World braces itself as US tariff ‘liberation day’ draws near

It’s Donald Trump’s proclaimed “liberation day” of big tariff announcements on Wednesday, which somehow has less of a vibe of Charles de Gaulle triumphantly marching down the Champs-Élysées in 1944, and is more like US troops hubristically pulling down Saddam Hussein’s statue in Baghdad in 2003 with chaos and retreat ahead. To use a third historical analogy, borrowed from Berkeley economist Brad DeLong’s description of the George W Bush White House, the Trump administration is like the Topkapi Palace from which the Ottoman Empire was run. Fierce disputes are under way inside (“No one knows what the fuck is going on”, as one insider told Politico late last week; as of yesterday, administration officials still clearly had no clue), but you hear nothing but thuds and screams and the occasional body being tossed off the battlements.

Today’s extended newsletter briefly sums up what little we know about the likely retaliation to the tariffs, disses the Mar-a-Lago Accord, asks what on earth the American labour unions are up to and goes through the US’s new beef with the World Trade Organization. The Charted Waters section, which looks at the data behind world trade, is on US stock prices.

Duck and cover or parry and thrust?

I could once again go through the various strands of thought — if I can dignify them with that term — feeding into Trump’s trade policy, together with the cast of characters respectively pushing them. But since it’s all been evident since before the election, I merely enjoin you to read what I’ve written in the past here, here, here and here. For the latest account of exactly how they’re going to operationalise it, I strongly recommend my Washington colleague Aime Williams’ excellent explainer from Saturday.

So where are we on likely retaliation and responses? There hasn’t been much news since I wrote about this a few weeks ago. There remains no sign of co-ordinated action across the major economies. Tactical decisions are being taken government by government. As my FT colleagues have pointed out, standing up to Trump does wonders for your popularity at home, suggesting that political fortune favours the brave.

Canada in particular is going into the next round of tariffs with a huge worry about its car industry, thanks to Trump’s announcement of 25 per cent auto duties last week (which are due to come in this week). But its retaliation plan is all laid out and the country is solidly behind the government. It was notable that Trump very sharply moderated his tone with regard to Canada last week after a conversation with new Prime Minister Mark Carney, who has given his voters a stark warning that the old Canada-US relationship is gone for good.

The EU has unfortunately and predictably been unable to show the same unity. A combination of leaders who have ideological affinity with Trump (Italy’s Giorgia Meloni and Hungary’s Viktor Orbán), and farming interests concerned about the ramifications of a trade war, are urging caution. The UK is hoping its strategy of pre-emptive negotiation (some might say capitulation), including declining to retaliate over the steel and aluminium tariffs, will work. (Though the country is covering its back by vaguely saying it will retaliate if necessary.) Japan and South Korea have also been relatively passive. China has so far hit back judiciously, with an eye not to damage its own economy, and will probably continue to do so.

Assuming the big wave of tariffs does come, one thing we might learn this week is how well each of these tactics performs. The UK, for example, is going to look pretty silly if it gets hit with the same kind of punishment as countries that have made much more defiant noises and protected their own industries. And I suspect, if so, there will be a political price to pay domestically.

Mar-a-Lago Accord heads for deserved oblivion

One thing I hope we can rule out for the foreseeable future is that this is all part of a cunning plan to get us to a Mar-a-Lago Accord. To recap this absurdity: as laid out in a paper by the now chair of the Council of Economic Advisers, Stephen Miran, the plan would involve the US gradually raising tariffs, so as not to spook the markets. This would coerce trading partners to agree to appreciate their currencies against the dollar and lend in perpetuity to the US Treasury.

The attention this bad and impractical idea has got is quite extraordinary. Published with good tactical timing in November, to me it combines wrong-headed economics, a misunderstanding (or at least misrepresentation) of the 1985 Plaza Accord and a tariff coercion wheeze copy-pasted from ideas already expounded by now-Treasury secretary Scott Bessent, and for my money hugely overstates the leverage of access to the US market. The Trump administration has also shown no sign whatsoever — zero, none — of implementing it. Last week, Miran looked pretty shifty when asked about it in an interview (6 minutes 30 seconds in). A new Bretton Woods it is not. It’s not going to happen.

Cheshire Cat US labour unions that vote for extinction

Among the US institutions you might hope would be pushing back against the wild excesses of the Trump administration are the labour unions. Surely the wanton risks Trump’s eccentric policymaking is taking with US industry — not to mention his attempts to gut federal protection for union membership and fair labour practices by removing Democratic members of the National Labor Relations Board and the Merit Systems Protection Board — would have them up in arms?

But last week, as Trump announced 25 per cent tariffs on imports of autos and auto parts, the president of the UAW carworkers’ union, Shawn Fain, repeated his support for them. It’s an extraordinary position to take. Either Fain thinks the tariffs will be lifted or have holes punched in them before liberation day on Wednesday, or he risks being associated with North American auto production grinding to a halt in weeks or days.

US industrial unions, or at least their leadership, have a remarkable capacity for grabbing short-term wage gains or good PR at the cost of the medium-term health of jobs and the industry. The leadership of the USW steelworkers’ union defying its local members’ wishes and opposing the Nippon Steel takeover of US Steel is a depressing recent example.

US autoworker unions, and indeed steel-using sectors more generally, have kept pretty quiet about the damage to their industry done by steel protectionism driving up input costs. Cleveland-Cliffs, the steel company that also attempted to take over US Steel, last week unexpectedly laid off 600 workers at its Dearborn Works, which supplies steel to the car industry. The reason? Weak auto production. You don’t say.

In my long-ago days as a labour market economist, this is what we’d call a “Cheshire Cat” trade union, named after the grinning feline in Alice In Wonderland. An ever-declining number of increasingly well-paid workers, their jobs secure by seniority, votes for ever-larger wage (and, in this case, tariff) increases at the cost of employment, until the union disappears and all that’s left is a satisfied smile. The UAW and USW are helping to tariff their own and downstream industries out of existence for the benefit of a small number of privileged incumbent members. And much good may it do them.

Trump gets nasty at the WTO

Following the damage done to the WTO by the first Trump administration — especially by freezing the Appellate Body (AB) by blocking new judge appointments — the Biden administration generally ignored it rather than actively inflicting further suffering. It didn’t pay much attention to AB rulings and was only intermittently interested in negotiations. But at least it went through the motions.

It looks like the Trump administration is going to get nastier. It recently circulated a paper that said the WTO’s permanent Secretariat had been going too far in expressing public opinions and generally doing things that had not been expressly authorised by members. It’s not too hard to read into this a criticism of the activist and high-profile WTO director-general Ngozi Okonjo-Iweala. The Trump administration didn’t like Okonjo-Iweala much the first time round, and her reappointment was rushed through before Trump’s inauguration so he couldn’t block it. According to Reuters, the US has gone even further and is suspending its financial contribution to the WTO. It’s not a lot of money, but it would be very symbolic.

The question now is whether the other members should take the US’s criticism about the Secretariat seriously and spend time addressing it. To me the answer is no. Could it be the case that Secretariat members go beyond their very strict brief during the occasional public appearance? Has Okonjo-Iweala acted too much like a policymaker and not enough like a convener? Maybe. I’d say no, but it’s a matter of judgment. Do such things materially weaken the credibility and functioning of the WTO? Come off it. No, they don’t. These are debates you could have. But like the discussion over the AB, there’s not much point having the conversation if it is led by a US administration that is clearly acting in bad faith and simply dislikes the WTO for what it is.

Charted waters

The received wisdom until a matter of weeks ago — that Trump is highly attentive to movements in the stock market — is going to be tested to destruction if he risks another slide in equities with his tariff-raising plans.

Trade links

• Trump is now threatening secondary tariffs on countries that import oil from Russia as well as from Venezuela. Russia is bad now? So hard to keep up.

• The South China Morning Post looks at whether the EU can, in a startling historical reversal, transfer battery technology from China to Europe.

• The chief US economist of the investment management platform Brevan Howard had a column in last week’s FT defending the Trump administration’s contention that VAT is a form of protectionism. The piece is here, but the real spice is in the comments box, which is quite something.

• In an interview with the FT, Brazil’s finance minister says the country is well placed to survive a trade war.

• The academic Adam Tooze writes in the FT on the self-defeating strategy of cutting development aid to fund defence spending, and Dylan Matthews at Vox similarly looks at a world without aid.

• As he did back in 2017, at the beginning of the first Trump administration, Chinese President Xi Jinping is presenting himself as the saviour of globalisation.

Trade Secrets is edited by Harvey Nriapia