London Daily

Focus on the big picture.
Thursday, Jul 10, 2025

Larry Summers: Trump's trade war is a 'Stop, or I'll shoot myself in the foot' strategy

Larry Summers: Trump's trade war is a 'Stop, or I'll shoot myself in the foot' strategy

Former US Treasury Secretary Larry Summers says President Donald Trump's love affair with tariffs is backfiring. And he's not surprised at all.

Breaking from decades of US presidents lowering trade barriers, Trump is waging a global trade war that spread this week to Argentina, Brazil and France. Trump's tariffs are aimed at protecting American workers, but Summers argues it's the US economy that will suffer.

"We are engaged in a stop or I'll shoot myself in the foot strategy," Summers told CNN Business. "It's hard to know just how adverse the impact will be. But the direction is clear."

Summers, who served in the Clinton and Obama White Houses, said tariffs will hurt the competitiveness of US producers that rely on imported goods. That includes everything from car makers to wine distributors. Summers said this will lead to higher prices and lower incomes for American consumers.

Already, the US manufacturing industry is in recession. Factory activity contracted in November for the fourth month in a row. The downturn is being driven by trade tensions as well as weak global growth, which the trade war is exacerbating.

US manufacturing jobs declined by 6,000 in November, according to ADP. The factory job losses contributed to the second weakest private sector payroll growth since March 2010.

"Uncertainty can paralyze economic activity," Summers said.


Trade wars aren't easy to win

Summers knows firsthand. He was a top Treasury official in the late 1990s during the Asian financial crisis and the collapse of hedge fund Long Term Capital Management. Later, he advised President Barack Obama during the worst economic downturn since the Great Depression.

Trump famously declared in March 2018 that "trade wars are good, and easy to win." Nearly two years later, it's clear that hasn't been the case. The United States and China are bogged down in a trade war and Trump suggested this week that a preliminary agreement may not happen until after the 2020 election.

"Ronald Reagan's statement about nuclear war is the more accurate presidential statement about trade wars: They can never be won and should never be fought," Summers said, paraphrasing the former Republican president's 1984 State of the Union address.

Yet trade wars are being fought, posing a risk to the longest economic expansion in American history.

"Trade uncertainty continues to be a black cloud for business investment," David Tesher, managing director at S&P Global Ratings, wrote in a report Tuesday.

S&P sees a 25% to 30% chance of a recession in the next 12 months, although that's an improvement from the firm's previous call.

"We are 10 years into recovery with optimistic asset markets," Summers said, referring to the recent string of records in the US stock market. "We are at a complex moment. Things are more fragile because of our trade war with the world."


Summers: Markets could 'fall a long way' from record highs

US stocks experienced a melt-up that began in early October, catapulting the S&P 500 to 11 record highs in November alone. That powerful advance was driven by easy money from the Federal Reserve, hints of stabilization in the US economy and hopes of a preliminary trade agreement with China.

"Markets are at levels where they could possibly fall a long way. That makes the moment riskier than a normal moment," Summers said.

US stocks fell sharply on Monday and Tuesday as trade tensions erupted again. Trump announced plans Monday to lob tariffs on steel imports from Brazil and Argentina. And the administration threatened to impose tariffs of up to 100% on French champagne, handbags and cheese.

Trump officials also signaled the trade war with China could get worse. US Commerce Secretary Wilbur Ross told CNBC that the United States has more "ammunition" left against China. He warned that the December 15 tariffs on consumer-facing imports from China will take effect "unless there is some reason to postpone them."

The aggressive stance against China is aimed at addressing legitimate and serious grievances with the country's trade tactics. China's alleged theft of intellectual property, for instance, has damaged US businesses and cost jobs.

But there is concern about Trump's use of tariffs as a tool to gain concessions in trade talks.

"He has really instilled a dramatic loss in confidence in the US economic policy apparatus being pro-growth," said Harry Broadman, who served as an economic adviser to former President George HW Bush.


Negative rates can lead to cash hoarding

Investors would look to the Federal Reserve to mitigate the damage caused by a potential escalation of the trade war with China.

However, Summers is concerned that the Fed's recession-fighting toolkit is limited by the fact that interest rates are already low. The October rate cut, the Fed's third in a row, left the federal funds rate at a range of just 1.5% to 1.75%.

"The whole economic system is brittle in a way without precedence in decades, because the normal response to economic difficulty, the Fed reducing interest rates by 500 basis points, is not close to possible right now," Summers said.

Cutting rates by five percentage points would leave the Fed with deeply negative rates. Trump has urged the Fed to adopt the subzero rate strategy implemented by central bankers in Europe and Japan.

"Give me some of that money. I want some of that money. Our Federal Reserve doesn't let us do it," Trump said of negative rates during a speech last month.

But negative rates have failed to revive the economies of Europe and Japan. And extremely negative rates could encourage households to hoard cash, rather than spend it.

"They can't go that negative because people hold currency under the mattress," Summers said.

Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
×