As the New York Times reported yesterday afternoon:
President Trump on Saturday released letters imposing new 30 per cent tariffs on imports from Mexico and the European Union, dashing hopes for deals that would avoid such punishing levies. The tariffs, which are set to take effect Aug. 1, are a significant escalation in Mr. Trump's trade battles, aimed squarely at two of America's closest and most pivotal trading partners.
I have posted this Tweet thread in response:
Trump is now threatening to impose all the tariffs he proposed in April.
Then he backed away and was mocked with TACO – Trump Always Chickens Out
Now, he can't retreat and retain any credibility.
So, when's the inevitable financial crash? A thread…
First, let's clear what's likely to happen.
When Trump imposes tariffs, money will pour out of the USA.
That is what is technically called capital flight.
Those who have saved in the USA — especially from overseas — will rush for the exits.
Second, that loss of faith will have consequences.
Markets will collapse.
Not simply because of tariffs themselves, but because Trump has created countless pinch points — points at which what was once sustainable suddenly and very obviously becomes fragile.
He's created pinch points with:
- his tariffs and trade wars
- his disregard for human rights, alienating allies
- and his boast that America is “great again” as if the rest of the world is something to be dismissed.
Eventually, the rest of the world will conclude it's time to move on from the USA.
Third, the dollar will be at risk.
There's already an open disagreement between Trump and the US Federal Reserve.
Trump wants lower interest rates. The Fed does not.
Whatever happens, confidence in the dollar will fracture.
At that point, investors will ask whether the dollar is still the reserve currency of the world.
Some will switch to euros, yen or pounds.
Some will buy gold.
But they'll look to leave the dollar.
That will force dollar interest rates up, whatever Trump wants.
That will transfer this crisis to the Global South, many of whose debts are denominated in dollars.
And the rest of the world will probably increase rates too.
This will create a global recession.
And US inflation will also rise. Tariffs will drive it.
So too will the loss of trust in the USA.
And that will also spread around the world. Where the US goes on this, the rest follow.
And that is totally unnecessary. This crisis is wholly of Trump's creation.
Then we have the stock market.
Roughly 30% of the entire value of US markets is tied up in just seven companies:
Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, Tesla.
If confidence in those companies fails, or if they become targets of boycotts in retaliation for Trump's policies, their values will tumble.
They will drag everything else down.
That's how crashes happen.
On any day, only a tiny proportion of shares actually trade.
So, prices are fragile.
Then, when a panic comes, sellers swamp buyers. Prices collapse.
And that panic then feeds on itself.
We've seen it before:
1929, 1987, the dot-com bust in 2000, 2008.
Each time, it was a collapse of confidence that did the real damage.
Trump is creating that same crisis of confidence now.
This time will, however, be a little different.
This time, private equity funds and hedge funds will also be exposed.
And pension funds, including in the UK, where around 10% of pensions are saved in US stocks, will feel compelled to sell.
And this will spread. That will be unavoidable.
Capital flight from the USA won't fund new growth elsewhere.
It will simply cause instability: in the UK, Europe, Japan, Australia, Canada, South Korea and beyond.
So, we need to ask: what are politicians doing to prepare for this?
Trump is seeking to destroy the very idea of government intervention.
Project 2025 makes that clear — it is an explicit plan to dismantle the state's role in the economy.
So we need politicians who understand the opposite:
- that in a crash, deficits will have to grow to protect livelihoods and public services
- that we'll need coordinated responses across countries
- that governments must be ready to intervene directly
Because a crash is now inevitable.
Even if Trump reversed every tariff, confidence has already been lost. Another round of TACO would simply guarantee that.
The question is not whether, but when.
And then, what's next?
It will fall to governments to step in to support demand, protect employment, keep essential services running, and stabilise economies.
If they fail to do so, then this crisis will be far worse than it needs to be.
Governments, central banks, markets, pension funds and all of us might be facing the biggest test since 1929.
There may well be tears, or very much worse, before this is over, and all because a man intent on the destruction he will now deliver got control of the White House.
Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here. One word of warning, though: please do make sure you have got the correct MP. ChatGPT can get it wrong.
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Thanks for that warning. I can’t disagree.
The crash may be some months coming. Such changes always seem to take a while.
Whilst there are some more modest (read, less egregious) tariffs already in place, the big effects are yet to come. They won’t start until tariffs are actually imposed in August, then they will take a while to take effect. Then it will take a while for statistics to be gathered, and a while longer for them to reported. So perhaps the major damage will start to become apparent in the “fall”.
It is always hard to predict changes in a chaotic system, for this is what the US economy has become. But when changes happen they do so very very fast, a crash.
If there is something you can do to prepare, do it now. When the need is obvious it will be too late.
Oh Donald.
Making America grate again.
Maybe Trump will compound it all by firing Jay Powell and appointing a lapdog to chair the Federal Reserve, in or about October.
I’d love to know how to prepare please? With a husband who has dementia I need to have enough money to pay for a care home within probably 2 years so any advice is welcome .
I cannot do that – sorry
Ok there will be a crash. Then a recovery. Or is that not right?
How long did that take post 1929?
And what happend before the recovery took place?
You have probably explained this already but why does a crash matter?
You have a company that digs holes and their share price crashes from 100p to 1p. They can still dig holes. People who need holes can still commission them. I don’t get why the share price matters.
Apologies in advance if this question is too stupid to deal with.
I will do a video on that
Neil Wilson says on Job Guarantee :
“ there’s an entire set of public sector teams already in place dedicated to getting people all the help they need for any problems they may have, finding work that needs to be done, and then setting those people on to get that work done. It’s run up and down the country, all weeks of the year, with a full set of procedures and mechanisms for dealing with new people turning up and existing people leaving on a regular short term basis.
All you have to do to get on this programme is commit a low-level crime and get a magistrate to order your attendance.
All we need to do is remove the crime step, make attendance voluntary and get HM Treasury to pay a wage instead.
In all seriousness it wouldn’t be difficult to transfer those people and processes to local councils to operate at a larger scale.”
Politely, that’s crass, and if that’s the best he can do he should give up.
Obviously the world economy is in a constant state of change. It may well be that TACO has to respond in the next two weeks by cancelling the latest tariffs. That would take much courage. On second thoughts no chance. It’s gonna happen.
Bridget go first to your nearest Citizens Advice Bureau
Very good advice
I wonder if exchange rates are the canary in the coal mine? The US dollar has fallen about 10% against the £ or Euro since Trump took office. A simple view of exchange rates is that they reflect the balance between imports and exports of goods and services. But is this wrong? Are exchange rates actually determined by cross-border investment in bonds, stocks and property? I don’t know. But if goods and services are only a minor factor, we need to think in a different way. Perhaps our real masters are not the Chancellor and Bank of England, but international investors? Has MMT much less freedom than we inagine?
Short term financial flows – including illicit ones – seem to matter a lot.
Long term relative productivity rules.
I assure you we have freedom. We have to control capital flows is the answer, as Larry Elliott at the Guardian has long argued, to give my old friend a nod.
But is the game lost already? So many bonds, stocks and assets have overseas owners that exchange rates are actually driven by the expansion and repatriation of assets?
But if they repatriate they have to find a buyer for their sterling. So what is repatriated?
[…] choose, there is no good one. Trump is pursuing a policy that only has downsides, and that is why I am worried about the imminent state of the world economy, which is not looking […]
This morning I had an email from ‘Stand Up for Your Rights’ today. It was from a bunch of solicitors it turns out although the way it reads is alike a campaigning email, noting the low confidence levels in the police etc.
Just like the diesel car emission fiasco and mortgage/credit card charges issue, a wrong is being turned into an income stream – making money out of failure – ‘opportunities’ eh? What a way to make an economy?
It’s simply the capitalist and fiscal system that made the problem in the first place benefitting from putting it right. Underfund the police = make money out of the consequences.
This society of ours is very ill indeed.
If, as Kent Pitman comments on the HSBC leaving the net Zero Banking Alliance, “the collapse of civilization is highly profitable” then the coming crash fits nicely into that scenario. We know that the international oligarchy sees no profit in caring – for people and planet – when their greatest profits come from their exploitation, coercion, violence, destruction / reconstruction cycles.