The financial consequences of Donald Trump’s latest round of tariffs have been significant ($6 trillion of wealth lost in the stock market last Thursday and Friday), and a lot of media have been focused on those consequences because they’re easy to measure. Stock market indexes keep score in real time in easy to comprehend numbers. What’s more difficult to measure is what impact his tariffs will have on America’s position in the world. Most likely we are experiencing the decline of America as a global leader. Being a leader means that those you are leading have confidence in you. It is easy to imagine that the rest of the world is losing that confidence as Trump’s trade policy becomes increasingly erratic.
Certainly, the administration’s cheerleaders are going to downplay the significance of the consequences financial and otherwise, but the reality is that the rest of the world has already started thinking about what trade could look like without depending on the United States. Let’s take a macro concept and shrink it down to the micro level. If you were doing business with someone and they became undependable or shifted their prices constantly, you would find another person to do business with. That’s how the rest of the world now views the United States.
It is true that the United States isn’t just any other trading partner, we hold the distinction of being the largest economy in the world. But what that means in the long run is that trading partners who had long depended on us, and whom we have long depended on, are going to look to the next largest market, which is China. Even trading partners who have a long history of bad blood with China like South Korea and Japan are now being driven into China’s arms by this administration’s trade policies. Just last Sunday China, Japan, and South Korea expanded their Regional Comprehensive Economic Partnership. The RCEP also includes Australia, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.
And while China said last week on social media that they would respond jointly to Trump’s tariffs with Japan and South Korea, Seoul said the statement was “somewhat exaggerated.” Note that they didn’t completely deny the statement though. The third country involved, Japan, said that there had been an “exchange of views.” But given the often-hostile history between these nations, even that exchange is noteworthy.
And that was before Trump announced his latest round of tariffs at the end of last week. One can only imagine that if those nations were drawing closer before, they are now being pushed together by Trump. Economically speaking, the Asian partnership makes sense. China has the raw materials necessary to make semiconductors and China needs a supplier of computer chips, a main export of both Japan and South Korea. The current landscape created by Trump’s tariffs means that they are likely to enter into a deal and leave the United States on the outside looking in. And this is only one example of how nations are going to start finding new trading partners, even ones that they have been hostile with in the past.
In addition to the very visible consequences on Wall Street at the end of last week (Dow futures were down 1500 points on Sunday when this was written, so it stands to reason that the losses aren’t over yet), the American dollar is also going to take a hit. In addition to looking for other trade partners, nations are going to start looking for a more reliable replacement currency to do business in, further hurting the American economy.
Let’s put this another way. We’re in the middle of a pretty public and messy breakup with the global economy. And our former partners? They’re already looking for new connections on the dating apps. And if we thought we were the only fish in the sea, we were dead wrong. The United States, despite being the world’s largest economy, accounts for just 15% of the world’s imports. Commerce Secretary Howard Lutnick called the United States “the consumer of the world” on one of the Sunday morning talk shows. That’s just simply not true. While important, we’re not irreplaceable. The Economist estimates that our trading partners could completely replace us within five years.
Everywhere Trump looks, he sees antagonists. There could be a time in the near future when he looks around and doesn’t see anybody as we get left behind and abandoned by the rest of the world. As we’ve already seen, the question isn’t whether or not his policies will damage our standing and economy, but rather how bad will the damage be and will we be able to reverse it.