‘Drip, drip, drip’: How Trump’s ‘beautiful’ tariff plan gave the world a cold shower

To paraphrase the Barenaked Ladies, it’s been one week since Donald Trump upended the global economy, and we’re still waiting for him to say sorry for the damage he’s wrought.

Not that we should expect an apology, or anything approaching a mea culpa, from a president who is skilled in the art of blaming everyone but himself for any shortcoming or problem – more often than not which he has caused.

Donald Trump … it’s been a week since he launched Liberation Day. It’s been a hell of a ride since then.Credit: AP

But one week on from Trump’s game show-like appearance in the White House Rose Garden, let’s take a breather to examine what we’ve learnt since “Liberation Day”.

The first thing we know is that the self-described “very stable genius” is anything but. His volte-face on Thursday, in which he announced a 90-day pause on his “beautiful” tariffs while increasing China’s to 125 per cent, offered only further confirmation. No matter how his supporters and sycophants might paint it, this was an admission that things had run off the rails.

Most attention has been on world’s sharemarkets (which are still about 10 per cent down on where they stood when Trump was inaugurated in January). Just 24 hours before the pause, the world’s bond markets started flashing bright red as interest rates on American government debts started climbing precipitously. This was a sign that investors, who had until April 2 believed US government debt to be the safest of safe investments, were having second thoughts.

That’s a problem for a country that has $US36.2 trillion in outstanding debt (up $US500 billion since Trump took office from Joe Biden) and is paying interest on that debt.

On Wednesday, creditors took on Donald Trump … and the creditors won.

We also know that despite the tariff turnaround (let’s call it “un-Liberation Day”), he has taken America’s tariffs on China-made goods from 104 per cent to 125 per cent, reasoning, “the days of ripping off the USA … is no longer sustainable or acceptable”.

Given the prevalence of Chinese goods in US shopping baskets, the cost of living for US residents is still going to skyrocket even with the (paused) big drop in tariffs on other nations. This reinforces the view that he’s perhaps not such a genius after all.

Under the Liberation Day plan, America’s effective tariff rate would have climbed to around 27 per cent – the highest level since 1909. But even the un-Liberation Day plan still pushes America’s effective tariff rate to around 22 per cent – the highest since the Smoot-Hawley tariff plan of 1930 (Smoot and Hawley were US congressmen who sponsored a tariff bill ensuring America and the rest of the world would endure the Great Depression).

We now know that after China, the biggest risk to America and Trump is the landlocked and exceedingly poor southern African nation of Lesotho.

Home to 2.2 million people, Lesotho was smacked with a 50 per cent tariff because of the “huge” trade surplus it runs with America. Last year, it exported about $US273 million worth of goods – mostly diamonds and textiles – to the US while American firms sent it just $US2.8 million.

In his long and tiring address to Congress last month, Trump specifically called out Lesotho, saying it had received $US8 million in American aid “to promote LGBTQI+“. It was, Trump said, a country that “nobody has ever heard of”, prompting laughter from many Republican congressional members.

Unsurprisingly, the true nature of the aid was found to deal with HIV/AIDS, which affects a quarter of the population, the second-highest prevalence rate in the world.

As of Thursday, though, Lesotho’s tariff rate is back down to 10 per cent, the same as that facing the penguins and seals on Heard and McDonald Islands, and which goes to something else we know: the whole way under which the reciprocal tariffs were calculated was a sham.

A “truthy” looking mathematical calculation was pulled together by the office of the United States Trade Representative to give a veneer of science to how the original plan was structured, but there was nothing scientific to it at all. It was simply the value of the trade deficit of a nation, divided by the goods imported from that nation, and then divided by two. It is, as Senator Mark Warner called it this week, “bad math on steroids”.

The aim, apparently, was to come up with a “tariff rate necessary to balance bilateral trade deficits between the US and each of our trading partners” (this is the official explanation from the USTR).

But there is no reason why trade between two nations should be in balance. In the case of Lesotho, where the average monthly income is $US792, the country produces goods that Americans (who have an average monthly income of $US5126) want. But apparently, Lesotho’s residents don’t want or need what American businesses produce.

We also know that the president’s wider budget plans are in real trouble. When he announced the tariffs, Trump claimed they would raise “trillions and trillions of dollars” that would be used to reduce taxes and pay down America’s national debt. That claim was always problematic because if tariffs stop countries from sending goods to the US, there simply won’t be enough revenue to cover Trump’s plans. Now, he’s left without a revenue source plus a commitment to trillions in tax relief, while also reducing government debt.

Even after his U-turn, most analysts reckon America is still headed for a recession because of the turmoil the president has engineered.

How Trump will square that circle is still an unknown. What we do know is that after his change of heart, he signed an executive order to wind back water conservation regulations for shower heads.

“I like to take a nice shower, to take care of my beautiful hair,” Trump said while signing the order. “I have to stand under the shower for 15 minutes ’til it gets wet. It comes out drip, drip, drip. It’s ridiculous.”

“Ridiculous” sums up a lot about Trump’s past week.

Shane Wright is a senior economics correspondent and regular columnist.

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