade — "Trump Always Chickens Out" — became a meme in May after a Financial Times columnist observed that Trump often postpones or backs down from tariff threats. But that isn't completely true. Trump has imposed new tariffs on imports from most countries, raising the average import tax from 2.5% before he took office to about 15%. American importers are paying those taxes, and they'll be the first to tell you that, alas, Trump hasn't chickened out. In Trump's trade war, however, most adversaries aren't nearly as vulnerable. Trump has no magic weapon, and victory is elusive. This will likely become apparent once again as a July 9th deadline approaches for dozens of countries to make trade deals with Trump or risk his "reciprocal" tariffs. The trade war was never going to end in a day, or a month, or even a year. Trump announced draconian tariffs on April 2nd but postponed them a week later after an ugly market sell-off. That was Trump showing weakness, rather than the other way around, because his tariffs amounted to friendly fire, causing unintended damage at home. Markets have yo-yoed as Trump's tariffs go on and come off, triggering alternating bouts of despair and euphoria. But markets are generally adjusting to a tariff regime that might not be so bad because Trump doesn't have the leverage to strike a decisive and lasting blow, as he did with Iran. Torsten Sløk, chief economist at private equity firm Apollo (Yahoo's parent company), recently mused that Trump may have "outsmarted everyone on tariffs." He suggested that as the July 9th deadline approaches, Trump may extend his trade deal deadline by as much as a year, giving markets time to adjust while the US pulls in something like $400 billion in tariff revenue, which would be nearly a fivefold increase over 2024 levels. The bigger surprise for markets would be if Trump attempted some kind of shock-and-awe tariff blast around the July 9th deadline, rather than simply setting a new deadline. "The widely held assumption (which we share) appears to be that even if deals with trade partners do not materialize in the next two weeks (which is unlikely), the pause will simply be extended," Capital Economics explained in a June 24th analysis. "Market turmoil on the scale of those sparked by the original tariffs back in April looks improbable, if only because market participants would probably assume that any sell-off would lead to another u-turn." Trump's deliberations with China, as one example, suggest the whole ordeal could end up a quagmire rather than a decisive victory for one side or the other. In April, Trump hit Chinese imports with tariffs as high as 145%, which basically halted all inbound shipments. Trump lowered that to 30% in May. Some analysts described that development as a "truce" in the trade war and said it damaged Trump's credibility as a negotiator because he failed to act on a threat. As Trump sniffs out weakness in an adversary, he also recognizes strength. He must recognize that his promise of revitalizing US manufacturing will never pan out if American firms can't even get key components. China may not have all the leverage, but it certainly has some. This puts Trump in the position of bluffing, and the more he bluffs