Blain’s Morning Porridge Feb 27th 2025: Where will it end? Trade Wars, Growth and China
“Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each”.
How sustainable is the Trump effect? The world is reeling from his demands and threats to trade. Trump’s power is to shock. Yet, we become inured to shocks, and work our way around them. How long before Trump’s backers and supporters realise that? And he hasn’t even started on China!
Today its Keir Starmer’s turn. What will his briefers be able to tell him about Trump’s mood before he walks into the Oval Office? Will the UK be on the receiving end of casual threats of 25% Tariffs, like Europe – which was apparently only formed to “screw the United States.” Or will Elon Musk read him the riot act on freeing Tommy Sheridan in the name of free speech (as defined by himself)?
Tomorrow Vladimir Zelenskyy will enter the lion’s den uncertain of what kind of tirade or welcome Trump will give him. Donald apparently still expects the thankful Ukrainians to gift him the deeds to the $500 bln Rare Earths candy store he’s been told is under Kiev. There was a great video on Linked-In mocking Trump’s expectations of a raw materials windfall from Ukraine…. fantabulous numbers from a fantasist’s mind. For proof of just how extraordinary Trump’s vision has become, try y’days Trump Gaza video from Donald’s Truth Social site. It’s truly… quite disturbing.
If I was a senior republican, or a concerned Tech Lord keen to see my particular brand of “American exceptionalism” monetised across the globe without turning off 7 bln non-American consumers… I’d be asking… When does this stop? There is a rising risk Trump’s verbals might see him trip over himself.
Heaven forbid, but if we were ever to begin to suspect Donald is not the political genius he says he is, nor an astute global deal maker, but just a greedy narcissist carried away because his minders haven’t set limits, then questions of political competency around the escalating US deficit and US Treasury yields would have to be asked. Not a problem you say: Trump has surrounded himself with a cabinet of very experienced experts to run the nation, and financial geniuses who will make everything good. Really? Name one who isn’t called Scott (and even he’s been sounding debatable.)
As a famous boxer once said – everyone has a plan till they get punched in the face. If the left-hook of economic reality ever connects withs Trump’s nose… the world will be laughing. Loudly. American voters? Less so I suspect. Of course, it won’t matter if Trump is wrong. He will deny it and blame someone else.
There is a world of difference between the fictions Trump espouses and the reality of the global economy. Imagine if Treasuries were to come under pressure as Trump’s battering of BS Blitzkrieg Politics and Tariff Threats trigger renewed domestic inflation and lead to recession? Gosh – who knew that might happen? There is a greater than zero risk Trump’s policies could score an awesome quintipple whammy in the first year of his new administration:
- Alienating America’s Allies.
- Triggering a Stagflationary Economic Bust (Inflation, Rising Unemployment, and Recession)
- Breaking Global Stocks.
- Crashing the bond market.
- Destabilising Confidence in the dollar.
To the best of my recollection, never before has a global financial catastrophe/crisis been named after an single individual, but The Trump Trauma of 2025/26 could be a first.
And the thing is… he hasn’t even really started. Watch what happens with China.
Trump’s already imposed a new 10% tariff on China – which is now impacting right across the US economy as it was specifically tweaked to hit small e-commerce retail orders from Chinese suppliers. He’s threatening more curbs on tech, energy and investment. There will be 100% tariffs if China were to step out of line – like invading Taiwan, or leading “renegade BRIC nations” to contemplate an alternative to the dollar. Trump has convinced MAGA supporters that China is the real enemy – a “foreign adversary” according to the protocols of populism requiring someone to blame and hate.
On one hand he’s threatening all kinds of additional anti-China rules and trade hard-stops, yet he is also in bed with the Tech Lords – many of whom have global businesses to protect, while others have products to boost that depend on their being clear and definable enemies.
Musk should be paying particular attention – after all, China is about the last place on the planet still buying Teslas.. (actually… not true. Tesla sales in China crashed 11% in January according to Reuters.) In contrast, Peter Thiel will be seeking opportunities to re-equip US armed forces with new data and weaponry (to replace all that terrible stuff Obama and Biden ordered) Palantir and Anduril can offer to cow China.
The basis of global growth is trade – nations doing what they are good at, where they have competitive advantage. (See the David Ricardo quote on top line.) Reverse these rules and there will be consequences. While Trump believes the US is so Big and so Powerful it can dictate any terms it wishes. However, trade wars bite both ways. There is precedent:
During the early 19th Century, following Nelson’s victory at Trafalgar, Napoleon could only gaze at the Cliffs of Dover, unable to transport the waiting Grande Armee across the Channel to invade perfidious Albion. He redirected the Army to the East to conquer Austria and Prussia, and set up his Continental System (an effective trade embargo of the UK, policed by French military might) to bring England to its knees through economic warfare. It was designed to deny the UK everything from War-stocks (then timber for ships) to luxuries.
The system collapsed – even Napoleon’s brother (then King of the Netherlands) was happy to trade with the Brits. Britain paid higher prices and bought more than France. Britain emerged from the system stronger and used the wealth it generated to pay European powers “subsidies” to join its coalition against France – ultimately leading to the Corsican’s abdication in 1814. (He came back to reprise his role briefly the following year.)
It’s a great example of why trade wars don’t work – because the US won’t deal with China, doesn’t mean other nations wont.
A full-blown trade war might impact the US far more than it would trouble China. However, the story being sold in Trump’s Washington is that China is in economic free-fall. It is not – it’s watching and spotting the multiple opportunities for new markets that Trump is throwing off. China looks on course to expand in the holes Trump is creating.
Is the US or China more vulnerable to a Trade War? China makes stuff. America imports more stuff. If America stops buying, China suffers. However, in the real world the question boils down to; can America swiftly rejig its economy to make the stuff that China currently supplies? It’s unlikely the US economy will be able to replicate China production in terms of cost and scale, especially as it cuts down on cheap illegal labour. At the very least onshoring production would be inflationary in terms of more expensive and scarce US stuff compared to cheap and plentiful Chinese stuff. And can China sell its stuff elsewhere. Yes. It can and will.
Then there is a deeply held mantra of American Exceptionalism – that’s why its stock market trades on such a premium and is higher rated than anywhere else. There is belief the US is more inventive, innovative and will lead the future economy through new Tech, and how China will always lag the US in terms of the new economy. DeepSeek may well be based on China scalping US models to train its homemade AI, but it works. It is also rewriting open access for the World to access its tech.
Trump’s vision for America was founded in raising up his MAGA supporters – those left behind. It’s now in cahoots with Big Tech. The hope is unleashing that exceptionalism will benefit the whole US economy. Will it? Or will Trump simply leave the isolated and surrender trade to China?
Out of time and off to do the day job…
Bill Blain
Author Morning Porridge
