Weaponizing Uncertainty

Trump’s tariffs were meant to make the U.S. a safe option for businesses looking to expand. It’s not working out that way.

- Shawn Donnan

Donald Trump’s weapon of choice in a trade war is the import duty. Yet the self-appointed “TariffMan” has also been wielding another cudgel: uncertainty.

By sowing doubts about the future of even the longest-term economic relationships, Trump has repeatedly proclaimed his intent is to deter companies from investing outside the U.S. and to destabilize the economies of the nations with which he’s negotiating. The not-so-subtle message goes something like this: Wondering how long the U.S.China feud will drag on? Worried about which nation Trump will pick a fight with next? Build your factory here and help Make America Great Again.

“I can’t think of when we’ve seen this approach before,” says Maurice Obstfeld, the International Monetary Fund’s outgoing chief economist. “No president should want to purposely inject more uncertainty into the decision process of private sector actors.”

There’s little proof so far that the approach is paying broad dividends. Its shortcomings, meanwhile, are becoming increasingly visible. Witness the wild stock market swings that have followed the announcement of a 90-day truce following Trump’s dinner on Dec. 1 with Chinese President Xi Jinping in Buenos Aires. “One of the remarkable things about the last two years is how investors, consumers, and business leaders have learned to look through political and geopolitical uncertainty and carry on with business,” Ethan Harris, an economist at Bank of America Merrill Lynch, wrote in a recent note to clients. “That resilience is now being tested.”