The Trade War Is Scaring People

By Noah Rothman

Friday, April 11, 2025

 

‘I do bring rage out. I always have,” Donald Trump told Bob Woodward as a presidential candidate in 2016. “I don’t know if that’s an asset or a liability, but whatever it is, I do.” That bout of self-reflection followed logically from the future president’s articulation of his theory of politics: “Real power is — I don’t even want to use the word — fear.”

 

If terrifying anyone who retains the capacity for rationality was the goal of Trump’s global tariff spree, he has secured his objective.

 

Released just one week into a campaign to rebalance the global trade regime in ill-defined ways via the threat of mutually assured destruction, the closely watched University of Michigan consumer sentiment survey found that fear reigns. Consumer confidence collapsed by 40 percent to a 45-year low in April. Not since 1981 have voters expected at this rate that inflationary pressure will steal from them their purchasing power — not even under Joe Biden, when inflation actually reached a 40-year high. Not since 2009 have this many Americans — two-thirds, to be precise — anticipated that high unemployment would once again characterize the economic landscape.

 

There will be plenty of Trump supporters who relish (or believe they must pretend to relish) the apprehension the president’s manic tinkering with the global economic order has inspired in their neighbors. They, too, might equate fear with power. But the public’s rational and foreseeable response to fear will only diminish the president’s political authority.

 

When consumer confidence collapses, consumers save more and spend less. Economic activity dries up and corporate profits decline at a commensurate rate. Investors respond by withholding capital, putting a halt to capital investments and economic expansion. Businesses resolve to pare back their expenses, their employees being the biggest. Layoffs follow. The ranks of the unemployed and underemployed grow. And woe betide the political party that presides over that apprehension. Even when the party in power is not directly and undeniably responsible for economic calamity, voters tend to favor a shake-up.

 

It would be a comfort to Trump’s stalwart devotees if they could assign voters’ nerves to thoughtless jitters that will dissipate when this all inevitably works out — somehow. But the lay observers are just as confused and frightened as their counterparts in expert fields.

 

The bond market “is acting weird,” as CNN disconcertingly put it. “Typically, when investors sell off stocks in times of crisis, they pile into US Treasuries, seeking the safety of an asset backed by the full faith and credit of the US government,” it reported. But that’s not what’s happening. Even after Trump pared back his maximalist tariff prescriptions, leaving only the most restrictive American tariff regime since the 1930s in place, U.S. Treasuries did not recover.

 

The Wall Street Journal’s Greg Ip tried to make sense of it. Existing inflation “might be part of the explanation” for why capital is not fleeing to the traditional safety of U.S. bonds, but that fails to explain the apparent lack of faith in the Federal Reserve’s ability to come to the rescue. “Technical factors” like hedge funds shedding their bond holdings are similarly unsatisfying. “The more fundamental explanation is that global investors might be changing how they view the U.S,” he wrote. In cruder terms, our allies and partners abroad think we’ve lost our minds, and there are few indications that sanity will be restored anytime soon.

 

We’re not yet even talking about foreign adversaries like China, supposedly the target audience for our exercise in economic masochism. “There were recent fears that China might try to retaliate against Trump’s tariffs by selling some of its own bond holdings,” Ip noted. “There is no evidence that it has, but the possibility has highlighted the risks to the U.S. of a trade war morphing into financial war.”

 

You read that right: Not only has China held in reserve its own economic weapons in a global trade war that has so far primarily rattled America’s allies, but our deteriorating position also provides China with even more leverage over the administration than Beijing had just two weeks ago. That might explain why the Trump administration isn’t waiting around for Beijing to make the first overture in trade talks. Trump is asking Xi Jinping to request a phone call from the White House — presumably so the president can save as much face as possible as he engineers a retreat from the conflict on which he embarked wholly unprepared.

 

That outcome assumes that the president can stomach a necessary but humiliating rearguard action. That would be the rational course, but rationality didn’t get us into a fight with every nation on earth over our respective trade deficits. Consumers, traders, and average Americans alike are justified in the presumption that the president’s prescription for them is “pain.”

 

Even if Trump attempted to restore the status quo ante tomorrow, the small businesses hit with additional import costs won’t be whole again. Nor will the businesses of all sizes that indefinitely postponed hiring and investments, or even laid off workers. The foreign producers who rerouted their supply chains and distribution networks to get around Trump’s tariffs won’t unwind them overnight. The intricate, organic web of trade relations that developed over the last generation has been severed. We’re only just beginning to experience the unintended and unpredictable consequences of this experiment.

 

People are scared. They’re unlikely to reward the author of their anxiety with good political fortune. A politician interested in the preservation of his and his party’s political prospects should be expected to recognize that and respond accordingly. It is, however, not at all clear that Trump sees just how “yippy” the public has become. It’s even less certain that the president can swallow his pride and subordinate his unshakable belief that foreign “trade is bad” to the observable consequences associated with shutting it off.

 

People behave irrationally when they’re scared, but we’re not seeing irrationality in the aggregate. Voters are right to anticipate a rough road ahead. If the public understood the goal they were mortgaging their children’s futures to achieve, perhaps they’d be a little more patient. But they don’t, and no one seems capable of assuaging them by articulating a coherent, sequential pathway to a desirable endgame. The trade war exists for its own purposes. The public has been drafted into its trenches, and there seems to be no end in sight. Who wouldn’t be spooked?