Trump’s tariffs haven’t blown up the global economy. It’s ..

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Trump’s tariffs haven’t blown up the global economy. It’s worse than that

If you happen to be the prime minister or president of a mid-ranking trading nation, it is the kind of letter you definitely don’t want to receive: a sternly-worded and eccentrically-capitalised missive from the White House, ticking you off for all your trade misdemeanours, and threatening a steep tariff on all your exports into the United States should you fail to reach terms.

The leaders of Japan, South Korea, South Africa, and a handful of others were not exactly told to write out a hundred times “I must not sell so many automobiles/semiconductors/bright pink Barbie accessories (delete as appropriate) to Americans”. But that was the general gist of the letters President Trump has now sent out to some of the US’s main trading partners.

Japan and South Korea were the first in line for their punishment. President Trump said he intends to impose a 25 per cent tariff on both of them, together with stiff warnings that it would be increased if they tried to retaliate in any significant way. South Africa was whacked with 30 per cent. Other nations will be keeping an anxious eye on Trump’s Truth Social account to see what it is in store for them.

The White House is likely to have taken some confidence from the market reaction. The S&P 500 barely budged, losing around 1 per cent over the day. Indeed, Scott Bessent, the Treasury Secretary, was out at the weekend denouncing the policy’s critics as suffering from Tariff Derangement Syndrome. The tariffs so far have not crashed the global trading system, plunged the US into a depression, or emptied the shelves at Target and Wal-Mart. Wall Street is hitting record highs, and America is creating jobs again.

Of course, that is partly because Trump suspended many of them. Even so, it is true that the predictions of much of the mainstream economics profession have turned out to be overly-dramatic. Tariffs have not been a catastrophe.

And yet, that does not mean they have not done any damage – and Trump’s latest letters indicate why.

First, they are alienating key allies. If the main geopolitical adversary of the US is China, then its two key allies in East Asia are surely Japan and South Korea. They are the two countries you most need to keep on board if the Chinese dragon is to be kept under control. It hardly makes sense to create grievances that will no doubt fester for many years to come. These are the people you may need to rely on.

Next, they create uncertainty. The stock market has come to bank on the TACO trade. It stood for Trump Always Chickens Out. The assumption is that he would never follow through with the tariffs. It now looks as if that may need to be switched to the TOD – for Trump Occasionally Delivers – trade. Yes, Trump’s letters may merely be his latest attempt to browbeat other countries into agreeing new trading deals. But the constant threat of random tariffs hangs over global corporations, slowing down decisions, deterring investment, and making it harder to commit to plans. It is all bad for growth.

Finally, while the administration might claim that the tariffs are raising significant sums for the federal government, that isn’t a good thing. It’s proof that they are a tax on American consumers. The Big Beautiful Bill may have delivered some tax cuts, and at least the breaks on tips and overtime were for ordinary working people. But there is not much point in that if the price of spare parts for your Toyota just went up, or your Samsung TV is more expensive. Tariffs are a disguised tax rise, and that always damages growth.

The real tragedy is that President Trump is having a generally successful second term. He has cut illegal immigration, passed a budget, rolled back diversity policies, and at least attempted to bring peace to Ukraine and the Middle East, even if the results are mixed. But the tariffs are an eccentric obsession that will do nothing for his record or his reputation.

Trump’s many critics overreact. The latest round of levies won’t cause a depression. But they are still a slow motion car crash – if not a full blown pile up on the freeway.