As economists and think tanks wade through the fog and flip-flops of the US administration’s tariff war in an effort to estimate the cost to the US and other economies, many overlook a larger, more slippery threat: the hard-to-quantify cost of the uncertainty, loss of trust, inconsistency and unreliability fomented by Trump’s policies.
Having issued 142 executive orders in his first 100 days in office, US President Donald Trump has transformed one of the most stable and trusted economies into a quixotic and untrustworthy partner for countries – whether they are traditional allies or adversaries – and companies alike. The betrayal sits not in the tariffs per se, but in the cost these uncertainties have generated.
As Princeton University’s Markus Brunnermeier said at a Peterson Institute for International Economics (PIIE) talk last week, the world economy has flipped from multilateral to bilateral, from rules-based to transactional, and from global to spheres of influence dominated by large countries. Everyone is being forced to hedge – to move into “agility mode” – and to budget for extra risk premiums to insure against new uncertainties, which are likely to persist for a long time.
While the price of uncertainty or a collapse of trust may be hard to quantify, it is in many areas not impossible. The hard numbers may be very large – not least concerning the dollar and the cost of servicing the burgeoning US national debt, already over US$36.2 trillion. Let’s not even talk about the trillions of dollars shaved from the value of companies listed on US stock markets.
Just as investors in US Treasuries or stocks need to hedge, reconsidering the safe haven quality of US government bonds or dollar-denominated assets, US and international businesses need to calculate the cost of the new risks. These include the companies Trump is wooing to invest billions of dollars to establish manufacturing bases in the United States, behind the “protection” provided by newly erected tariff walls.
Just as companies have, over the past five years, “de-risked” their supply chains by, for example, diluting their reliance on China, now they are being forced to de-risk against a capricious Trump administration, bearing a hard dollar cost as they do so.
