Trump’s tariff thunderbolt strikes a world with proven resilience 

The WTO may be weakened, but a pragmatic resistance to protectionism among other nations could save world trade 

 Donald Trump’s disdain for the WTO and the system it represents are dramatic, but the US’s attachment to it was always somewhat transactional .

 It is tempting to see Donald Trump and his wrecking policies on trade as a destructive thunderbolt from a clear blue sky. Certainly many of his domestic policies, even compared with his first term, have taken a sharper and more definitive turn towards the extreme. 

 In the case of trade and globalisation, however, there is perhaps a little more continuity, not just with his first time in office but with previous US administrations. Regardless of whether it was actually reflected in broad US public opinion, there were clear strands of thought in US politics which had already begun to treat trade deals and often trade itself as toxic. 

 Trump’s tariffs are the most extraordinary act of far-reaching protectionism since at least the Great Depression, but there has been a latent inclination in US politics towards blaming trade for everything that has gone wrong with the US economy and society.  The effect of Trump on the global trading system and particularly multilateral institutions like the World Trade Organization is likely to be profound. The US was instrumental in setting up that system and was traditionally one of its most active users. Its departure from rule-setting, and even more the direct effect of its tariffs and other interventions on world trade, are the system’s biggest test since the Depression.

There are, however, several causes for optimism that Trump’s measures will not prove anything like as destructive as the high US tariffs of the early 1930s which set off a spiral of protectionism. 

Firstly, no other major economy, including the US’s great commercial rival China, has the same huge political aversion to globalisation. Unlike the 1930s, other economic policy institutions, particularly central banks, have tools to cushion the impact of a trade shock and prevent it from deepening a global recession. And the lesson of the 35 years since the post-cold war wave of globalisation took off is that actual trade — not just cross-border movement of goods, but also of services, foreign direct investment, capital, people and data — has proved resilient to a whole variety of shocks. 

 While Trump’s disdain for the WTO and the system it represents are dramatic, it also remains the case that the US’s attachment to it was always somewhat transactional. When the WTO was created in 1995 out of the more informal General Agreement on Tariffs and Trade (Gatt), there was suspicion in Washington right from the beginning that it was creating a system of supranational law which would reduce the US’s sovereignty.  

 In particular, although the US was an active user of the WTO’s dispute resolution system and won many cases, there was resentment particularly on Capitol Hill over rulings that seemed to interfere with the US’s right to tax and its ability to deal with unfair trade practices as it saw fit. Once the negotiating function of the WTO seized up in the 2000s — it has never completed a broad and deep multilateral agreement — the US became increasingly disillusioned. 

 It was Trump’s first administration that froze the dispute resolution system by refusing to approve new judges. But his successor Joe Biden thereafter continued the same policy, his administration insisting that it would be willing to unfreeze the mechanism only if the rest of the WTO’s membership would agree to changes that other countries said it never properly got around to articulating. 

 Today, the WTO still struggles to conclude large-scale binding agreements, even among a subset of membership — in part due to India’s obstructionism, driven by its own institutional grievances and political calculus. 

Still, a coalition including the EU, China and Japan has created a workaround dispute mechanism to keep things moving. The same kind of pragmatism might well save global trade itself as well as its formal mechanisms of governance. Doomsters have been talking for a long time about the global trading system splitting into geopolitical blocs, perhaps two centred on the US and China or three if there is also a grouping led by the EU. There has certainly been some movement in that direction, according to studies by the WTO and the IMF. 

 The first Trump administration put hefty tariffs on China, which certainly diminished bilateral trade between the two. But the IMF has also talked about the emergence of “connector countries”, especially emerging markets such as Vietnam and Mexico, which managed to trade with both the US and China. 

 The Biden administration made more subtle and targeted attempts to pull other economies, particularly its foreign policy allies, out of China’s economic and technological orbit, especially in areas like electric vehicles. But even its supposed close allies such as the EU preferred to operate in both the US and Chinese orbits. 

The Trump administration’s attempts to force countries to cut China off as the price of reducing threatened tariffs is similarly unlikely to work. The threat from Trump to world trade is undoubtedly the greatest since the second world war. But assuming that the US’s tariff pathology is also infecting the rest of the world looks like a mistake.

Excellent article showing how uncertainty ripples through an economy

 Apr 9, 2025 9:16 PM GMT

How Economic Uncertainty Can Lead To Recession

• Politics
• Economy

by

Alana Semuels

Senior Correspondent

Traders work on the floor of the New York Stock Exchange during morning trading on April 01, 2025 in New York City. Michael M. Santiago/Getty Images

After two years of doing their own back-breaking yard work on their acre-and-a-half property in Cold Spring, N.Y., Renata Kero and her husband were ready to finally give in and spend a few thousand dollars to hire a landscaping company.

Then they started re-thinking the purchase, given the uncertainty roiling the economy. Tariffs are being levied and reversed. The federal government is cutting jobs across the country. The stock market is historically volatile. It seemed like any kind of big expenditure was not a good idea.

“It feels like the Wild, Wild West every time you open the news,” says Kero, a 45-year-old freelance journalist with a 5-year-old son. "I feel a very real sense of instability and volatility, like who knows what economic pitfalls await us."

Families and businesses across the U.S. are pulling back on spending amid President Trump’s trade war and abrupt reversals, including Wednesday’s announcement that he would pause the sweeping reciprocal tariffs he announced just days earlier, while ratcheting up levies against China even higher. As an index that measures economic policy uncertainty spikes, consumer confidence fell for the third straight month in March; it’s down more than 30% from November, according to the University of Michigan Survey of Consumers. Consumer spending fell for the first time in two years in January.

Read More: Trump Wants to Spin His Tariff Pause As a Win. It's Not.

Businesses are worrying, too. Delta CEO Ed Bastian said Wednesday that because of “broad economic uncertainty around global trade,” revenue might fall in the current quarter. Bastian predicted a recession might come soon, echoing the words of JP Morgan Chase CEO Jamie Dimon. FedEx lowered its full-year profits and revenue forecasts on March 20, citing “weakness and uncertainty” in the economy. And Warner Bros. Discovery has reportedly advised staff to cancel all “non-business critical” travel due to economic uncertainty. 

Small-business optimism declined in March, according to the National Federation of Independent Businesses, which also said its uncertainty index decreased. New policies have “heightened the level of uncertainty among small business owners,” NFIB chief economist Bill Dunkelberg said in a release. “Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”

Uncertainty makes businesses uncomfortable because they don’t know what conditions they will be operating in. Once economic trends and policies are clear, they can adjust. But if those policies keep changing, they can’t respond or plan, so they reduce spending and avoid making major moves until conditions stabilize. Consumers pull back amid uncertainty too, putting off big purchases because they don’t know if they’ll have a job, how mortgage rates will respond to whiplashing policy decisions out of Washington, or what their investment portfolio will look like in a few months.

When consumers and companies pull back on spending, GDP turns negative, which leads to a recession. Uncertainty causes “precautionary reductions in spending because of the lack of clarity and difficulty in terms of forecasting where we're going,” says Laura Jackson Young, an economics professor at Bentley University who has studied the economic effects of uncertainty.

Trump’s moves have created a moment of acute uncertainty, and Young’s research suggests that makes people and businesses even more cautious. Her work found that when uncertainty is already high, people pay even more attention to “uncertainty shocks”—big changes that cloud the horizon even further. “When everything's okay and we're in tranquil times when nothing's really outlandish, people don't pay as much attention to that uncertain component,” she says. “Whereas in an environment where uncertainty is already pretty high, we're very attentive to something that's going to spike uncertainty, and it has a more pronounced effect.”

Read More: World Leaders Scramble On Trump's Tariffs.

Businesses are feeling this profoundly. TJ Semanchin runs Wonderstate Coffee, a small coffee roaster in southwest Wisconsin. Semanchin started the year optimistic about the business—he’d just won a prestigious award from a coffee roasting magazine, and hoped to increase sales at his retail locations as well as chains across the country, including Whole Foods, where he sells his product.

Now he’s rethinking everything. Coffee prices are already near all-time highs because of climate conditions, and then the beans he imports from countries like Nicaragua were going to be slapped with tariffs so high that his costs would amount to about $20,000 more per shipping container, Semanchin says.

Even though Trump has now paused those higher tariffs for 90 days, Semanchin’s worries remain. He’s put off plans to buy a new packaging machine, and is reducing investment for now until the uncertainty clears. “The climate we’re in definitely has me in a more defensive posture,” he says.

When businesses and families move into the same defensive posture, it can push the economy into a recession. And when seemingly each day brings sharp new policy shifts, economists—let alone individuals trying to plan household budgets—can’t be sure what to think.

The tariff reversal “does very little to resolve the uncertainty,” says Philip Luck, director of the Economics Program at the Center for Strategic and International Studies, a Washington think tank. The tariffs might have been “bananas,” he says, but no one can really predict whether they’ll return after 90 days—or even before then.

Because of this uncertainty, Kero and her husband decided that they’d once again do their own yard work this year, no matter how miserable it is. She’s not buying a new phone either, even though it’s on its last legs. Summer travel is now out of the question. “We just need to sock away as much as we can,” she says.

In defence of capitalism - why it should be embraced in a nutshell

 If Lyra ever gives back Johan Norberg's book of the same name I recommend you read it; it answers the many questions you young people should be tussling with as you try to make sense of what are deemed "ideologies" but which, in fact, are merely different resource allocation methods. This is like a summary of the last chapter, and it uses key data points as evidence. This what you need, not normative statements and opinions, so big hat tip to Dr Niemitz for summarising so succinctly.

In defence of capitalism

I

Institute of Economic Affairs

To:​



Joss Bolton​

Tue 15/04/2025 12:04

	Forwarded this email? Subscribe here for more In defence of capitalism The world is getting better thanks to economic freedom Institute of Economic Affairs and Kristian Niemietz Apr 15   READ IN APP   On 13 February, The Philosopher’s Yard, a debating society at Birmingham University, organised a panel discussion on capitalism. The IEA’s Kristian Niemietz represented the pro-capitalist side. The article below is based on his opening remarks. Photo by Klugzy Wugzy on Unsplash I am here today to defend capitalism. I realise that that is not a popular cause, and I am not expecting any applause. All the surveys show that capitalism has a terrible reputation. For example, according to a YouGov survey from last December, only 30% of the population have a positive view of capitalism, with 45% having a negative one. More importantly, the same survey also shows that among the pro-capitalists, hardly anyone feels strongly about their views, while among the anti-capitalists, about two fifths do. Millennials and Zoomers are much more anti-capitalist than the Baby Boomers, so demographic factors are very much working in favour of this anti-capitalist zeitgeist. So why defend such an unpopular system? I’ll focus on three points: The state of the world is not nearly as bad as currently assumed. There has been far more economic, social and environmental progress than is commonly recognised. That economic, social and environmental progress has not been randomly distributed. It is systematically biased towards the more market-based economies of the world. This is not just a correlation. It is a causal relationship. Institute of Economic Affairs | Insider is a reader-supported publication. To receive new posts and support our work, consider becoming a free or paid subscriber. Upgrade to paid The state of the world Since 1990, global GDP per capita has more than doubled in real terms. This means that the world, as a whole, is now more than twice as rich as it was when I was at primary school. This is the richest the world has ever been. Today’s living standards are historically completely unprecedented. And it is still getting better. One consequence of that – or rather, it is not really a “consequence”, but just another aspect of it – is the steep drop in extreme poverty. Historically, about 80% of the world’s population used to live in what we would now call extreme poverty, that is, on less than the equivalent of $2 a day. In 1980, this was still true of almost half. Today, it is true of less than one in ten. This is the lowest it has ever been in history. Now, “extreme” poverty is a very austere measure. Obviously, if you use higher poverty thresholds, say, the real-terms equivalent of $5, $7 or $10 a day, you get higher poverty rates. But the trend is always the same. Whichever threshold you use, global poverty is falling. It has been falling particularly steeply over the past quarter-century or so. Things are moving in the right direction, if not as quickly as they could. One result of this is that we are living longer lives than ever. Historically, life expectancy at birth used to be about 30 years, or 50 if you managed to survive your first year. Today, the average citizen of the world can expect to celebrate their 70th birthday. In the 1960s, that was only true in the richest parts of the world, namely in Western Europe, North America, Japan, Australia and New Zealand. Today, it is the global average. Part of the reason is the steep drop in child mortality, which has dropped from over 10% in the late 1980s to less than 5% today. Again, in the 1960s, it was only in the richest parts of the world that you would see child mortality rates of less than 5%. Today, that is the global average. And it is still falling. Or literacy. In 1900, only about one fifth of the world’s population (not counting young children) knew how to read and write. In the 1960s, it was still less than half. Today, that rate is not much below 90%. And it is still rising. I could go on. The point is that things are clearly improving across the board. Economic freedom and social progress What does that have to do with capitalism, you may ask. Is this not simply a by-product of industrialisation? Would this not also have happened under any other system? The answer is no. It would not. Progress is systematically biased towards the more market-oriented economies. You may have come across the so-called Economic Freedom Index, an index which tries to measure how capitalist an economy is, on a scale from 0 to 10. It measures things like the protection of private property rights, freedom of contract, freedom to trade across borders, freedom to use alternative currencies, and so on. In practice, all economies are mixed economies, so none of them get a score of 10, or even a 9. But some come closer than others. The index has Hong Kong, Singapore and Switzerland at the top, and Sudan, Zimbabwe and Venezuela at the bottom. The index reveals a very clear pattern. Places that are higher up on that list are richer, they are doing better on all the indicators that I mentioned, and they are also doing better when it comes to environmental protection. They are unambiguously better places to live, on anything we can measures. The correlation is remarkably strong, especially if you bear in mind that the Economic Freedom Index and the outcome measures operate on different timescales. The Baltic states, for example, liberalised their economies very rapidly in the 1990s, but it took much longer for economic and social outcomes to reflect that. Causation, not just correlation This is not just a set of bivariate correlations. There are good reasons to believe that there is a causal relationship between economic freedom and prosperity, broadly defined. I will touch on three of those very briefly. Firstly, the economist Friedrich Hayek, the indirect founding father of the Institute of Economic Affairs, has always described market competition as a “discovery process” or “discovery procedure” (Entdeckungsverfahren). What he meant by that is simply that we do not know, at the outset, how to organise a successful business or a successful industry, let alone a successful economy, because most things about economic life are unknowable in advance. We have to try lots and lots of different things, most of which will fail. A market economy is an evolutionary learning process. Hayek said this in the 1960s, but business history since then has impressively confirmed this to be true. If you look at the history of almost any successful product, industry or technology that we use today, you will usually find that in its early days, knowledgeable people were confidently predicting that it would never take off. No other economic system has thus far been able to replace the discovery function of markets. Secondly, there is the role of price signals in coordinating economic life. The price mechanism is an extremely efficient method of collecting and spreading economically relevant information among millions of people. It’s how consumers communicate with producers, telling them what they want more of and what they would rather have less of. It’s how producers communicate with consumers, telling them what is relatively scarce, and what is relatively abundant. Again, no non-market system has ever been able to replace the price mechanism. Last but not least, too many anti-capitalists make the mistake of assuming that all the negative characteristics they attribute to the market economy, such as greed and selfishness, are uniquely capitalist, and would disappear under a different system. They would not. They do not disappear in the non-market sphere today either. The political process can be just as much about selfishness and greed as the marketplace, and perhaps more so. One of my recurring obsessions is the housing crisis, and the role organised NIMBY groups play in it. NIMBYs are very selfish people. Their attitude is: I already have a nice house, and I don’t care about anyone else. I have the political muscle to block housebuilding, and I will use it. That is as selfish as it gets – but it is a selfishness that expresses itself outside of the market economy. They are using the political process, political means, to get their way. The idea that once you abolish markets and replace them with political decisions, everything will be based on altruism and concern for “the common good” is hopelessly naïve, to say the least. Selfishness and greed in the political sphere are vastly more destructive than in the marketplace. That is one reason why I would rather minimise the political sphere, and maximise the sphere of voluntary exchange. Markets can go wrong in lots of ways. As an economist, I am more than aware of that. But despite all that – I still think that capitalism is infinitely better than its reputation.