Only the US Congress Can End the Economic Uncertainty
It is delusional to think that the Trump administration will devise a viable, let alone sensible, trade policy before its 90-day pause on “reciprocal” tariffs ends. Before prices spike and the economy starts shrinking, legislators and business leaders must recognize that there is no strategy and respond accordingly.
William R. Rhodes, Stuart P.M. Mackintosh
WASHINGTON, DC – In November 2024, the consensus among economists was clear.
The United States was powering ahead of all other advanced economies, a trend reflected in robust growth, high investment flows, strong productivity, a tight labor market with rising wages, and moderating inflation.
The outlook for 2025 was bright.
Not anymore.
The odds of a recession have shortened, consumer and business sentiment is falling, and stock and bond markets are in disarray.
President Donald Trump’s “Liberation Day” tariffs against all of America’s trade partners – and the dubious formula behind the policy – have sent America’s animal spirits into hibernation.
The reactions from the stock and Treasury markets were so negative that Trump soon blinked, announcing a 90-day pause on most of the new import levies a day after they went into effect.
But his administration has stuck with a general 10% rate and increased the tax on imports from China to 145%.
While markets have rebounded somewhat, they could be spooked again easily.
Uncertainty and volatility remain highly elevated, because no one knows what to expect next.
Still, there are analogies for America’s situation.
Post-Brexit Britain shows where such fiscal and economic nationalism can lead, and the lessons are sobering.
In 2016, a narrow majority of British voters embraced economic nationalism and decided to leave the European Union.
As a result, the United Kingdom’s trade with its closest allies and partners has become costlier, more complex, and less profitable.
Economic growth has slowed, wages are stagnant, and government revenues have declined.
While successive prime ministers – from Boris Johnson to Liz Truss to Rishi Sunak – promised an economic utopia, the reality has been one tough choice after another.
The Brexiteers’ “Global Britain” is a smaller, weaker, and poorer Britain.
The Trump administration is making similar mistakes.
Slashing expenditure on basic scientific research, health, climate technologies, and education – all on the advice of the world’s richest man – can only end in tears.
Already, indiscriminate staff reductions at the Internal Revenue Service may cost the US $500 billion in foregone tax revenue in 2025; that is multiples of the supposed savings produced by Elon Musk’s Department of Government Efficiency.
Similarly, launching a trade war against Canada, Mexico, China, the European Union, and much of the rest of the world will make US consumer goods and inputs for US manufacturers more expensive, driving up inflation and impeding growth.
Economic uncertainty indexes are at record levels, because businesses don’t know whom Trump will punish next and are unable to plan.
It is delusional to think that this White House will devise a viable (let alone sensible) trade and tariff policy during Trump’s 90-day pause.
Congressional and business leaders must recognize that there is no strategy or Plan B.
Trump says he is open to cutting deals with 90 countries in 90 days, but few if any negotiations are underway.
The UK did try to commence talks, but it was rebuffed, and other countries are also getting the cold shoulder.
The Trump administration’s actions do not match its public assurances.
In fact, it does not even have the personnel to conduct scores of detailed negotiations simultaneously; too many of those essential staff have been terminated or forced to retire.
At the peak of global trade talks 20 years ago, the US was negotiating with five or six counterparties (plus the World Trade Organization) at most.
Where does this leave America and the world?
There is no chance of reining in the disruption and destruction unless the Republican-controlled US Congress reclaims its constitutional authority over trade policy.
Previous presidents had to gain congressional approval for “fast-track” authority to negotiate trade deals – a process that was not always easy but worked.
The US urgently needs to return to this approach.
The first step is to pass legislation reasserting Congress’s control over tariffs.
Some Senators still have a backbone.
Democratic Senator Ron Wyden of Oregon and Republican Senator Rand Paul from Kentucky introduced a resolution to end Trump’s “trade emergency.”
However, with only three Republicans joining Democrats to support the measure, the resolution failed in a 49-49 vote.
More GOP lawmakers must shift position on trade policy to take back control.
With few or no deals on the table and no Plan B, Congress – under growing pressure from voters, businesses, and donors – will be forced to act as Trump’s 90-day pause nears its end.
Otherwise, massive tax increases (that is what tariffs are) on American businesses and households, soaring prices, and a recession are inevitable.
Even if Congress acts in time, a new period of geopolitical and economic uncertainty is upon us.
The trade war with China will probably continue, and America’s alliances are sorely strained – with some permanently damaged.
Pax Americana is over.
In a mere three months, Trump has ushered in an era that is more volatile, unpredictable, and dangerous than any the world has known since World War II.
William R. Rhodes, a former CEO of Citibank, is is President and CEO of William R. Rhodes Global Advisors and the author of Banker to the World: Leadership Lessons From the Front Lines of Global Finance (McGraw Hill, 2011).
Stuart P.M. Mackintosh is Executive Director of the Group of Thirty.
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