Global stock market crashes, the tariff war and Donald Trump

The tariff war promoted by President Donald Trump has had a strong impact on international markets and the financial system.

Since the COVID pandemic, the United States has suffered economically and has recovered, albeit timidly. But, on the other hand, the booming American economy has undergone a progressive de-industrialization.

For this reason, from the beginning of his term, Trump proposed as a central objective to improve US finances, applying protectionist measures against countries with which there is a negative trade balance.

This approach has caused a global stock market crash, increasing volatility in the stock, bond and currency markets. While some experts applaud his strategy as a bold attempt to protect U.S. economic interests, others warn of the risks of a protracted trade war.

Below, we take an in-depth look at Trump’s strategy and the main hypotheses that emerge about his true intentions.

What is Donald Trump looking for with the tariff war?

Tariff war consists of the imposition of taxes on imported products. In this case, Trump has directed these measures especially towards countries such as China, Mexico, Canada and the European Union.

The president maintains that this policy is aimed at correcting imbalances in the trade balance, promoting domestic production and protecting American jobs. However, the immediate effects include diplomatic tensions, trade retaliation and a widespread fall in the stock markets.

 

Context of the tariff war promoted by Donald Trump

When Donald Trump took office, the U.S. trade deficit exceeded $500 billion annually. For Trump, this figure was a sign of economic weakness and that other countries were benefiting at the expense of American workers.

In this scenario, the tariff war became one of Trump ‘s main political and economic tools. His administration argued that free trade should be “fair and reciprocal,” and that the United States could no longer tolerate unfair practices such as currency manipulation, state subsidies, or intellectual property theft.

 

Main actions of the Trump’s tariff war

Among the most relevant measures promoted by Trump are:

• Imposition of tariffs of 25% on steel and 10% on imported aluminum.
• Additional tariffs on technological, agricultural and manufacturing products from China.
• Application of tariffs to European agricultural products.
• Threats of new tariffs on cars imported from Europe and Japan.
• Trade retaliation from affected countries, such as China and the European Union.
• Negotiation of new bilateral agreements to replace existing treaties, such as USMCA instead of NAFTA.

These actions sought to pressure U.S. trading partners to give in to demands for greater openness to U.S. products and the elimination of practices considered unfair. They have also led to a tightening of trade relations and increased uncertainty in global markets.

Hypotheses about Donald Trump’s strategy

Various experts have formulated hypotheses to explain the logic behind Trump’s tariff war. Below, we explore three of the main theories.

Hypothesis 1: Pressure to renegotiate trade agreements

One of the most widely accepted hypotheses is that Donald Trump uses tariffs as a pressure tactic to renegotiate trade agreements.

According to this view, the tariff war does not seek a permanent confrontation, but rather to force U.S. trading partners to review agreements that are considered disadvantageous.

A successful example of this strategy was the renegotiation of the North American Free Trade Agreement (NAFTA), which resulted in the new United States-Mexico-Canada Agreement (USMCA). Under the USMCA, clauses were introduced that favor the automotive industry and reinforce labor rights, seeking to curb the relocation of companies.

Another example is the negotiation with China, in which Beijing agreed to increase the purchase of agricultural products from the US and to better protect intellectual property rights.

Trump has stated on multiple occasions that existing agreements were “poorly negotiated” and that his duty is to obtain fairer conditions for American workers.

According to this hypothesis, Trump is not seeking trade isolation, but rather improving the conditions of competition for American companies.

“President Trump sees international trade as a transaction where the United States must gain something tangible, not just maintain diplomatic relations,” explain analysts at the Brookings Institution.

 

Hypothesis 2: Incentivize the reindustrialization of the United States

Another hypothesis is that the tariff war is intended to encourage the reindustrialization of the United States.

Since the 1980s, the United States has seen many of its factories close or move to countries with lower labor costs, such as Mexico or China. This deindustrialization had a strong impact on traditionally manufacturing cities and regions, known as the “Rust Belt“.

In this way, I would look for:

• Reviving sectors such as manufacturing and steel.
• To create better-paid jobs in the interior of the country.
• Reduce dependence on foreign products, especially from China.

By imposing tariffs on foreign goods, Trump seeks to make imports more expensive and give local producers a competitive advantage. Thus, companies would have incentives to reopen factories in the United States, generate jobs and strengthen the domestic economy.

Examples that support this hypothesis

• Several U.S. companies, such as Harley-Davidson, announced the partial relocation of their production to the U.S. due to rising import costs.
• States such as Ohio and Michigan, traditionally industrial, began to receive new manufacturing investments.

This strategy, however, faces criticism. Some experts warn that reindustrialization cannot be achieved only through tariffs, but requires policies of innovation, job training and technological modernization. Moreover, this is a process that could be slow and costly, risking hurting the U.S. economy.

 

Hypothesis 3: Political strategy to strengthen its electoral base

The third hypothesis states that the tariff war responds to internal political motives.

Trump has built a significant portion of his electoral base in industrial states that have been affected by globalization and foreign competition. Taking a firm stance against countries like China reinforces his image as a “defender of workers” and a “fighter against the establishment”.

The rhetoric of “America First” connects emotionally with millions of voters who feel that the traditional political class has abandoned them. The tariff war, in this sense, not only has an economic component, but also a strong symbolic and political component.

Donald Trump’s tariff war: a negotiation or something more?

The tariff war promoted by Donald Trump is one of the most controversial policies of his administration. While some see it as a necessary strategy to protect U.S. interests, others fear it could trigger a global recession.

Hypotheses about his true intentions — renegotiating agreements, reindustrializing the country, or strengthening his electoral base — show that Trump’s trade policy combines economic and political elements.

The future of the tariff war will depend on the ability of the United States and its partners to reach new agreements and on Trump’s ability to manage the risks involved in his strategy.