Commentary: Why Trump's trade war will last way longer than his Iran war

Yahoo

4 days ago

President Trump had a unique advantage when he ordered the June 21 US strikes against Iranian nuclear targets: giant "bunker buster" bombs able to penetrate deeper than any weapon short of a nuke. That allowed Trump to declare victory after a few bombing runs that barely lasted a day.
In Trump's other conflict — the trade standoff with dozens of trading partners — there is no such decisive weapon. Trump pretends there is, claiming that other nations will suffer grievous harm if he raises tariffs on the goods they import to the US. But in these battles, Trump is often bluffing, and his adversaries know it.
Trump's willingness to attack Iran provides lessons on how he handles risk and negotiates in challenging situations. It may also dispel a myth or two about how he's prosecuting the trade war.
For one thing, Trump doesn't always "chicken out." The so-called TACO trade — "Trump Always Chickens Out" — became memey in May after a Financial Times columnist observed that Trump often postpones or backs down from tariff threats. But that isn't completely true. Trump has imposed new tariffs on imports from most countries, raising the average import tax from 2.5% before he took office to about 15%. American importers are paying those taxes, and they'll be the first to tell you that, alas, Trump hasn't chickened out.
Trump certainly could have chickened out when it came to Iran, especially given that several of his White House predecessors declined to attack Iranian nuclear facilities, choosing diplomacy and negotiation instead. That was Trump's approach too, until Israel opened the door to a US strike with a week of bombing that accomplished much of the job of degrading Iran's nuclear program. Even then, Trump took a considerable risk in dropping bombs on Iran, given that it could seek revenge through attacks on Americans or efforts to disrupt oil flows and cause an energy shock.
What Trump demonstrated in attacking Iran is that when he has a strong hand, he plays it. Strategist Eliot Cohen of the Johns Hopkins School for Advanced International Studies said Trump has a "feral instinct for human weakness ... when his enemy is lying prostrate in front of him, he's perfectly happy to kick him in the head."That was the Trump who bombed Iran. Its air defense system was shredded, its leader hiding in a bunker. Trump took a risk other presidents haven't taken because he felt the odds of success were strongly in his favor — and he might have been right.
In Trump's trade war, however, most adversaries aren't nearly as vulnerable. Trump has no magic weapon, and victory is elusive. This will likely become apparent once again as a July 9 deadline approaches for dozens of countries to make trade deals with Trump or risk his "reciprocal" tariffs.
The trade war was never going to end in a day, or a month, or even a year. Trump announced draconian tariffs on April 2 but postponed them a week later after an ugly market sell-off. That was Trump showing weakness, rather than the other way around, because his tariffs amounted to friendly fire, causing unintended damage at home.
Markets have yo-yoed as Trump's tariffs go on, then come off, triggering alternating bouts of despair and euphoria. But markets are generally adjusting to a tariff regime that might not be so bad because Trump doesn't have the leverage to strike a decisive and lasting blow, as he did with Iran.
Read more: 5 ways to tariff-proof your finances
Torsten Sløk, chief economist at private equity firm Apollo (Yahoo's parent company), recently mused that Trump may have "outsmarted everyone on tariffs." He suggested that as the July 9 deadline approaches, Trump may extend his trade deal deadline by as much as a year, giving markets time to adjust while the US pulls in something like $400 billion in tariff revenue, which would be nearly a fivefold increase over 2024 levels.
The bigger surprise for markets, in fact, would be if Trump attempted some kind of shock-and-awe tariff blast around the July 9 deadline, rather than simply setting a new deadline. "The widely held assumption (which we share) appears to be that even if deals with trade partners do not materialize in the next two weeks (which is unlikely), the pause will simply be extended," Capital Economics explained in a June 24 analysis. "Market turmoil on the scale of those sparked by the original tariffs back in April looks improbable, if only because market participants would probably assume that any sell-off would lead to another u-turn."
Trump's deliberations with China, as one example, suggest the whole ordeal could end up a quagmire rather than a decisive victory for one side or the other. In April, Trump hit Chinese imports with tariffs as high as 145%, which basically halted all inbound shipments. Trump lowered that to 30% in May. Some analysts described that development as a "truce" in the trade war and said it damaged Trump's credibility as a negotiator because he failed to act on a threat.
Read more: How to protect your money during turmoil, stock market volatility
Trump hasn't explained exactly what he wants from China, which could be part of a strategy that allows him to declare victory at any time and only then explain what his demands are, once he knows what he can get China to agree to. Yet China is making even that difficult.
In response to Trump's tariffs, one Chinese move has been to impose new limits on exports of rare-earth magnets, a market China dominates, with about 90% of the world's supply. US companies that need those magnets for automobiles, fighter jets, medical equipment, electronics, and many other things are now running into shortages, in some cases threatening the shutdown of domestic assembly lines.
As Trump sniffs out weakness in an adversary, he also recognizes strength. He must recognize that his promise of revitalizing US manufacturing will never pan out if American firms can't even get key components. China may not have all the leverage, but it certainly has some.
This puts Trump in the position of bluffing, and the more he bluffs, the less serious he seems. That's why investors are fairly confident Trump's July 9 deadline will merely morph into another deadline, and maybe another one after that.
The S&P 500 stock index has broadly recovered from the April sell-off, and it's close to topping the all-time high set in February. That's an indication investors don't think Trump's tariffs will harm corporate profits or stock values. There's no bunker buster in a trade war, and markets are grateful for that.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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