US President Donald Trump’s negotiation style is to unleash shock and awe by making massive, seemingly preposterous demands, unravelling his opponents and then negotiating downwards.
Trump's “Liberation Day” tariffs, affecting more than 180 countries, have been imposed on allies and friends — without any discrimination. When announcing the tariffs, Trump declared: "For decades, our country has been looted, pillaged, raped and plundered by nations near and far ... This is our declaration of economic independence."
This has the result that his opposite numbers are so taken aback, they are in disarray, pulled in different directions between taking Trump seriously, ignoring him, accepting his terms or coming up with terms that go below those of Trump’s demands, but still tilted in favour of Trump. He for example provocatively said Canada should become another state of the US, while at the same time publicly demanding tough trade concessions from Canada.
Trump initially talked tough to both Canada and Mexico but then softened after negotiations. Trump then announced a complete three-month pause on all the “reciprocal” tariffs, apart from China, which will see an increased tariff to 125% from 104% after China announced additional retaliatory tariffs against the US. All other countries that were subjected to reciprocal tariff rates on Wednesday will see rates go back down to a universal 10% rate.
Clearly, it seems the US is not expecting countries to respond with reciprocal tariffs. The US is the world’s largest economy. There are not many countries that would be able to withstand a reciprocal trade war with the US. Both China and the EU responded unexpectedly differently by introducing reciprocal tariffs. China and the EU have massive economic power — and the ability to do so.
Trump sees himself as heralding a new dominant Conservative era in the US, which is not just based on politics, but also changing social and cultural behaviour. The apparent aim is for Republicans to control all political, democratic and cultural institutions in the US.
Even Russia, traditionally the US foe, though its economy now has become significantly smaller than when it was the Soviet Union, pro-actively dangled concessions to the US. Russian President Vladimir Putin said the US could partner with it on critical minerals exploration and development in both Russia and “Occupied” Ukraine — the areas which Russia seized.
By coming up with seemingly outrageous demands he also often forces his opponents to go and see him — undermining not only their bargaining power, but also their public standing in their own country, as it appears they are grovelling in front of Trump.
It also has the effect of pushing other countries to pro-actively come up with compromises which would appeal to Trump. India for example pro-actively lowered tariffs and proposed to, on its own, transport Indians who are illegally in the US back to India and to buy US oil.
Trump during a speech at the National Republican Congressional Committee Dinner in Washington this week said that global leaders are willing to do anything to make a trade deal with him as American tariffs come into force. “I am telling you; these countries are calling us up, kissing my ass,” Trump said. “They are dying to make a deal. ‘Please, please sir, make a deal. I’ll do anything sir,’” he imitated a begging foreign leader.
The question is often asked what is Trump’s endgame? Trump has introduced the tariffs to forcibly and quickly shift US trade with other countries. At the same time Trump wants the US to reduce its development aid commitment abroad, particularly to countries that received its development aid but their governments are hostile to the US, such as the ANC government in South Africa.
He wants to repurpose not only the US economy, politics and social behaviour, but also global trade, politics and alliances. For example, Trump sees himself as heralding a new dominant Conservative era in the US, which is not just based on politics, but also changing social and cultural behaviour. The apparent aim is for Republicans to control all political, democratic and cultural institutions in the US; set new cultural and social norms, reversing what they call “wokeness”; “restoring” American “Western, Christianvalues”, which are claimed to be on the retreat in the face of rising non-Western citizen migration to the US; and reducing big government and strengthening US manufacturing companies that have struggled in the face of the rise of Chinese and emerging market companies.
Globally, Trump appears to want to restore what has been described as America’s waning global power. His defence of the US dollar, the world’s reserve currency, is symbolic of this. The world has seen the rise of China and attempts by Putin to re-create a Russian empire along the lines of the former Soviet Union.
US Treasury Secretary Scott Bessent said that Trump's goal was to bring "jobs and manufacturing back to the US, raising wages, increasing revenues and reviving the American Dream". Bessent said the Trump administration was looking to "right the wrongs of longstanding global trade imbalances".
In 1971, then US President Richard Nixon imposed a similar 10% surcharge on all imports, as part of what was called the "Nixon Shock" economic reform programme. The strategy was aimed at protecting US industries, increasing the competitiveness of the economy and overturning the country’s trade deficit, which had then decreased from a prior surplus. Nixon aimed to force the US's leading trade partners, such as Japan and West Germany, to revalue their currencies against the US dollar.
Nixon’s strategy was successful as it forced the largest economies to move from fixed exchange rates under the Bretton Woods System, to floating exchange rates, leading to the Smithsonian Agreement in December 1971, revaluating major currencies and allowing them to appreciate against the US dollar, in one sweep, increasing the competitiveness of US exports. Once his objective was achieved, Nixon lifted the tariffs.
It is very likely that Trump’s tariffs will reset global trade rules and threatens a global trade war, which will destroy many smaller economies. The globe will see supply chain disruptions worse than during the Covid-19 global lockdowns, higher prices which will increase inflation in the US, slowing economic growth and leading to a possible recession in the US.
US Federal Reservechair Jerome Powell warned that Trump’s tariffs could increase inflation and curb economic growth. Powell was nominated by Trump to lead the US central bank in 2018. Powell has also cautioned against the risk of stagflation in the US, which is when inflation rises alongside unemployment.
Trump’s sweeping tariffs are likely to hit small economies hard. Singapore’s Prime Minister Lawrence Wong warned for example that smaller economies would be hit so hard, it may last for generations. The way to respond is to make compromises with the US, forget about trying to defend country’s “sovereignty” and negotiate quickly while there is a window of opportunity, or face economic ruin, which could last for generations.
William Gumede is Professor of Practice, University of the Witwatersrand and author of Restless Nation: Making Sense of Troubled Times (Tafelberg)
For opinion and analysis consideration, email Opinions@timeslive.co.za
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