Georg Riekeles knows about hardball trade negotiations: during the long and arduous talks about the terms on which Britain would leave the European Union, he was an adviser to Michel Barnier, the E.U.’s chief negotiator. Back in April, when Riekeles saw that President Donald Trump issued an order, which was subsequently suspended, imposing blanket tariffs of twenty per cent on E.U. exports to the United States, he had a clear view on how the Europeans should respond: by threatening hefty duties on U.S. exports to Europe. This was what China had done, and it seemed possible that America’s other major trading partners would join together to force Trump to relent. “What was needed was for the E.U. negotiators to prepare a broad retaliatory package,” Riekeles, who is now an associate director at the European Policy Center, a Brussels think tank, told me this week.
The E.U. did hit back by imposing hefty duties on some iconic U.S. goods, including Kentucky bourbon and Harley-Davidson motorcycles. Subsequently, it threatened to expand the levies to U.S. aircraft, car parts, and certain other products. But, in the end, it held back from threatening Trump-style blanket tariffs and invoking the E.U.’s new Anti-Coercion Instrument, a policy tool that was introduced in 2023 to deal with external economic pressure, which would have enabled it to target U.S. banks and tech giants, such as Google and Meta, which have huge businesses in Europe. Referring to the E.U. leaders, including Ursula von der Leyen, the president of the European Commission, Riekeles said, “They never got going on a really punitive package.”
At the start of this week, the White House announced a one-sided framework agreement in which most European goods that enter the United States will face a levy of fifteen per cent. The announcement also said that the E.U. had agreed to eliminate all tariffs on U.S industrial goods, invest six hundred billion dollars in the United States, and greatly increase its purchases of U.S. energy products and military equipment. “This is a pretty disastrous outcome—a capitulation and a humiliation all in one,” Riekeles said. “The E.U. leaders didn’t take the full measure of Trump’s trade policies and what his Presidency is about.”
In Trump’s telling, of course, his goal is to revive American manufacturing, reduce the trade deficit, and raise revenues. Last month, as the stock market hit new highs and some economic indicators were suggesting that the economy as a whole was holding up surprisingly well under his tariff onslaught, he wrote on social media. “The Fake News and the so-called ‘Experts’ were wrong again. Tariffs are making our Country ‘BOOM’.”
A series of economic reports that were released this week illustrated the emptiness of Trump’s claims. On Wednesday, the Commerce Department released figures showing that during the first half of 2025 G.D.P. growth slowed sharply compared with last year. Frantic efforts by businesses and consumers to front-run Trump’s tariffs by ordering foreign-produced goods before the levies took effect have distorted the quarterly G.D.P. figures, which show the economy contracting at an annualized rate of 0.5 per cent from January to March and growing at a seemingly healthy rate of three per cent between April and June. If you combine the figures to correct for the distortions, they show G.D.P. expanding at a rate of 1.3 per cent during the past six months, compared with 2.8 per cent in 2024. That’s a big drop.
Given all the uncertainty created by the chaotic rollout of Trump’s new tariff regime, it’s hardly surprising that employers have been thinking twice about hiring workers. The official employment report for June, which was released a month ago, showed weakness in many private-sector industries but the over-all scale of the slowdown wasn’t clear until the July report came out, on Friday. Leaving aside seasonal farm labor, employers created seventy-three thousand new positions last month, a smaller number than Wall Street was expecting. But the real shocker came in the revised estimates forMay and June, which showed that job growth fell to below twenty thousand in each month. That amounts to a virtual standstill. Taking the last three months as a whole, employment growth has been weaker than in any comparable period since the covid-19 pandemic.
Trump’s initial response to the jobs report was to renew his attacks on the Federal Reserve, and its chair, Jerome Powell, for not acceding to his demands for a cut in interest rates. “Powell is a disaster,” he wrote on Truth Social immediately after the job figures were released. Later in the day, again on Truth Social, Trump announced that he was firing the commissioner of the Bureau of Labor Statistics, which produces the monthly employment report. In another post, he sought to justify this unprecedented step by claiming that the July job figures had been rigged to make him and other Republicans look bad.
The reality is that the B.L.S. is staffed by statisticians and other data experts, many of them career public servants, who go to great lengths to produce accurate figures. Even by his standards, Trump’s effort to find a scapegoat was pretty pathetic. As for the Fed, which held its benchmark interest rate steady at a policy meeting earlier this week, it isn’t responsible for the fact that many firms are responding to Trump’s tariffs by holding off on hiring and starting to raise their prices. Another economic report released this week showed the rate of inflation, as captured by the Fed’s preferred metric, edged up to 2.6 per cent in June, from 2.4 per cent in May. That means inflation is still above the Fed’s two-per-cent target, and it points to a possible return of stagflation, in which price rises accelerate at the same time that the economy stagnates.
At times, Trump and his economic advisers have suggested that it may be a worthwhile trade-off for the economy to suffer some short-term pain in exchange for raising tariffs and bringing down the trade deficit, which in four of the past five years has totalled more than three per cent of G.D.P. Although this argument seems to make some intuitive sense, it’s hard to back up empirically. “The data shows there is just no relationship between trade balances and tariffs.” Joseph Gagnon, an economist at the Peterson Institute for International Economics, in Washington, told me. The Trump policy agenda “is based on a mistaken premise,” Gagnon added. One way that Trump’s tariffs could bring down the trade deficit, which is the gap between exports and imports, is by eventually knocking the economy into a full-on recession. But, if this happens, the narrowing in the gap won’t have anything to do with removing foreign trade barriers: it will be because American consumers and businesses have less money to spend on everything, imported goods included.
As Americans wait nervously to see whether this is the future awaiting them, many people in other countries are coming to terms with a world in which the U.S. government has transitioned from acting as the principal guarantor of an open trading system to operating what is essentially a global protection racket. “This is about coercion and coercive bargaining,” Riekeles said. “The U.S. Administration is pursuing an approach that doesn’t take account of any rules, or prior commitments, but is purely based on might. Might is right. If you can get something by exerting pressure, then do it. If you are not willing to exert counter-pressure, you are going to end up being weak and bullied.”
Under a series of executive orders that Trump signed this week, levies ranging from ten per cent to fifty per cent will be imposed on goods from scores of nations, beginning next Thursday. As is only to be expected, most of the coverage of Trump trade policies focussed on major U.S. trading partners, such as Canada, Mexico, Japan, India, and the E.U. But the list of places whose products will be subjected to tariffs include poverty-stricken Chad and Lesotho; Laos and Iraq, two countries that have surely suffered enough in the past from U.S. actions, will face respective tariffs of forty per cent and thirty-five per cent.
