“Things are falling apart”

As noted in my previous commentary here on the economics of global trade, we are well on the way to chaos and an encroaching recession. The debate is now whether the world economy can weather a downturn or are we headed for something more serious, namely a depression.

It is truly amazing how a single person can create such chaos, uncertainty and instability in such a short time. 100 days! Starting with trade, mainly focused on the U.S., the Trump tariff policy, lacking any rational or logical foundation, has led to a wave of uncertainty in the on again, off again, up and down assault on U.S. trade with the world.

Imports from China to the U.S. are collapsing with a projected downturn of 30% plus expected in May and likely increasing into June as importers have reduced their purchases in this time of volatility and false information. U.S. exports are being devasted as China refuses to be coerced and is building new trade relationships to replace U.S. imports.

Tariffs with the rest of the world were reduced to 10 percent with the exception of autos, auto parts, steel and aluminium. Pharmaceuticals are next in line for special treatment which will primarily hit India and the United Kingdom. The volume of trade with the rest of the world to the U.S. has not been so volatile, and trade between countries has not been affected. Notwithstanding that, one can safely say that things are falling apart.

The new U.S. foreign policy, including threats of invasions on Greenland and Panama and A willfully destructive approach to Canada, has torn asunder the world order that sustained economic stability and created growth in the post WWII era. The U.S. is no longer seen as reliable, and this has impacted the reliance on the dollar and security. The global economy has suffered from the damage done to the stock markets. All due to erratic policies expounded on social media and the attack on the legal, social and judicial foundations of the United States.

The world is in the process of change on many fronts, creating new alliances and strategies to secure a more stable future without reduced U.S. involvement. It is clear that the tariff war as it stands will create significant increases in inflation, unemployment, and reduced foreign direct investment in traditional countries. Only a return to rationality can bring back certainty, but the good old days are gone. Our post WWII security blanket is long gone.