Blain’s Morning Porridge March 31^st 2025: Stand Up to Trump to Avoid a Global Trade War

“Every man lives by exchanging…”

Markets are struggling with just how much Trump’s tariffs might derail global trade and growth. In normal times the solution would be patient negotiation to avoid destructive trade wars. These are not normal times – we are dealing with America First MAGA zealots.

Yet another exciting week in prospect for the global financial markets as doubts and fears continue to escalate. Liberation Day.. April 2^nd approaches, when Trump will unveil his grand plan of Tariffing the global economy to Make America Great Again by bankrupting everyone else.

I can’t wait…..

Over the weekend there was much debate of about the elasticity of demand for the latest model Rolls Royce. How many American Tech-Lords seeking a new swanky English motor will be put off if dealers simply slap 25% onto the sticker price? (If you have to ask, then you can’t afford it.) If the prices of European sports-cars rise by 25% there might be a small effect – but if you want a proper sports car it has to be European as the Americans lack the subtly, refinement, style, panache, (I could go on), to produce a properly luxury look-at-me refined piece of art on 4 wheels. (Aston for me… best, but most unsuitable car I’ve ever owned.. you can’t put a J-97 spinnaker in the boot.)

In a perfect world… If America isn’t going to buy our cars, then somebody else will… who? Russian Oligarchs? Chinese businessmen? African Autocrats? If only…. Well.. there is a very, very competitive world out there. To sell European cars to the growing middle classes of Asia they will need to be very, very good and very, very competitive. Challenge? Why not?

Taking a look at markets this morning and its clear tariffs threaten to become the flags the global economy dies under. Global trade wars look all but inevitable. Gold at a record high. Stocks are selling off on the growth implications of Trump’s tariff regime. Even US treasuries are on a nose-dive, and the dollar has lost its lustre – all of which I predicted would occur as the world loses confidence in Trump’s political competency.

Conventional wisdom says Tariff Wars will slash global growth and upend alliances – so say all the economists. How could anyone possibly thing tariffs are a good idea?

Er… yet, even in the 100% perfect pre-Trump global economy, tariffs were a commonly used state-tool and it was shown they could be used to drive positive investment and growth under President Biden (he of blessed peaceful memory). The fact is tariffs have been a feature of economic growth and trade since ancient village-states first argued about the rock/goat exchange rate.

There was a fascinating article in the WSJ over the weekend about Harley Davidson, the US Motorcycle maker. A bike that costs $28k in the USA costs $77k in Denmark after 25% VAT and 150% luxury taxes are added. The latest EU tariffs in response to whatever-out-of-thin-air number Trump proposes next will could hike that cost to $124k – 4.5 times the cost of the same Hog in America. (I always fancied a Harley-Davidson, but never got round to learning how to ride a MotorBike.)

Most nations, (and states in the US), impose regressive sales taxes on consumers. The luxury tax highlights Trump does have a point. Not all nations play an entirely fair game with other taxes or market access. The message to US voters; in addition to punitive tariffs to achieve certain policy goals, Trump will also charge reciprocal tariffs to match what other nations charge, is going down a storm across the MAGA heartlands.

Less so in Europe, Canada or Mexico.

The simple read on Tariffs is they are inflationary, impacting the price of goods in the nation that imposes them – that consumers always pay. In the complex modern economies, they create massive friction within supply chains, creating multiple additional costs as parts and finished products are multi-sourced.

However, imposed quietly, or in response to specific threats, tariffs have been shown to have a role and be effective at levelling trade imbalances. Imposed unwisely or in an unfocused manner, they are likely to cause all kinds of consequences – the obvious one is triggering across-the-board Trade Wars.  And that’s why the world is getting so exercised about Trump Tariffs – they are not economic scalpels, but blunt instruments.

The sensible approach would be to do anything to avoid destructive trade wars of the sort that deepened the 1929 crash into the depression of the 1930s, a factor that exacerbated populist tensions in the run up to the 1939-45 World War. Hence the arguments in favour of not responding directly to Trump’s tariffs, and not escalating trade tensions. Many economists argue its better to simply accept and absorb the tariffs and seek to negotiate fairer trading going forward.

Negotiation is the key…

And that’s why I reckon we’d be wasting our time.

Trump’s tariffs are not a negotiating tactic. They are an article of faith for the New Republicans, the MAGA barkers, and the sycophantic loyalists Trump has chosen to surround himself with. MAGA depends on identifying America’s enemies to American voters – which would appear to be everyone else. Tariffs on the firms and nations that have “wrecked America” became inevitable the moment Trump won the election. As he makes noises about a third-term, its increasingly in the globe’s interest to seek stability out of Washington by calling his bluff.

There are none so deaf as those who will not listen. It’s not that Team Trump don’t understand the way the world works – it’s that they want to rewrite the operating code to favour themselves. They want America First solutions, where the upside is all weighted to them. (Another example is the extortionist terms being put in front of Zelensky – and Trump’s vicious warnings about the consequences if he doesn’t immediately sign.)

These new American leaders see the world in very simplistic terms; business on their terms only, friends as a financial drain, and the ties of history do not matter. The Signal Email Chain, the Zelensky White-House mugging, Vance in Munich…. You don’t need to be a genius to figure these guys have a very, very different approach to conventional politics. We Europeans are pathetic freeloaders in their eyes.

Perversely about the only thing Trump’s tariffs threats have done has made heroes out of struggling foreign leaders – his boorish behaviour giving domestic boosts to Mark Carney, Emmanuel Macron, and even Sir Keir Starmer. They may find they do even better by directly standing up to Trump, and matching the tariffs. Trump is a bully and does not expect anyone could be so foolish as to push back. Surprise him and he will likely cave again. Push back on his tariffs and remind American voters they share a planet with the rest of us….

When I’ve challenged my American chums about the likely failure of such one-side approaches to trade, they counter by questioning why should America have to subsidise our trade and defence? It doesn’t. It just needs to be sensible and realistic about trade and change.

And don’t quote me nonsense like Trump has woken up Europe to defend ourselves. We’ve been paying the US military-industrial complex trillions for nearly 80 years for our defence, a cost we were happy to bear. Cooperation across the Atlantic gave Europe and the US the stability and economic growth from post war recovery onwards. It became the basis of the American near-century of exceptionalism.  America grew rich because its’ leaders had the foresight to understand that making former enemies into friends and strong trading partners was the optimal economic choice! America will grow poor and decline because its forgotten what friends and allies are.

Out of time and back to the day job….

Bill Blain

Author the Morning Porridge

Founder Windshift Capital

Partner Shard Capital