As the clock runs down to Jan 20 and the Trump inauguration, I’m having flashbacks to Feb 20ish, 2022, when the world was waiting to see whether Vladimir Putin really meant to invade Ukraine. At the time, many pundits offered desperately hopeful predictions that “Putin is bluffing”, “Putin is playing brinkmanship to force concessions”, “Putin will only make modest incursions to put Kyiv under pressure” … etc. etc.
As we know, Putin did none of those and mounted a full-scale invasion to topple the Ukraine government and seize the country. We are still living the horror of that decision. When Ukraine didn’t fall immediately, Putin didn’t negotiate for concessions. Instead, he doubled down on his plans for conquest by mounting fresh attacks and bombing civilians. When that didn’t work, he sacrificed even more of his troops while he sent daily waves of missiles against Ukrainian energy and infrastructure. He tried to make them “freeze in the dark”. Even as Russia’s military crumbled and its economy eroded, he never relented.
As I listen to Trump’s rhetoric, I have the awful premonition that we will soon see something similarr … a sneak attack on lesser powers for the glory of one man’s ego. Except this won’t be a shooting war, it will be a global trade war. David Frum has offered a powerful vision of the coming fight. His original words are buried in the middle of an interview transcript, but they are worth digging out. In Frum’s view, Trump plans to set America up as a solitary hunter with a “predatory” foreign policy. Trump will use America’s global market power to sow chaos and discord in its trading partners and then bully and bribe them to do his bidding. Creating chaos and picking off the resulting bargains is familiar territory for Trump’s business style.
In effect, Trump’s strategy will strip mine the work product of generations of bipartisan American leaders, especially since WWII. Their global alliances, foreign policy treaties and trade alliances have built America’s astounding wealth and economic strength. If Frum is right, and I fear he is, it won’t be a Trump attack, or Trump skirmish, or even a Trump battle. Trump will try to use America’s wealth, power, earned respect and accumulated goodwill to wage a full-on war against anyone who has money to grab, including America’s global friends and trade partners. Trump will use the threat of tariffs to bully and bribe his adversaries … e.g., world leaders, US politicians, US companies and the American public. He will be a gunslinger … operating on a world stage. That’s his lifelong passion and pleasure and I strongly suspect it’s his ultimate “happy place”.
There’s ample evidence that Trump is thinking this way as he casually threatens adversaries with massive tariff increases:
- He threatens to put a 100% tariff on countries that try to abandon the dollar as a world reserve currency.
- He threatens John Deere CEO with a 200% tariff if he moves production to Mexico.
- He threatens the CEO of Stellantis with 100% tariff if it opens a plant in Mexico.
The (so far) most egregious threat is to slap 25% tariffs on Canada and Mexico. That’s the global trade equivalent of a Pearl Harbor attack. Sneaky, economically violent, totally unprovoked, and even worse, it isn’t even against a geopolitical rival. It targets two of America’s most intimate neighbors and close friends. The rest of the world will instantly understand that anyone, possibly everyone, could be next. Even if Trump thinks he is only attacking a couple of weaklings who can’t fight back (arguably not true), he will have put the entire global economy on notice that it is time to sharpen their swords and strengthen their walls.
This new world war won’t play out in a week and it won’t culminate in a big battle. It will be fought over months and years in hundreds of thousand of skirmishes on both foreign and American soil. There will be American wins, American losses, foreign wins and foreign losses. Many wins will be Pyhric victories and, far too often, there will be pitched battles where everyone loses bigly. Overall, everyone in the world will lose a lot, even those who are not direct combatants … and there will be an immense amount of collateral damage.
The unknowns are legion. We don’t know if Trump is really this ambitious, or just bluffing. We don’t know if anyone in the American power structure can or will undermine his strategy. If he is able to forge ahead, we don’t know who or what will be impacted, here and abroad. We don’t know how the rest of the world will react … in the short term and over the long run. Will the rest of the world act as individual nations, so he can divide and conquer, or will they gradually coalesce into a unified opposition that is a real economic adversary to the US? Will Trump go so far as to try to weave American military power into his economic attack plan? Would that even work?
A new kind of war reporting on a new kind of war
This scary future has so many aspects and elements that I doubt any single expert or pundit or reporter will ever grasp more than hazy glimpses of the whole. I can think of numerous possible “fronts”, just off the top of my head. Just like a real full-scale war, each one will be complex, dynamic and confusing. Consider the following possibilities:
- Exchange Rate Battles – Tariffs and foreign currency rates impact the same thing … the landed cost that importers pay for goods. If tariffs and exchange rates move in opposite directions, the tariff effects will be muted, possibly eliminated. If they move together, the tariffs’ impacts will be amplified. Nations routinely play in foreign exchange markets to nudge their currencies the direction they want them to go. Tons of room for mischief.
- Non-tariff trade barriers – Tariffs are the fastest and easiest way to interfere with existing trade patterns, but they are far from the only ways. Other tools include localized product standards, import and export quotas, investment restrictions, local content regulations … and the list goes on. Some of these can be subtle, hard to prove and very effective. They do, however, require considerable sophistication to apply without blowing back on the implementer. Some of America’s trade adversaries (now including Canada and Mexico) are pretty damn sophisticated.
- Civilian Casualties – Ontario (Canada) Premier Doug Ford has estimated that full application of the Trump tariffs will cost 500,000 Ontario jobs. With a workforce of 8 million, that puts 12.5% of the province’s population out of work. AFAIK, very few of those people have ever done anything to hurt the US. As Ford says, no one in Ontario (where I live) will be unaffected. Stories like this will appear everywhere that is touched by the war, not least in America.
- Criminalization of the American Supply Chain – For the past several decades, US tariffs have averaged around 2% across all imported goods. For two generations, American supply chain experts haven’t even thought about things like fraud or smuggling. For 2%, who cares? If tariffs jump to 25% or 60% (in the case of China), importers will have an instant incentive to avoid them. If Trump applies his dream of 60% on China and 20% on the rest of the world, it would pull $500B to $750B per year out of US supply chains into the US Treasury. Given how creative Americans are at avoiding paying income tax, tell me they won’t seek (possibly sketchy) ways to avoid paying big duties. The only question is how far will they go.
- Destruction of American Alliances – Trump is not signalling a harder line against America’s traditional (and IMO legitimate) adversaries. He has started with attacks on America’s closest neighbors and most trusting friends. Who, in their right mind, would believe American assurances or reliability in any sort of treaty or allicance? How will the world operate when no one really trusts the US? When the US calls and no one answers?
- New Alliances against the US – Trump’s actions signal a strategy of divide and conquer. If Canada has vulnerabilities, hit them now. Presumably, he will then move on to other targets. Well, I don’t think the nations of the world are stupid. They have probably already gotten the message. If Trump is allowed to prosecute his war for any length of time, other nations will join forces against the US on economic issues. Can you imagine a economic version of “NATO” formed to oppose the US by its former friends and allies? Heaven help me, I can.
- Favoritism for the Syncophants – With so much potential economic damage at stake, collaborators will appear out of the woodwork. Trump loves to reward the ones that truly bend the knee. Which countries will do that? Which CEOs will do it? We already know many of the latter. But I am fairly certain Canada won’t be one of them. We may be nice, but we’re not that nice. I strongly suspect that Mexico won’t roll over either. Then game on.
- The Glorious Game of Exceptions – Well before the actual tariffs are announced, US companies (and some foreign ones) will be lobbying relentlessly to be get exemptions. In theory, US law can only grant exemptions to “classes” of goods, not specific companies. But wait and see. Will Tesla really have to pay 60% duties on imports from its Chinese Gigafactory?
- The Legal Battle – As the war develops, there will be a lot of innocent victims. Where they have the means, many will go to court. The US court system is going to be dealing with a flood of litigation around arcane issues that it has seldom, if ever, had to address. Can a class action be mounted by a group of innocent victims? Can US Customs and Tesla be sued by GM and Ford because Tesla got unfair exemptions? I have no clue, but I am sure it’s going to be fun.
- Will the Military have a role? – Trump has hinted at using both military and economic pressure on his targets. Will US special forces really enter Mexico to target cartels? Will they get Mexican cooperation if Trump offers to drop some of the tariffs? What will happen if Mexico says no? How many Mexican weddings will be bombed by drones because the CIA wrongly thought a cartel leader was there? Sorry, that’s an obscure Afghanistan reference.
- How will the “Enemy” react? – Trump apparently wants to be a generalissimo in a global economic war. But Gen. Mattis famously said: “No war is over until the enemy says it’s over. We may think it over, but in fact, the enemy gets a vote.” What will Canada, Mexco and China do? FWIW, I am a native Canadian who taught business at a research university and ran a business in the US for 35 years, then I retired to Toronto. Plus, I am writing this from Mexico City, where I am visiting for a month (not the first time). My sense of Canada and my early take on Mexico is that they won’t roll over. They will be smart and reasonable, but also tough and determined. I expect some American economic casualties from their response.
- And Many More
It will be critically important to assemble an independent and comprehensive view of this level of conflict. Without that, there will be no way to organize any effective resistance or, more likely, to organize people and resources to mitigate the damage. How can anyone mount such an expansive response? There are numerous, seemingly superhuman, observers in social media and the blogosphere that have maintained coverage of big topics single handed. They are gods. But I have grave doubts that any one person can do all of the needed reporting on an issue of this immensity. As a retired business prof, I have total certainty that I lack the energy and bandwidth to do it.
FWIW, I think coverage might start (as the early Ukraine reporting began) with a loose coalition of observers that tackled whatever their expertise could illuminate. Maybe something as informal as using common hashtags or a common signature (e.g., TTW for Trump Trade War) in the title of their social media posts. I will certainly contribute and I have a bunch of topics in my pipeline. A simple mechanism like this would allow readers and other commenters to use a quick hashtag or Google search to build a starting point for a new contribution. Otherwise, with a subject this complex, it will be foolish to assume that many (or any) readers will know the full back story. As a seed for thought, consider if lots of writers included standard tags like the following.
| #TTWTrumpTradeWar | #TTW | #TTWforex |
| #TTWlegal | #TTWexemptions | #TTWvictims |
| #TTWusallies | #TTWforeignalliances | #TTWcorruption |
| #TTWforeignreaction | #TTWcountertariffs | etc. |
For my part, I will do two things. First, I will hope that Trump won’t try or won’t be able to mount this sort of global attack. If so, I can let the entire matter drop. Failing that, I will try to publish some of my own observations over the next days and weeks and hope that others will pick up on the theme. I will just do what I can until I get tired, discouraged or fade away.
Good luck to us all.