"Armageddon has been deferred. The doom that was supposed to follow President Trump's tariff revolution, according to almost all economists (and by even more noneconomists -- we live in an age when experts are so little trusted that everyone has become one) has so far stubbornly failed to materialize.
The report on gross domestic product for the first three months of the year was harder than usual to decipher. The 0.3% annualized contraction was accounted for by a surge in imports, which might have been related to stockpiling ahead of expected tariffs, though other parts of the report were cloudier, and overall the picture painted wasn't one of an economy in free fall. Then we learned that in April, the month that began with "Liberation Day" and saw an equity, bond and currency market panic, the employment report showed another month of solid job growth, calmed unemployment and relatively benign wage inflation.
It is still much too soon to celebrate. Actual tariffs imposed so far -- as opposed to those threatened, announced and paused -- are still relatively modest. Anecdotal, real-time and small-set data from ports, transportation companies and retailers are unsettling -- they speak of the hit to come from tariffs if they aren't negotiated down or away, especially the 145% duty on imports from China.
The policy uncertainty from Mr. Trump's desultory approach to his principal economic initiative may weigh more heavily on business activity, although we haven't yet seen real signs that investors have given up on America. Markets have pivoted from Chicken Little to Dr. Pangloss. Perhaps on hope that deals will be struck and the overall impact will be much smaller, stocks have recovered all the ground lost since April 2 and bonds have clawed back most of it.
All this prompts a question: Have we misjudged the impact of the Trumpian disruption? Could the effect be less that of a devastating weather event and more a change in the climate? The experts are surely right that the impact of reducing our economic engagement with the rest of the world will undermine growth. But perhaps all this is better understood in the context of the wider process of deglobalization under way for a decade or more, and perhaps we are better off managing it rather than fearing it.
Britain's decision to leave the European Union in 2016 is similar and instructive. Almost all respectable economists said the impact would be devastating and that the U.K. would suffer a cataclysmic economic shock. The logic was the same: By erecting a high trade wall between Britain and its biggest market, Brexit's effect was similar to a broad tariff on our major trading partners. The macroeconomic effect hovered around the same territory. The U.K. is a much smaller but more open economy than the U.S. Trade accounts for about two-thirds of its economic activity, and about half of it is with the European Union. So the direct impact of Brexit was on about one third of the U.K. economy, about the same proportion of U.S. gross domestic product accounted for by international trade.
The dire warnings from the economic establishment were certainly similar. The Bank of England -- led then by Mark Carney, who as Canada's prime minister now finds himself in another battle in the war between globalization and its discontents -- said there was a high risk of a recession if Britain left. The Conservative-run U.K. Treasury, trying to sway voters in what Brexit proponents rightly dubbed "Project Fear," said leaving the EU would mean an immediate depression, with GDP falling by almost 4%.
The apocalypse never came. It took years for Britain to leave, and when it did in 2020, like the rest of the world it suffered a brief recession from the Covid pandemic but no collapse from Brexit.
Not that the economists were all wrong. The effect of loosening the country's ties with the global economy was probably what you'd expect: reduced efficiency, productivity and ultimately long-run economic performance. A more measured assessment now suggests imposing barriers to trade had a less-dramatic but longer-term effect of shaving a few points off Britain's trend growth rate.
What difference does it make? An important one: If we see deglobalization not as a catastrophic act of self-harm but as a choice -- even a rational one -- we can position ourselves better to deal with its consequences.
We know the costs of throwing sand in the gears of frictionless trade, but there are opportunities too: more-secure supply chains, a chance to nurture high-end domestic manufacturing and reduce our financial dependency on the rest of the world, and new attention to reducing the vast economic inequalities in the U.S. that globalization, with its incalculable rewards for the most advantaged, has exacerbated.
None of this is to say Mr. Trump's tariff plan, or the multiple rationales for it, makes sense. But deglobalization is a reality born of long-simmering popular discontent and rising economic insecurity. Among its political fruits were Brexit and Mr. Trump. The policy response is yielding not the apocalypse that was forecast, but a set of thorny economic challenges all the same. Managed right -- which Britain has failed to do with Brexit -- they can generate real benefits too." [1]
1. Free Expression: Have We Dodged the Tariff Disaster? Baker, Gerard. Wall Street Journal, Eastern edition; New York, N.Y.. 06 May 2025: A17.
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