Round-up: Tariff Man is back. Russia sanctions. FBI infighting.

Analysis of the week's events

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Tariff Man is back

This past Wednesday was the deadline that Trump set himself to reach “90 deals in 90 days” with U.S. trade partners. Any country that failed to reach a “deal” by then, he had threatened, would face the full force of the tariffs that he imposed - then almost immediately suspended - on ‘Liberation Day’ back in April. Well, the grand total of trade deals that the U.S. has reached since then is… zero. But rather than imposing any more tariffs, Trump has now pushed the deadline back to August 1st.

Among the things that this shows is that Trump’s threats don’t have any credibility. A few countries gave him a quick win by reaching a “framework” agreement, which is not actually anything like a trade deal but at least allowed Trump to claim that he had done something. But most countries have breezed past the deadline this week because they didn’t really believe that Trump was actually going to impose steeper tariffs. And the reason for that is simple: last time he did, the U.S. bond and equity markets went into meltdown, an experience he is not likely to want to repeat.

The idea of getting “90 deals” by August 1st is absurd. Trade deals usually take years to negotiate, many U.S. demands make no sense, and the U.S. trade office doesn’t have the capacity to negotiate with anything like 90 countries at once. So the most likely thing that will happen is that we’ll get some new “frameworks” and then Trump will just kick the can further down the road.

It’s tempting to look at this as a basically positive outcome, because it’s not the worst case scenario - Trump is not actually blowing up the world economy. But he is still doing enormous damage to the U.S. and global economies, as well as America’s alliances, on the basis of some fantastically misguided views about how trade works. The fact that we’re celebrating avoiding the worst consequences of his economic illiteracy is a sign of how low the bar has become.

Trump is also showing an increasing tendency to use tariffs as a tool in non-trade disputes. The latest example is that he has just threatened 50% tariffs on Brazil if it doesn’t drop the prosecution of Jair Bolsonaro for his attempted coup in 2022. This basically amounts to Trump raising Americans’ taxes in order to help out his fellow insurrectionist. It serves no plausible U.S. foreign policy objective whatsoever.

I think there’s also a very real risk that we will eventually experience the worst-case scenario - that Trump will try again to impose his maximum tariffs and do even more serious economic harm. After all, he frequently shows a fundamental disconnect from the consequences of his actions, and as he gets older and near the end of his final term, he will have less to lose.

Russia sanctions

Nowadays much of U.S. foreign policy is determined by Trump’s mood swings and how injured his pride is on any given day. In the past week or so, the result has been that he’s grown increasingly agitated about Vladimir Putin taking him for a ride. Putin is trying to drag out the negotiations over a Ukraine ceasefire as long as possible, aware as he is that the long-term strategic picture looks good for Russia. Trump seems to be belatedly realizing that he his much-ballyhooed “deal-making” skills are not actually going to change that fundamental fact.

As a result, the White House is signalling new openness to a sanctions bill that Republican hawks in the Senate have been pushing for months. The only problem is that, to quote Senator Rand Paul, the proposed law is “literally the most ill-conceived bill I’ve ever seen in Washington”.

At the heart of the bill is a simple threat - if any country continues to import Russian fossil fuels, then it will be hit with 500% trade tariffs by the United States. That means that a host of countries - including India, China, Turkey, and many EU countries - will face tariffs an order of magnitude greater than those which brought the U.S. equity and bond markets crashing down last April.

Don’t worry, say proponents of the bill, we’re including a clause to allow the tariffs to be waived in the case of countries who give aid to Ukraine. That might help the European Union, but it still means that China would be faced with some of the largest tariffs in history. And that would bring the U.S. economy crashing down and likely send U.S. unemployment to recession-like levels.

It seems hard to imagine this doing anything other than just leading to a new version of the dynamic I discussed in the last section of this newsletter. Trump will threaten the tariffs and then immediately waive them for a few months. The targeted country probably won’t make any major changes because it is quite reliant on Russian oil and gas, and because it knows Trump isn’t actually going to suicide bomb the U.S. economy. The deadline will approach and Trump will waive them again. Rinse and repeat.

In a sense, this is the latest version of a long-standing problem facing Washington - it has few tools with which to directly punish Russia for its war in Ukraine - with a dose of Trumpian stupidity thrown in.