The Great Economic Divorce
The Trump administration recently filed for the equivalent of divorce from the global trading system by imposing heavy tariffs on most of the world. The announcement on April 2, dubbed “Liberation Day” (I told you it sounded like someone filing for divorce), caused stock and bond markets to tumble. Markets had expected a far smaller increase in tariffs that targeted fewer countries.
Many tariffs were subsequently paused for 90 days when interest rates on the 10-year government bond rose to over 4.5%. The rapid rise in rates reflected concerns that foreign investors in U.S. debt may sell their positions and move the assets back to their home countries.1
What is the President hoping to accomplish?
The administration is seeking to remake the world trading system, reallocate who bears the costs for policing the system, compete with China, reduce the federal deficit, and improve the economic situation of millions of blue-collar Americans. Based on the Liberation Day proposals, it feels like he wants to get it done by Memorial Day.
Is trade a good thing?
Yes. Trade has positively impacted the lives of the majority of the world. According to the World Bank, 800 million Chinese have been lifted out of poverty over the last 40 years.2 The U.S. consumer has benefited from lower-cost goods. Global trade increases competition, which contributed to low inflation from the Reagan administration to the first Trump administration. Financial markets have soared, especially in the U.S., as innovation and access to world markets have spurred profits.
How healthy was the world trading system before the President proposed the tariffs?
Despite all these positives, the relationship has been fraying for a while. While all countries have benefited from trade, some have benefited more than others. Until Liberation Day, the U.S. offered wider access to its markets than most other countries. China has used exports to the U.S. and elsewhere to grow in prosperity and power. Mexico has benefited from its proximity to the U.S.
Sometimes, trade restrictions occur because of customs, legal structure, or rules. In 2023, Japan exported 1.4 million cars to the U.S. and only imported 19,000 American cars.3 Chinese manufacturers have stolen the designs of products they were contracted to manufacture. Many countries use rules to keep U.S. agricultural exports from entering their borders.
The U.S. has also borne the cost of protecting world trade, spending more on its military as its allies spend less. While investors have profited, U.S. manufacturing and its blue-collar workers have lost their share to other countries.
Why are markets reacting so negatively?
Markets hate uncertainty. Because the proposals penalized so many countries with very high tariffs, investors are seeing the unravelling of a business-friendly world. They fear reprisals from other countries that will shrink the world into trading blocks and reduce the markets for the world’s largest companies.
Uncertainty increases the risk of a recession. When people are confident about the future, they are willing to take risks. Even an American company that expects higher tariffs won’t expand because the on-again, off-again tariffs give no clarity on the final policy. People worry about losing their jobs here and overseas. They buy less, and the global economy slows.
Tariffs also increase the risk of inflation. If tariffs stopped Japan from exporting cars, the U.S. auto industry could not replace that capacity overnight. While it might hire more people and start expanding plants, those changes would take time. When supply decreases and demand remains constant, prices rise.
How should Christians respond?
Invest wisely: Expect the world to be more volatile and bear with it. The reward for persevering through challenging market days is being able to look ahead to more affluent and generous decades supported by long-term gains.
Consume differently: Be prepared to quickly re-evaluate the items you buy as costs change. The cost of small items made overseas will likely rise, as will items assembled in the U.S. with components produced abroad. This may also be a good time to reassess what truly brings life and joy and surrender some of the things that don’t.
Don’t stop giving. As the world's needs escalate, churches, ministries, and international workers may face funding challenges. It will be important for God’s people to maintain—or maybe even increase—their charitable intent and Kingdom investment.
Pray for world leaders: When leaders treat trade as win-lose rather than win-win, it quickly devolves into lose-lose.
See people as God sees them: All people are made in the image of God, whether they live in the U.S., China, Mexico, or Gabon. They are not our enemy.
Share the gospel: People are more open to the gospel when alternatives like commerce, politics, and money are shown to be lacking.
The world is reeling at the depth and pace of change. In the midst of it, we need to continually remind ourselves (and each other) that God’s provision has always been and will always be more than enough. And as we radiate joy amid the uncertainty, we are preaching the gospel well.
