Walling Off The Markets
How Trump’s Tariffs Are Sabotaging Global Trade, Spooking Markets, and Igniting an Economic Slowdown All to Solve a Problem That Doesn’t Exist
As the global economy stumbles into Trump’s tariff thunderdome, it’s worth pausing to acknowledge that most people, including, worryingly, the person issuing these tariffs, don’t actually understand how trade works. The very premise behind this economic brinkmanship is flawed at the root, driven by the false belief that trade deficits are a kind of national failure, a sign that we’re “losing.”
But as economist Jeffrey Sachs recently reminded us, “A trade deficit is not a trade policy. It’s not even a problem. It’s a macroeconomic identity.” Let that sink in. The U.S. runs a trade deficit because it imports more than it exports, which often reflects strong domestic demand, a stable currency, or investment flows, not some nefarious scheme hatched overseas to bankrupt the nation. Slapping tariffs on allies and rivals alike doesn’t ‘fix’ anything; it just jacks up prices, triggers retaliation, and injects fear into an already twitchy global system.
Sachs continued, “The trade deficit is determined by macroeconomic variables, not trade policy.” And yet here we are, watching the administration unleash a barrage of tariffs as if they were bailiffs reclaiming a pawned economy. What this policy actually creates is inflation, chaos, and a chilling message to the world: the United States no longer honors the rules it helped write.
Trump is using the trade deficit like a campaign prop, loud, misunderstood, and useful for stirring resentment. But that economic theater is doing real damage. The IMF’s revised forecasts show just how far-reaching that damage is, and Sachs’ words give it context: this is not strategy, it’s sabotage dressed up as populism.
This morning’s market rally opened with a fragile smile, but behind the tickers and green arrows lies a deeply unsettling global reality: the International Monetary Fund has just downgraded the world economy, and not by a little. Growth is collapsing under the weight of Trump’s tariffs, which now sit at levels not seen in over a century. It’s as if the global economic system has been told to hold its breath indefinitely while a reality TV host retools the rulebook in crayon.
The IMF’s updated World Economic Outlook, hastily revised after Trump’s announcement of universal tariffs and suspended mega-rates, is sobering in its clarity. Global growth for 2025 has been cut from 3.3% to 2.8%, a downgrade with serious reverberations. The U.S., supposedly the center of the economic universe, is looking at just 1.8% growth in 2025, down a full percentage point from 2024, and inflation? That’s not retreating as hoped, instead, it’s climbing, with a new 2025 estimate of 3%. The forecast for 2026 isn’t much better.
And while the Fed is trying to hold the line, Trump has taken his sledgehammer to central bank independence, publicly berating Jerome Powell and stoking fears that he might try to remove him. This isn’t just a bad look for economic credibility, it’s a red flag for global investors. When even the IMF, historically cautious in its language, starts talking about “resets” and “extreme complexity,” you know the system is running on fumes.
Chief economist Pierre-Olivier Gourinchas called it a “new era,” and not in the aspirational, forward-looking sense. This is a new era of fragmentation, uncertainty, and economic regression. It’s the era where tariffs are less about strategy and more about spectacle, where chaos is the point. U.S. neighbors aren’t escaping the fallout either. Canada’s growth has been pared back to 1.4%, and Mexico? Negative growth at 0.3%. Let that sink in. Trump’s economic warpath is now dragging our closest trading partner into contraction.
Europe’s not faring much better. Germany has effectively flatlined at 0.0% growth, Britain is struggling with weak consumer confidence and higher borrowing costs, and Japan is feeling the tariff whiplash with a projected 0.6% growth rate for 2025. China, meanwhile, faces a 1.3 percentage point hit from the tariffs alone. These are not small tremors; they’re structural shocks.
The IMF even had to revise its five-year global growth forecast, now stuck at 3.2%, well below the historical average of 3.7%. And global trade growth? Slashed in half, down to 1.7% in 2025. This is a disassembly of the global trading framework, one Trump seems hellbent on accelerating.
Yet markets, ever the hopeful gamblers, started Tuesday on a high. Maybe it's denial. Maybe it's algorithmic autopilot. Or maybe, as Gourinchas hinted, the real panic hasn’t hit yet. “We are not seeing a stampede,” he said. “Yet.”
And so, we find ourselves in this surreal interlude, cheerful charts masking anxious whispers. The markets may be in the green, but make no mistake: the economic horizon is clouding, the winds are shifting, and the ground beneath our feet is less stable than it appears.