I suppose we could add the US President’s moniker to the mix and call it the Trump Tariff Turmoil. The TTT has an upbeat, alliterative ring to it.
I asked my AI chatbot for some suggestions. It initially thought I was joking and came up with “Trade Shade”, “The Great Trade Barrier Reef” and “Tariff-ied yet?”
After I chastised it for being so glib, it came back with the Trade War Crisis or TWC.
That sounds pretty good to me.
We definitely have a trade war, and I think we’re in a crisis.
I know our Government doesn’t want to use the word crisis yet.
Both the Prime Minister and Finance Minister have done their best to reassure the public this week.
That’s fair enough. It is their job to stay calm and instil confidence.
We need to avoid panic. Last week, I made the case that New Zealand was well-placed to ride this out as long as we held our nerve.
I still think that.
But we need to acknowledge that things haven’t gone well in the past week.
World markets took things to the brink of a full-blown crash at the start of it.
Trump looked ready to ride out the equity market turmoil, but when a sell-off of US bonds caused yields (the interest rate on those bonds) to spike, he was forced to back down and grant a 90-day pause on the big reciprocal tariffs he had imposed.
I’ll pause here as well to make the point that bond markets are considered by many to be the most powerful force in the global economy.
They are the markets that price the world’s debt ... and the world runs on debt.
With a value exceeding US$130 trillion, global bond markets represent an outstanding debt that dwarfs the world’s actual money supply.
The US has about US$35t of debt on bond markets. It is perhaps its biggest area of vulnerability.
James Carville, a political strategist for Bill Clinton, made the point with a famous line back in 1993:
“I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now, I would want to come back as the bond market. You can intimidate everybody.”
A year later, Bill Clinton and the US economy faced an economic crisis which was dubbed “the bond massacre”.
That’s a much juicier name for a market meltdown.
There was another bond massacre in Britain in 2021 when Prime Minister Liz Truss tried to initiate tax cuts that market traders believed weren’t properly funded.
A bond market sell-off forced her to back down and she eventually resigned.
Basically, if bond markets turn against your economy, they can sink it because they can push borrowing costs up to levels which can’t be sustained.
So when US bond yields started spiking on Wednesday night (NZT) Trump moved very quickly.
But he didn’t back down with China. In fact he doubled down. And so the market relief was short-lived.
At the time of writing, the US has imposed a tariff of 145% on Chinese imports. China has responded with a 125% tariff.
This situation is simply not sustainable. It has to be resolved.
One has to assume there will be talks and negotiations, but neither side is prepared to lose face.
It’s a very dangerous situation, the economic equivalent of the Cuban missile crisis during the Cold War between Russia and the US.
If it still seems a bit surreal to be making that kind of comparison, it’s because the real-world impact of the tariffs hasn’t yet hit consumers in the pocket.
The factories and the farms in the firing line are yet to feel the shock of the pricing crunch.
Here’s hoping they never do.
It certainly took time for the GFC to blow up the real economy.
In fact, before it was the GFC, it was called the credit crunch.
There were several months of financial market carnage before the collapse of Lehman Brothers Bank in September 2008 blew it all into mass public consciousness.
Back then, the pre-Lehman developments all seemed a bit arcane to make the leap from the business pages to the front page of the paper.
With Donald Trump at the centre of this crisis, there is no issue with the trade war crisis grabbing headlines.
But the gravity of it all is not so easy to grasp.
During the GFC it was commercial debt markets that seized up.
Back then, US bonds were a safe haven. So investors were buying bonds, driving the price up and the yields down.
That enabled the US Government to come to the rescue, issuing more bonds and using the cash they generated to prop up banks deemed too big to fail.
The US Government was able to avert the crisis by stepping in as a lender of last resort.
The current situation is different because A) it has been caused by US government policy and B) the market is selling government bonds, pushing yields up and making it harder to raise more debt.
The only way out of this has to be some sort of policy compromise.
It’s just not clear who will blink first.
In this column, I’ve tried to step back and look at the situation through a historical lens.
That’s partly for pragmatic reasons.
It’s nearly impossible to write a column about the latest political or market moves with any kind of time delay.
By the time you read this, the whole thing might have been resolved, or the world’s financial markets might have completely seized up.
The other reason for stepping back from the immediate market ups and downs is that it is a little less panic-inducing.
When the dust has settled, where are the events of the past days going to sit in the history of global market turmoil?
There’s no question that the global economy has changed.
Even the baseline 10% tariffs and others on cars and specific industries have upended an era of globalisation and trade liberalisation.
But something has to give on the China-US showdown. If it doesn’t, then, whatever the final name, it will be talked about for generations to come.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist and also presents and produces videos and podcasts. He joined the Herald in 2003.
