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      Trump’s tariff mess raises the danger of a US default | Lloyd Green

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      “Trump backs down on tariffs, again. And it doesn’t look strategic,” a headline blared on Wednesday afternoon.At the end of trading, equities had recovered a portion of their losses. But plenty of damage had been done. Markets were thrown into turmoil, interest rates jumped and business activity took a hit. Beyond that, the possibility of a recession grew – and the possibility of a default by the US inched up to 6%, according to prediction markets.Meanwhile, Larry Summers, a treasury secretary under Bill Clinton, announced that a recession appeared imminent. “We are being treated by global financial markets like a problematic emerging market,” he posted on X. Also on Wednesday, the Federal Reserve Bank of Atlanta projected first-quarter growth to be negative 2.4%. By extension, tax receipts will probably have shrunk.Less money coming into the treasury’s coffers means that government could breach the debt ceiling sooner than already projected if Congress eventually fails to act. That is bad news for Donald Trump, the Republicans and the country.Before Trump transformed the economy into his personal yo-yo, the government stood poised to default on the nation’s $36tn debt sometime in between mid-July and early October, absent legislation. During the president’s walk on the economic wild side, the odds of a recession grew. Ditto the possibility of a default, a reality of which Trump is acutely aware.With Biden in the White House, Trump urged congressional Republicans to stymie efforts to lift the ceiling. “I say to the Republicans out there – congressmen, senators – if they don’t give you massive cuts, you’re going to have to do a default,” he announced. A default would also mean no social security checks for the US’s seniors.“And I don’t believe they’re going to do a default because I think the Democrats will absolutely cave, will absolutely cave because you don’t want to have that happen. But it’s better than what we’re doing right now because we’re spending money like drunken sailors.”In May 2023, the Biden administration brokered a compromise with the then House speaker, Kevin McCarthy, to increase the debt ceiling but limit spending. The deal came to cost McCarthy his gig as speaker.As president-elect, however, Trump began singing a very different tune. Suddenly debt didn’t matter. In a mid-December telephone interview, Trump urged Congress to scrap the ceiling permanently. “I would support that entirely,” he told NBC News. Apparently, what was sauce for the Democratic goose was not sauce for the Republican gander.“The Democrats have said they want to get rid of it. If they want to get rid of it, I would lead the charge.” Christmas came and went. Republican control of the Senate loomed with the new year.In late December, Trump went on the warpath, albeit to no avail. “The Democrats must be forced to take a vote on this treacherous issue NOW, during the Biden Administration, and not in June,” he thundered. “They should be blamed for this potential disaster, not the Republicans!”Nothing happened.Trump’s hopes for the debt ceiling now rest with the Republican-controlled Congress. Republican budget blueprints envision the ceiling being lifted through reconciliation, a process that bypasses the filibuster in the Senate and instead requires a simple majority vote in each chamber.Whether that happens anytime soon is an open question. Punters peg the chance of a pre-June increase of the debt ceiling at one-in-five. Congress loves procrastinating. Nothing focuses their attention like a crisis.Regardless, Trump’s tariff gambit leaves a pile of economic debris, including the market for US bonds. After his flip-flop on tariffs, Trump suggested that the sell-off in the bond market had forced his hand.skip past newsletter promotionafter newsletter promotion“The bond market is very tricky, I was watching it,” he told the press. “The bond market right now is beautiful. But yeah, I saw last night where people were getting a little queasy.”“Queasy” – more like panicked. Or terrified.Practically speaking, the bond rout means the US government will be forced to pay more to borrow – not an ideal situation while Trump and the GOP push for another round of tax cuts.Regardless, the president’s capitulation reinforced the observation of James Carville, Bill Clinton’s storied political adviser. “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter,” he began.“But now I want to come back as the bond market. You can intimidate everybody,” including Trump.For the moment, the US appears locked in a battle with China, one of the two largest holders of its debt. Don’t believe there is method to Trump’s madness.“We didn’t have access to lawyers … We wrote it up from our hearts, right?” Trump said of his Truth Social post announcing the pause. “It was written from the heart, and I think it was well written too.”Let that sink in. That’s no way to run an airline, let alone a country. On Thursday, markets gave back a chunk of their gains, the dollar sank and gold rose. More

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      Panama opposition party accuses US of ‘camouflaged invasion’

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      Panamanian opposition politicians have accused the US of launching a “camouflaged invasion” of the country, amid simmering discontent over the government’s handling of the diplomatic crisis.After a three-day visit by the US defense secretary, Pete Hegseth, Donald Trump appeared to confirm that US military personnel had been deployed to the Central American country on Thursday, telling reporters: “We’ve moved a lot of troops to Panama.”Hegseth said that the US would increase its military presence at three former US bases in the country to “secure the Panama canal from Chinese influence”.The last US military bases in Panama were vacated in 1999 as a condition of the 1977 Torrijos-Carter treaties to hand the canal to Panamanian ownership. Under the canal’s neutrality treaty, no foreign power can “maintain military forces, defense sites and military installations within its national territory”, and the US comments have prompted outrage in Panama.“This is a camouflaged invasion,” said Ricardo Lombana, the leader of the opposition Other Way Movement. “An invasion without firing a shot, but with a cudgel and threats.”At a Wednesday press conference to announce the signing of a memorandum of understanding (MOU) with the US, Panama’s minister of public security, Frank Abrego, said the agreement would not impinge on his nation’s sovereignty and that the country would not accept military bases.However, a full text of the MOU included aerial photos of Fort Sherman, Rodman naval base and Howard air force base, with areas outlined for “training”, “humanitarian activities” and the “installation of US property”.The Panamanian government says they are not “military bases” and that the deal is temporary, but opposition parties have rejected such claims.“If you have an installation which is for use of foreign soldiers and they have control over what happens inside – and Panama has to ask in advance to enter – that’s a military base,” said Lombana.For many Panamanians, the return of US armed forces – even for supposed “joint operations” – will bring back uncomfortable memories of 1989’s Operation Just Cause, when American troops killed thousands of civilians.A second agreement allows US navy ships to be reimbursed for the fees they pay to the canal. That preferential treatment would appear to violate the neutrality treatment and could open the door to further attempts to negotiate down the fees charged by the canal.On Thursday a local lawyer filed a legal case against the Panamanian president, José Raúl Mulino, accusing him of “crimes against the international personality of the state”.Frustration is growing over the government’s handling of the diplomatic crisis. Since Trump declared his plan to “take back” the Panama canal on his 20 January inauguration speech, all communication on the topic has been through Mulino and the details of negotiations kept largely secret.This has led to serious differences in the US and Panamanian accounts of those negotiations. When the secretary of state, Marco Rubio, visited in early February, Mulino told press that the meeting had been “very cordial” and that the canal was not under threat. Later, however, Rubio said the situation around the canal was “unacceptable” and Trump continued to call for the return of the canal.The latest example came on Tuesday when two different statements concerning Hegseth’s meeting with Mulino were published. In the Panamanian version, Hegseth was said to have recognized Panama’s “inalienable sovereignty” over the canal, but those words were absent from the secretary of defense’s statement and Hegseth refused to acknowledge Panamanian ownership of the canal at Wednesday’s press conference. Panama says that the US omitted the phrase from the agreed joint statement.Mulino has also opted to avoid engaging with other countries – such as Canada and Mexico – to gain international support for his country’s cause.On Thursday the local chapter of Transparency International requested on X that Mulino “inform the country of all the details of what is happening, the agreements in process and the pressures he is receiving if that is the case. The country requires transparency in order to achieve unity against this threat to our sovereignty.”Even before Hegseth’s visit, Mulino had faced heavy local criticism for offering concessions to the US without gaining firm assurances over the future of the canal.Two-thirds of Panamanians disapprove of the way he is running the country. In addition to the diplomatic crisis he has passed an unpopular social security reform and angered environmentalists by opening talks with a copper mine closed down in 2023 due to popular protest. He lacks the backing of many of his party’s deputies in congress who are loyal to his political patron, Ricardo Martinelli, who has been residing in the Nicaraguan embassy to escape corruption charges and recently saw his attempt to gain exile in that country rejected.Popular demonstrations against US policy and the handling of the government are expected on Saturday. More

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      Trump insists tariff war is ‘doing really well’ as recession fears mount

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      Donald Trump insisted his trade war with much of the world was “doing really well” despite mounting fears of recession and as Beijing hit back and again hiked tariffs on US exports to China.As the US president said his aggressive tariffs strategy was “moving along quickly”, a closely watched economic survey revealed that US consumer expectations for price growth had soared to a four-decade high.The White House maintains that the US economy is on the verge of a “golden age”, however, and that dozens of countries – now facing a US tariff of 10% after Trump shelved plans to impose higher rates until July – are scrambling to make deals.“The phones have been ringing off the hook to make deals,” the press secretary, Karoline Leavitt, told reporters on Friday.Beijing raised Chinese tariffs on US products to 125% on Friday – the latest salvo of its escalating trade dispute with Washington – and accused Trump of “unilateral bullying and coercion”.“Even if the US continues to impose even higher tariffs, it would no longer have any economic significance, and would go down as a joke in the history of world economics,” the Chinese finance ministry said.Few investors were laughing. US government bonds – typically seen as one of the world’s safest financial assets – continued to be sold off, and were on course for their biggest weekly loss since 2019. The dollar also fell against a basket of currencies, and was down against the euro and the pound.Leading stock indices paused for breath on Friday after days of torrid trading. The FTSE 100 rose 0.6% in London. The S&P 500 increased 1.8% and the Dow Jones industrial average gained 1.6% in New York.The S&P 500 finished an extraordinarily volatile week for markets up 5.7%, its biggest weekly gain since November 2023.“We are doing really well on our TARIFF POLICY,” Trump wrote on his Truth Social platform. “Very exciting for America, and the World!!! It is moving along quickly. DJT”Some of Wall Street’s most influential figures were unconvinced. “I think we’re very close, if not in, a recession now,” Larry Fink, CEO of the investment giant BlackRock, told CNBC. Far from providing certainty, the 90-day pause on higher US tariffs on much of the world “means longer, more elevated uncertainty”, he added.Jamie Dimon, CEO of JPMorgan Chase, the US’s largest bank, said the world’s largest economy was facing “considerable turbulence” as a key measure of consumer confidence tumbled to its lowest level since the Covid-19 pandemic – and the second-lowest level on record.US consumer sentiment has dropped 11% to 50.8 this month, ahead the pause announced by Trump earlier this week, according to a regularly survey compiled by the University of Michigan.Expectations for inflation meanwhile surged, with respondents indicating they are bracing for prices to rise by 6.7% over the coming year – the survey’s highest year-ahead inflation expectation reading since 1981.“There is great optimism in this economy,” Leavitt claimed at the White House briefing when asked about the survey. “Trust in President Trump. He knows what he’s doing. This is a proven economic formula.”Trump won back the White House last November by pledging to rapidly bring down prices – something he has claimed, in recent weeks, is already happening. US inflation climbed at an annual rate of 2.4% last month, according to official data.skip past newsletter promotionafter newsletter promotion“Consumers have spiralled from anxious to petrified,” observed Samuel Tombs, chief US economist at Pantheon Macroeconomics. He added, however, that a bipartisan divide – with Democrats growing more pessimistic, while Republicans become more upbeat – suggests that people are allowing their political views to cloud their economic confidence.The US’s top markets watchdog is facing demands from senior Democrats to launch an investigation into alleged insider trading and market manipulation after Trump declared on social media that it was “A GREAT TIME TO BUY!!!” hours before announcing Wednesday’s climbdown on tariffs.Days of erratic policymaking constructed a rollercoaster week for markets, with the S&P 500 dropping 12% in just four sessions, before surging back almost 10% in a single day after the administration pulled back from imposing higher tariffs on most countries, except China, which is facing a 145% tariff on exports to the US.In a letter to the US Securities and Exchange Commission (SEC), Senate Democrats including Elizabeth Warren and Chuck Schumer wrote: “It is unconscionable that as American families are concerned about their financial security during this economic crisis entirely manufactured by the President, insiders may have actively profited from the market volatility and potentially perpetrated financial fraud on the American public.”Tesla meanwhile stopped taking orders in China for two models it previously imported from the US, as companies scramble to adapt to prohibitive tariffs imposed in Trump’s trade war.The manufacturer, run by Trump’s close ally Elon Musk, removed “order now” buttons on its Chinese website for its Model S saloon and Model X sports utility vehicle.Tesla did not give any indication of why it had made the changes but it came after the rapid escalation of the trade war between the US and China.The border taxes make the goods trade between the two countries prohibitively expensive and mean cars imported from the US are now much less attractive in China than those produced locally.In the UK, economists warned that stronger than expected growth of 0.5% in February is likely to prove short lived as the impact of Trump’s trade war is felt throughout the global economy. 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      Trump was playing chicken with tariffs. Then he chickened out | Steven Greenhouse

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      By imposing punitively high tariffs, Donald Trump was playing a high-stakes game of chicken with the US’s trading partners – but it was Trump who chickened out and suspended his tariffs just hours after they took effect. The president couldn’t ignore the worldwide economic havoc that he had caused singled-handedly – stock markets were plunging, business executives were panicking and consumers were seething.Eager to persuade manufacturers to build new plants in the US, Trump said on Monday that many of his tariffs would be permanent. But for Trump, permanent evidently meant two days.Once again, Trump showed that his second term is one of fiat, flub and flip-flop, of bluster and blunder, of shooting first and aiming later. It’s also a mix of cutting, gutting and cruelty.And foolery. Trump’s tariffs are worse than, as the Wall Street Journal put it, the “dumbest trade war in history”: they are the dumbest economic policy that any US president has ever adopted. His tariffs quickly caused vast and totally unnecessary damage to stock markets, industries and diplomatic relations across the globe. Before Trump unexpectedly suspended the tariffs, US stock markets had lost more than $10tn in value, and stock markets overseas plummeted, too. Millions of retirees had seen their 401(k)s plunge in value, consumers were facing substantially higher prices and many workers were already losing their jobs as Trump’s tariffs sent shockwaves through the global economy.Trump’s embarrassing climbdown on tariffs was one of the rare times he bowed to common sense. If only he would do the same when it comes to his dangerously myopic cuts to scientific research, environmental protection and foreign aid.Trump has not climbed down, however, in his showdown with China. In a fit of pique over China’s retaliatory tariffs, Trump has imposed stratospheric 145% tariffs on China. Attention Walmart shoppers: that is going to more than double the price of many things you buy.When it came to tariffs, Trump made some basic political fumbles. Not only did he go golfing and speak at a million-dollar-a-head fundraiser as this economic disaster unfolded, but he failed to give a coherent explanation for his screw-everyone-else tariffs. Trump and his team pointed to a potpourri of often-conflicting goals: to erase trade deficits, to collect trillions of dollars for the treasury, to bring back manufacturing jobs, to give Trump negotiating leverage to crack down on fentanyl and immigration and reduce other countries’ tariffs.Let’s not delude ourselves. There are two main reasons for Trump’s tariffs: first, to satisfy his never-ending thirst for vengeance against those he feels have wronged him (which seems to mean every country in the world except Russia) and second, to fulfill his desire to wield a club over everyone and everything. By using staggeringly high tariffs as a weapon, Trump has been acting like a mob enforcer, telling every business in town: I’m going to clobber you with my baseball bat unless you do what I want.There’s another reason for Trump’s tariffs: his ignorance about how the world’s economy works. Trump’s “liberation day” speech on tariffs gave the looney, but unmistakable, impression that he believes that Vietnam, for instance, is looting and pillaging the US by selling more sneakers and other goods to the US than the US sells to Vietnam. Trump thinks this even though millions of Americans are delighted to buy well-made sneakers from Vietnam (which would cost consumers far more if they were made in the US).With his grievance-driven, zero-sum worldview, Trump no doubt believes that other countries are unfairly taking advantage of the US whenever we trade with them – and he wants to get even.Trump thinks that trade deficits are evil. If Trump had taken a class with Robert Solow, a Nobel Prize-winning economist at MIT, he might have heard Solow’s wisdom about why there’s no big worry about bilateral trade deficits: “I have a chronic deficit with my barber, who doesn’t buy a darned thing from me.”That Trump got to impose his calamitous tariffs at 12.01am on Wednesday reflects the dismal quality of his cabinet and advisers. Too many are lackeys who automatically cheer whatever he does, while some others, like the treasury secretary, Scott Bessent, no doubt realized that his tariffs were dumb and disastrous, but they’re too cowardly to tell the Tariff King. The tariffs would inevitably increase inflation and probably push the US into recession. Even though Republicans have vowed never to raise taxes, Trump’s tariffs are unarguably a tax, a regressive tax and the largest tax increase in 60 years. Trump’s tariffs were bound to destroy smoothly running supply chains and hurt untold numbers of US companies. They were also a disaster for relations with our allies. They were already triggering massive retaliation.If Trump had some smart, principled advisers, they might explain to him that many obstacles might prevent his tariffs from achieving their goals. With the nation’s low 4% unemployment rate, it will be hard to find workers to do the manufacturing jobs that Trump wants to bring back, especially when he’s rounding up and expelling many immigrant workers. Moreover, US corporations have largely lost the technological knowhow to compete in various industries and that complicates hopes to bring back far more factories.Then there’s another big problem – the chaotic Trump is the worst possible president to persuade companies to build factories in the US to produce goods they now obtain from abroad. King Donald the Capricious does not exactly exude the air of stability that executives insist on before they decide to make big investment decisions, like building new factories.Trump trumpeted his tariffs in part to show strength, but he ended up in an embarrassing retreat (he did maintain a 10% tariff on many countries). Trump is eager to get China to heed his wishes, but China, the world’s leading manufacturing country, can now see that Trump will back down when the heat is too great.China doesn’t have clean hands on trade. It improperly subsidizes many industries to help them outcompete manufacturers in the US and elsewhere. China also has ambitions to vastly increase its manufacturing capacity – a strategy that could kill off important industries in the US, Canada, Europe, Japan and other countries. If Trump were smart and strategic, he – instead of alienating those countries with his tariffs – would have formed an alliance with those countries to pressure China. But now those countries are too angry at the Trump to do that.Trump, never one to admit defeat, insists that his climbdown was a victory, that the mess he made was marvelous strategy. He says many countries are eager to make deals with him. “I’m telling you, these countries are calling us up, kissing my ass,” he said on Wednesday. “They are dying to make a deal.”Our allies are no doubt furious with Trump. Not only were they already angry that he stabbed Ukraine in the back and sidled up to Putin, but they’re unhappy that his tariff foolishness violated numerous international agreements and sought to blow up a smoothly running trade system. And then Trump ridicules them by saying they were rushing to kiss his behind.I hardly ever agree with Elon Musk, but he was right that Trump’s tariffs were the work of morons who were “dumber than a sack of bricks”.

      Steven Greenhouse is a journalist and author focusing on labor and the workplace, as well as economic and legal issues. More

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      Pentagon chief says US could ‘revive’ Panama bases

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      The US defence secretary has floated the idea of the country’s troops returning to Panama to “secure” its strategically vital canal, a suggestion quickly shot down by the Central American country’s government.Pete Hegseth suggested during a visit to Panama that “by invitation” the US could “revive” military bases or naval air stations and rotate deployments of its troops to an isthmus the US invaded 35 years ago.He also said his country was seeking free passage through the canal for its navy ships – which Donald Trump had said were “severely overcharged and not treated fairly in any way, shape or form”.Trump, since coming to power in January, has repeatedly claimed that China has too much influence over the canal, which handles about 40% of US container traffic and 5% of world trade.His administration has vowed to “take back” control of the strategic waterway that the US funded, built and controlled until 1999.Hegseth suggested on Wednesday the former US military bases that dot Panama could be used again to host American troops.He said a deal signed with Panama this week was an “opportunity to revive, whether it’s the military base, naval air station, locations where US troops can work with Panamanian troops to enhance capabilities and cooperate in a rotational way”.While Hegseth cited the possibility of joint exercises, the mention of a rotational force was likely to raise the hackles of Panamanians, for whom sole ownership of the canal is a source of national pride.The US has long participated in military exercises in Panama. However, a longer-term rotational force – such as the force the USmaintains in Darwin, Australia – is politically toxic for Panama’s centre-right leader, José Raúl Mulino.His government quickly slapped down the idea. “Panama made clear, through President Mulino, that we cannot accept military bases or defence sites,” said Panama’s security minister, Frank Abrego, in a joint public appearance with Hegseth.Hegseth also said the US was seeking an agreement under which its warships could pass through the canal “first, and free”.Jose Ramón Icaza, Panama’s minister for canal affairs, said: “We will seek a mechanism by which warships and auxiliary ships can have a compensation system for services, that is, a way to make them cost-neutral but not free.”The independent Panama Canal Authority (PCA) that manages the waterway said on Wednesday that it was seeking a “cost-neutral scheme” to compensate services rendered in security matters for warship tolls.Under current treaties, the canal is open to all countries and vessels must pay the same rates according to their capacity and cargo, regardless of their country of origin or destination.The PCA said the US recognised Panamanian sovereignty over the waterway, although Hegseth did not mention it in the news conference.The Pentagon chief’s two-day visit has been peppered with comments about China and its influence in Latin America. He said the US was not looking for war with China but would counter Beijing’s “threats” to the region.“We do not seek war with China. And war with China is certainly not inevitable. We do not seek it in any form,” Hegseth said. “But together, we must prevent war by robustly and vigorously deterring China’s threats in this hemisphere,” the former Fox News anchor said.China hit back after Hegseth’s comments, saying Washington officials “maliciously attacked China … exposing the US’s bullying nature”.Trump has zeroed in on the role of a Hong Kong company that has operated ports at either end of the canal linking the Atlantic and Pacific Oceans for decades.Hegseth asserted that China-based companies were also capturing Latin American land and infrastructure in strategic sectors, such as energy and telecommunications, and that China had too large a military presence in the hemisphere.“Make no mistake, Beijing is investing and operating in this region for military advantage and unfair economic gain,” he said.Under pressure from the White House, Panama has accused the Hong Kong-backed Panama Ports Company of failing to meet its contractual obligations and pushed for it to pull out of the country.The company rejected an audit on Wednesday that suggested it had failed to pay $1.2bn due under its concession.The ports’ parent company, CK Hutchison, announced last month a deal to offload 43 ports in 23 countries – including its two on the Panama canal – to a consortium led by the US asset manager BlackRock for $19bn in cash. A furious Beijing has since announced an antitrust review of the deal.The US invaded Panama in 1989 to oust the dictator Manuel Noriega, killing more than 500 Panamanians and razing parts of the capital. More