Trump’s tariffs obscure a much bigger challenge for the world

FOR all the outrage at President Donald Trump’s swift and broad imposition of tariffs, there’s a bigger challenge for the world. The US economy is on a roll, doing much better than anyone anticipated just a few years ago and surpassing partners and competitors alike. Behind the tut-tutting about the negative consequences of levies and the dangers of protectionism is an underlying fear that long-held assumptions that China and, possibly, India will eclipse the US are wide of the mark.

This outperformance precedes Trump’s return and is unlikely to be undone, at least in the immediate term, by the impact of new duties. His administration this week ordered tariffs on imported steel and aluminium, and threatened reciprocal charges on countries that tax imports from the US. The step roiled markets from Thailand to South Africa. India intervened to prop up the rupee after the currency fell to a record low. The People’s Bank of China is resigned to managing the yuan’s retreat rather than trying to prevent its weakening. The greenback’s upward march the past few years shows little sign of reversing despite the Trump-induced upheaval. Tariffs are widely considered to be inflationary and likely to slow the pace of interest-rate cuts, assuming they still happen at all, in the next few months.

The reality is that the financial pull of the US is relatively undiminished, despite predictions of its demise at the hands of emerging markets, and, before that, the newly integrated eurozone. What if the current outperformance signifies that rather than just staving off decline, America is again an ascendant economic power? The trepidation that awaited Trump’s inauguration address and the potential for chaos crowded out discussion of almost any underlying economic theme. Over lunch in Singapore on Jan 20, one market veteran told Bloomberg journalists that clients feared a raft of contentious initiatives would be announced mere minutes after Chief Justice John Roberts asked Trump to place his hand on the Bible.