[Insight & Opinion] Preparing for a Long Winter in the Era of Trump-Induced Uncertainty

On May 12, the United States and China reached a provisional agreement to mutually reduce tariffs by 115 percentage points each for a period of 90 days. The financial markets responded positively to this unexpected early agreement, which brought a temporary halt to the escalating tariff war that had begun on February 4. However, there are both optimistic and pessimistic views regarding the outlook after the 90-day provisional agreement expires.

The optimistic view is based on the fact that, even after 90 days, it will remain impossible to stock the shelves of American supermarkets without imports from China, making it difficult for the United States to intensify its pressure. However, there are several noteworthy facts regarding the Geneva negotiations between the two countries. First, major media outlets have assessed that China emerged as the unilateral winner. Second, most evaluations agree that the results achieved by the United States are too meager to be explained by negotiation tactics, especially considering the shocks caused by the tariff war. Third, the negative media coverage may prompt President Trump to shift his tariff policy toward China back to a more aggressive stance.

During the first Trump administration, negotiations with China began amicably in the first two weeks of January 2018. However, after critical assessments from the American media, President Trump adopted a hardline approach, resulting in a prolonged standoff that lasted two years and concluded only in January 2020.

Therefore, it is reasonable to view the current US-China trade negotiations as merely the beginning of a long-term battle, with the outcome still shrouded in significant uncertainty. The key issue is that, depending on which scenario one expects, the profits and losses in the market could differ greatly.

Since the inauguration of the Trump administration, global economic news has focused daily on President Trump's remarks. The addition of unfamiliar logic and forecasts under 'Trumponomics' has thrown markets and economic actors into extreme confusion. For example, Treasury Secretary Besant expressed optimism that the US economy could achieve 3% growth next year through a three-stage policy of tariff adjustments, tax cuts, and deregulation. He also predicted that the Trump administration's policies would further strengthen the US's status as a safe haven for global capital. However, Secretary Besant's 3% growth forecast for the US economy next year stands in stark contrast to the average forecasts of major Wall Street investment banks, which predict 1.3% for 2025 and 1.1% for 2026.

On the other hand, on May 7, Federal Reserve Chair Powell stated, "If tariffs remain significantly elevated, inflation will rise, economic growth will slow, and the unemployment rate will increase," adding, "It is not clear what we should do right now. The uncertainty in economic trends is becoming extremely high." Bloomberg News pointed out, "No one really knows what is happening, not even the Fed," highlighting the severity of the policy uncertainty under the Trump administration.

What is particularly noteworthy is that the increased uncertainty resulting from the Trump administration's tariff policy is highly likely to have a serious long-term impact on the global economy. Considering that the global economy experienced a prolonged recession until 2015 following the 2008 global financial crisis, it is highly likely that the tariff policy of the second Trump administration will have an even more severe and prolonged impact than the global financial crisis. Failing to prepare for a harsh and long winter due to optimistic expectations is far more dangerous than being unprepared for spring because of a pessimistic outlook. Therefore, it is now imperative to prepare for the long winter ahead for the global economy caused by Trump-induced uncertainty.

Kim Dongwon, former visiting professor at Korea University