Dem
47
GOP
53
Donald Trump promised to be a disrupter. On this, he kept his word. He has ended the 80-year pax Americana and is busy destroying the U.S. and world economy. Not bad for only 78 days. Just imagine what he can do in the next 1,383 days.
On Friday, the Dow Jones index fell 2,231 points (5.5%), the S&P 500 fell 322 points (5.97%), and the NASDAQ fell 963 points (5.8%). It was the worst week for the markets since the pandemic hit in 2020 and the end is probably nowhere in sight. The high this year was 44,882 on Jan. 30, 2025. The close Friday was 38,315, down 6,567 points (14.6%) from the 2025 high. This is considered a correction. It takes a 20% drop to be called a bear market. This is important because Trump tends to rate his self-worth by the markets, and the markets are not happy about his tariffs. Here is the Dow Jones for the past 6 months:
The drop of Thursday and Friday wiped out $6 trillion of value from the markets in 2 days. That is as much as the entire federal budget. Is anybody worried? Well, Treasury Secretary Scott Bessent is so freaked out that he wants to quit while the quitting is good and before Trump blames him for the upcoming disaster. Oh, and JPMorgan Chase, the country's largest bank, is now predicting a recession for later this year.
So what are the political effects of the meltdown going to be? To some extent it depends on whether other countries put tariffs on imports from the U.S., which would reduce markets for those products and likely put the workers who make them on the unemployment line. That could cause the recession JPMorgan Chase is worried about.
Recessions come and go, but this time things are different. Since World War II, the world order, led by the U.S., has featured free trade as the underlying economic model for almost all countries, except a few highly isolated countries like North Korea. The underlying premise is that if your country can make widgets (or t-shirts or iPhones or whatever) better and cheaper than any other country, then you get to own the worldwide market for widgets. This allows people everywhere to get the best products at the lowest prices. For 80 years, it has largely worked.
Donald Trump just ended the entire system because he believes in the 18th century concept of mercantilism. In this economic model, the goal of all countries is to export more stuff than they import, so as to accumulate more gold in the national treasury. No serious economist has believed in this theory in well over 100 years, but then again, Trump is not a serious economist.
Fareed Zakaria has an interesting column on Trump's thinking and how badly it differs from reality. Trump sees the U.S. as a poor, hollowed-out colony, victimized by a cruel world that has robbed it of jobs, industries and money. The reality is the opposite. In 2008, the U.S. economy was the same size as the Eurozone's; now it is double. In 1990, the average U.S. wage was 20% higher than other advanced countries; now it is 40% higher. In 1995, a Japanese person was 50% richer than an American in terms of GDP per capita; now an American is 150% richer than a Japanese person. An American in the poorest state, Mississippi, now has a higher per capita GDP than someone in the U.K., or France. All this happened due to the trading system that Trump does not understand but is trying to destroy.
Another very important thing Trump does not understand is that while the U.S. runs a trade deficit in things, it has a massive surplus in services. It exports a huge amount of software, software services, cloud computing, movies, video streaming, music, financial services, legal services, telecommunications services, management consulting services, and licensing of patents and other intellectual property. The export of services is worth well over $1 trillion/year. And every year, services become more important than "things." Trump is a real estate developer and he thinks in terms of large objects (and sometimes very small objects), not intangibles. He simply does not understand modern economies. His thinking will probably make the U.S. a poorer country run by corrupt oligarchs that can swagger in its neighborhood, but only watch helplessly as China comes to dominate a world from which America has voluntarily given up all its immense soft power.
If there is a trade war, some sectors will get hit especially hard. One is agriculture. When countries retaliate with their own tariffs to respond to Trump's, American food exports will become more expensive and importing countries are very sensitive to food prices. If Brazil or Argentina can provide the same food at lower prices, they get the sales. In Trump v1.0, retaliatory tariffs hit American farmers so hard that Trump felt it was necessary to give farmers $28 billion in free money to bail them out.
Now the situation down on the farm is worse. Inflation has sent the cost of seed, fertilizer, and other inputs soaring, while higher interest rates have whacked the many farmers who borrow money to do their planting in the spring and pay it back after the harvest in the fall. But if foreign markets are lost to competitors, farmers may not be able to sell their produce or pay off their loans. Some of them may come to regret their votes for Trump.
Fed Chairman Jerome Powell is worried about Trump's tariffs. He thinks they will increase inflation, possibly long term. This would force Powell to raise interest rates to stop it. But doing that could throw the country into a recession and put millions of people out of work.
What Powell is really concerned about is stagflation, a combination of a stagnant economy with high unemployment along with high inflation. Readers of a certain age may remember that from the 1970s, when it didn't work out so well for Jerry Ford or Jimmy Carter. And they even had the excuse that the problem was caused by oil sheiks in the Middle East. Trump has no such excuse.
Powell has no magic wand to wave over the economy to fix it. If he sets the interest rates too high, unemployment will go up. If he sets them too low, inflation will go up. It's the classic "Goldilocks problem." Trump doesn't like Powell because Trump wants to force interest rates down, come hell or high water, but Powell is worried about inflation. If Trump fires Powell, something the president ostensibly doesn't have the authority to do, it would create financial chaos, and the markets will really tank like never before.
David Frum brings up an interesting point we haven't seen elsewhere: smuggling. If an iPhone that normally costs $1,000 is suddenly $1,540 on account of the 54% tariffs Trump has imposed on China, the iPhone will still cost $1,000 (retail) in Canada, Mexico, and other countries. No doubt some clever criminals are going to load up on them at $1,000 there, drive them over the border during rush hour traffic when it is impossible for the border patrol to search every car thoroughly, and sell them in the U.S. for $1,200. It wouldn't be hard to pack 60 iPhones in a box of roughly 1 cubic foot filled three-quarters full with iPhones and one-quarter full on top with books, in case a CBP inspector wants to take a peek. That's potentially a $12,000 profit per run, more if the criminal gets a quantity discount from his source. And it's not just iPhones. There is likely to be a massive increase in smuggling of all kinds of products. Trump might have known this if he knew anything about the 1920s and Prohibition, but his study of U.S. history ended with the year 1783, when George Washington conquered the last few British airports.
Famous economist Ted Cruz (R-TX) said that if the tariffs are permanent, they will raise prices, increase inflation, destroy jobs, and damage the economy. Then, on his podcast, he added: "If we go into a recession, particularly a bad recession, 2026, in all likelihood, politically, would be a bloodbath. You would face a Democrat House and you might even face a Democrat Senate." He reminded his listeners that during a recession, the voters tend to punish the president's party.
Even Sen. Rand Paul (R-KY) had something to say to reporters: "Tariffs have also led to political decimation. When McKinley most famously put tariffs on in 1890, they [the Republicans] lost 50 percent of their seats in the next election. When Smoot and Hawley put on their tariff in the early 1930s, we lost the House and the Senate for 60 years. So they're not only bad economically; they're bad politically."
In other words, Republican senators understand that the tariffs could be their undoing, but they are so afraid of Trump that they don't dare say "no" to him. Apparently each one thinks that a primary threat is worse than a massive blue wave that sweeps the entire party out of power for decades. Future historians may have a lot of trouble understanding how the senators clearly saw this coming and did nothing. Heck, we can confirm that even current historians have a lot of trouble understanding it.
A key question no one can answer now is: How much of the damage Trump is doing to the country can eventually be repaired? A future Democratic president or Congress could kill off all the Trump tariffs and try to rebuild all the agencies Elon and the Muskrats are busily hollowing out, although that would take time—and the American people are exceedingly impatient. One area that could take years, or maybe decades, to rebuild is foreign allies' trust. It might take multiple Democratic presidents and at least one normie Republican president. As one European diplomat put it: "We can't have European security depend on the voters in Wisconsin every 4 years." (V)