If bathos were an Olympic sport, Donald Trump would be in line for a gold. Last Friday he threatened to savage China’s economy by banning all critical software exports in retaliation for Beijing’s controls over rare earth minerals. By Tuesday the trumpets of trade war had been muted and Trump was muttering about the US boycotting Chinese cooking oil and making its own.
When Trump announced massive tariffs on his so-called “liberation day” of April 2, there was a genuine fear his trade war would turn off the engine of global import demand and plunge the world into recession. It hasn’t happened. This week, the IMF, albeit wrapping it in gloomy language, predicted the global economy would slow modestly from 3.3 per cent growth last year to 3.2 per cent this and 3.1 per cent next.
The Trump administration’s vision of remaking the world using tariffs was always a fantasy. The US is simply not big enough, and tariff powers have practical and political limits. Manufactured goods may dominate international trade but not the global economy. The real risks are in other sectors: extractives, in the form of the US turn back towards fossil fuels and China’s control over rare earths, and services in the form of artificial intelligence (AI).