As Trump Administration Considers Retreat on Tariffs, Will It Resort to Usual US Fallback Option? 

With a big push from Washington, the traditional value chain pyramid that has supported the American economic house of cards for decades is under serious duress. So is its global trading system, already strained by geopolitical blowups coming from the empire in decline. Like so much with Trump, he is acting as an accelerant. All “these structural shifts have accelerated in recent months” according to Singapore Senior Minister Lee Hsien.

Assessing the Damage So Far

A brief look at the damage so far reveals that the century-high tariff levels imposed by Trump are expected to hammer global economic growth this year.

The IMF downgraded its projection for global GDP growth to 2.8 percent, down from a forecast of 3.3 percent in January. Humiliatingly for Trump, US growth projections took the biggest hit among wealthier countries, dropping to 1.8 percent growth from 2.7 percent. (Although the EU could join the party if it doubles down on its China “de-risking.”) And as always, the pain will hit the poorest the hardest.

Coupled with climate change (where Trump, aside from his degrowth tariffs, is also acting as an accelerant), these trends are heading towards a turning point where global trade growth no longer keeps pace with GDP. That could dramatically slow economic growth in many countries, which will cause more social and political problems. Singapore Minister Lee said “In that event, the world would truly enter a new epoch, which it has not seen since the Second World War.”

While Team Trump might be reconsidering the breadth of the tariffs on China, they are still likely to remain high. Here’s the WSJ:

One senior White House official said the China tariffs were likely to come down to between roughly 50% and 65%. The administration is also considering a tiered approach similar to the one proposed by the House committee on China late last year: 35% levies for items the U.S. deems not a threat to national security, and at least 100% for items deemed as strategic to America’s interest, some of the people said.

To What End? 

The official line is simple enough. Here’s Treasury Secretary Scott Bessent speaking at the Institute of International Finance on Wednesday:

China, in particular, is in need of a rebalancing. Recent data shows the Chinese economy tilting even further away from consumption toward manufacturing. China’s economic system, with growth driven by manufacturing exports, will continue to create even more serious imbalances with its trading partners if the status quo is allowed to continue.

China’s current economic model is built on exporting its way out of its economic troubles. It’s an unsustainable model that is not only harming China but the entire world.  China needs to change. The country knows it needs to change. Everyone knows it needs to change. And we want to help it change—because we need rebalancing too.

China can start by moving its economy away from export overcapacity, and toward supporting its own consumers and domestic demand. Such a shift would help with the global rebalancing that the world desperately needs.

That’s all well and good, and perhaps it would be best for China to “rebalance.” But the US refuses to accept that it doesn’t get to make that call.  In attempting to use tariffs as a geopolitical bargaining chip, it is weaponizing trade and causing other countries to do the same.

There are also indications that Washington is after more than just aiding the “global rebalancing that the world desperately needs.” On April 16 the Wall Street Journal reported that the U.S. plans to use global tariff negotiations to isolate China. The Irish Times on the same day had the scoop that any Washington-Brussels deal over tariffs will likely involve an agreement for the bloc to fully join the US in the economic war against China.

In addition to the stated goal of reorienting supply chains outside of China via “friendshoring,” there are the more bonkers statements coming from Trump World.

Donald Trump’s top economic advisor Stephen Miran let it be known that part of Washington’s rationale behind the tariffs is to force countries to pay the US tribute to maintain its global financial and military empire. Good luck with that.

And there’s JD Vance admitting that the US wants China and the “Global South” at the bottom of the international division of labor, meaning that China has gotten too big for its britches. It was fine when it produce low value-added goods or higher-end, designed-in-the-West products, but absolutely not okay if China starts designing and making its own high end products surpassing the West. And so Washington wants to turn back time to the good old days when China knew its place. Good luck with that, too.

The problem is the US simply doesn’t have the economic clout it thinks it does to affect this hierarchical vision anymore.

The Dispensable Nation

Other countries, of course, take issue with China’s ongoing dominance in low-tech manufacturing even as it moves higher up the value chain. Yet Washington’s typical heavy-handed shakedown approach has managed to alienate most of them and push them into China’s embrace:

Singapore’s PM has laid it out.

He knows the U.S. has abandoned the multilateral trading system, upon which Singaporeans wealth is based.

There’s only one stable force with the heft to anchor multilateral trade in this episode of disruption. It’s China. https://t.co/Zb0sZnEOZq

— Warwick Powell | 鲍韶山 (@baoshaoshan) April 5, 2025

Add to that the fact that China might also be more willing to relinquish control over low-end manufacturing if it wasn’t so deadset on autarky due to the all-to-reasonable concerns over US efforts to isolate it.

Even if the mainstream press is starting to come to terms with the US inability to shape events. Here’s a good summary of the coalescing conventional wisdom from Alan Beattie, former economist at the Bank of England, writing yesterday in the the Financial Times:

Bessent and other administration officials are now beetling around the world desperately trying to sign dozens of trade deals while fractious financial markets metaphorically hold a gun to their heads, and we’re asked to believe it is all a cunning plan. Obviously, Trump’s strategy is terrible: it’s not even clear what he wants. But a less inept administration would also be struggling. Over the decades, the US’s leverage to remake the global trading system — capital flows, advanced technology and access to its vast consumer market — has weakened relative to China. Barack Obama used to call the US the “indispensable nation”. In trade and tech terms that is increasingly untrue.

During the post-second world war Marshall Plan, the US created a largely Atlanticist political economy in western Europe. It offered not just financial Marshall Aid but also advanced technology, and access to its growing consumer market. Those advantages have dissipated. US aid budgets have massively shrunk relative to China’s, and the so-called Department of Government Efficiency has more or less closed down their last vestiges in the US Agency for International Development.

And while China dominates in fields like necessity items, clean tech, mineral processing. The US can offer market access to its increasingly impoverished populace drawing in credit card debt, but even that isn’t a given anymore. Beattie continues:

Trump’s idea is to threaten to take market access away with high tariffs and then restore it in return for trade concessions. It’s all stick and no carrot. The credibility of his threat to impose permanently high import duties is subject to the whim of the financial markets, and his trustworthiness in keeping those taxes low following a deal exceedingly suspect. In the global game of trade poker, Trump inherited a weakening hand and is playing it extremely badly. Bessent and his other officials are in a precarious position. The US does not have the aid, the technology or the market access to exert control over global trade the way it once did, and Trump’s erratic behaviour is rapidly increasing the probability that it never will.

Other US Options

Despite the tariffs gambit blowing up in Trump’s face, the US is unlikely to stop trying, and even an aborted tariffs plan will still cause upheaval in global supply chains. If tariffs don’t force China to make a “deal,” what could Trump opt for instead? Washington is likely to continue with an attempt to weaken Chinese freight shipping and shipbuilding, as well as push ahead with the fight over strategically located ports.

For example, there are still US fees for Chinese-built ships and the potential sale of ports in Panama and elsewhere.

Hong Kong-based conglomerate CK Hutchison Holdings in March announced that it was selling all its overseas ports, including two at the Panama Canal, to a consortium led by US investment firm BlackRock in a deal worth $23 billion. The Trump administration was reportedly in close contact with BlackRock during the lead up to the sale and helped instigate it with its pressure on Hutchinson so this is essentially a US-led Western takeover.

CK Hutchison currently operates 53 ports in 24 countries. Under the deal with BlackRock, the conglomerate would sell all of them except the 10 it operates in mainland China and Hong Kong. A a low profile Italian-Swiss family behind the Mediterranean Shipping Company is acquiring 41 of the ports in the deal, with BlackRock controlling the two in Panama.

But the deal remains in question following China’s market regulator launching an antitrust probe into Hutchinson, which coincided with news that a final signing of the deal would not go ahead.

While the Panama ports in the deal received the lion’s share of the attention in the US, it’s a deal that would have global implications, as the following map shows:

Compare that to a map of global chokepoints, and it’s clear why Beijing is putting the kibosh on the deal:

Where chokepoints and Hutchinson ports don’t overlap, such as the Cape of Good Hope, the US is in the midst of a pressure campaign on South Africa with an eye on a naval base there.

Chief among China’s concerns with the Hutchinson deal is that the new ownership could, under pressure from Washington, refuse Chinese ships or militarize the ports and use them to enact a maritime blockade of China.

Choke points one area we could expect to see US escalation in the face of a potential backtrack on tariffs—more pressure on South Africa, more US violence in Yemen and Somalia, and a further militarization of Panama.

One of the driving forces behind Hutchinson’s decision to sell was the increasing pressure being put on its business by the US. From the WSJ:

In the days before finalizing the deal, Fink held calls with Trump, Secretary of State Marco Rubio, Treasury Secretary Scott Bessent and national security adviser Michael Waltz, ultimately garnering the administration’s blessing, according to people close to the deal.

Behind the scenes, Hutchinson executives had grown uneasy that a hostile Trump administration could make life hard on their sprawling global conglomerate…

Hutchinson executives had weighted selling these and dozens more ports before, but the timing wasn’t right. With Trump applying pressure — and Hutchinson shares trading at a substantial discount to the company’s underlying assets — that changed. …executives were surprised by Trump’s decision to revoke special trade privileges for Hong Kong, and Panama authorities had just announced an audit of Hutchinson’s contract.

There was also the fact that U.S. Southern Command was/is partnering more closely with Panamanian security forces and drawing up plans to seize the Panama Canal by force—only if necessary, of course. Does the failure of the tariffs gambit and potentially the Hutchinson deal too make it more likely the US goes through with such threats?

That’s how it often goes with Washington. Like an organized crime outfit, if its terms aren’t accepted, it turns to force. Thing is, even if the Hutchinson ports deal goes through, and even if Washington tried any funny business at them and global chokepoints, we’d still be back in the same spot we are today with the tariffs. The US would still be cutting off its nose to spite its face.

We’ll have to wait and see if it’ll go that route again. According to the deal between CK Hutchison and BlackRock, both parties have 145 days to come to a definitive agreement. There are 95 days to go.