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Stephen Olson

US President Donald Trump has always appeared sincere in his belief that “trade wars are good, and easy to win”, but his recent policy swerves and mood-music shifts suggest he is coming to realise he has overplayed his hand in waging a trade war against the world.
Trade partners from Beijing to Brussels are relishing the sight of Trump scrambling to back off from his preposterous “reciprocal” tariffs, while painting a rosy picture of the prospect of “fair” trade deals and seeming to eschew his trademark hard-nosed negotiating tactics.
After receiving Italian Prime Minister Giorgia Meloni – an official not empowered to negotiate on behalf of the European Union – at the White House, Trump stated his personal “100 per cent” certainty there would be a trade deal with the EU.
The following week, Trump claimed he would “not play hardball” in negotiations with Chinese President Xi Jinping, that the 145 per cent tariff would come down, a rather stunning concession that violates a cardinal rule of negotiations: do not negotiate with yourself.
Even by Trumpian standards, this is a dizzying turn of events. What happened? Simply put, Trump wildly overestimated the strength of the US position and underestimated the strength of its trading partners.
In Trump’s estimation, the dynamics are simple and overwhelmingly in favour of the United States. Other countries are dependent on exports to the US market while the US is far less dependent on its ability to export. Threaten to cut access to the US market and countries will line up, hat in hand, to offer concessions to Trump. An easy win for the consummate negotiator.


While access to the US market is important for many countries, it does not provide the leverage Trump believes it does. The US is a large and wealthy market, but it is only one country and the world is big. Countries have been diversifying away from the US market since the first Trump term, if not earlier, and setting their sights on markets that are younger and growing faster.
It would perhaps be a revelation to Trump to learn China exports more to Southeast Asia than it does to the US, and that several countries in the region have rapidly expanding middle classes and growth rates approaching double digits. And while US tariffs are substantially increasing, China and countries throughout Asia have a web of free-trade agreements that slash tariffs, making exports less expensive and more competitive.
Another factor which seems to have escaped Trump’s attention – at least until recently – is that, in many instances, the US is essentially dependent on certain imports that cannot be readily sourced elsewhere. The leverage dynamic is therefore substantially different from what Trump has imagined.
If the US slams the door shut to the dozens of product categories sourced almost entirely from abroad, domestic manufacturers of those products will not magically appear overnight. Any American waiting for domestically produced iPhones or even just a pair of sneakers will have to be patient and prepared for sticker shock.
There will be shortages in the US. This is the message several big-box retailers reportedly delivered to Trump – that shop shelves could soon be empty – apparently contributing to his now more flexible stance on tariffs.

In the estimation of Trump’s Commerce Secretary Howard Lutnick, however, this supply disruption is actually a good thing, as it will lead to a boom in factory jobs for Americans. According to Lutnick, “the army of millions and millions of human beings screwing in little screws to make iPhones – that kind of thing is going to come to America”.
Lutnick’s vision for a resurgence of factory jobs in the US belies both the economic realities of massively transforming the world’s largest economy as well as the interests and aspirations of average workers. In a line that went viral, comedian Dave Chappelle crystallised the attitude of many Americans when he said: “I want to wear Nikes – I don’t want to make them”.
Trump’s tactics have also failed to account for the enhanced ability of trade partners to punch back. While many were caught off guard by Trump’s chaotic approach to trade during his first term, they’ve had the intervening years to prepare for a repeat performance, and many have used the time well.




The EU has prepared an Anti-Coercion Instrument that will allow it to hit US services – where the US enjoys a trade surplus. High-profile US digital platforms are the likely target. China has built out a robust toolbox of retaliatory measures, adding China-dependent US corporations to its de facto blacklist and restricting US access to critical materials needed for everything from laptops to jet fighters.
It turns out picking a fight with everyone in the world at the same time is perhaps not a winning strategy. It’s not clear if Trump has reached panic mode, but his softer tone shows he is growing nervous and has concluded he needs to substantially de-escalate.
Trade partners have taken note and will not be inclined to make life easier for him. Trump has stated many times he would be happy to take a call from Chinese President Xi Jinping. The phone has not yet rung and – if Xi is smart – it is unlikely to ring any time soon.
In any case, we are moving into uncharted and potentially combustible territory. What is more dangerous for global stability: an overconfident and swaggering Trump or a nervous and agitated Trump? The world is about to find out.


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Trump wildly overestimated the strength of the US position and underestimated the strength of its trading partners


Trump wildly overestimated the strength of the US position and underestimated the strength of its trading partners.


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Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Picking a global fight may not be the best strategy, as Trump is finding out

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Trump wildly overestimated the strength of the US position and underestimated the strength of its trading partners

Trump wildly overestimated the strength of the US position and underestimated the strength of its trading partners