China is far too big to be pushed around by America

He blinked. Not since the Cuban missile crisis in 1962 has an American president engaged in such a high-risk, high-stakes game of chicken with the future of his nation and the world. In that lost age of American leadership, John F Kennedy faced down the Russians — and won. This week, Donald J Trump tried to face down China, the European Union and, most foolhardy of all, the capital markets. He lost. Trump may or may not have thought himself playing some grandiose global poker match — but, in any case, he folded. He is left with what remains of his credibility in shreds, an unwelcome reputation as being even more unpredictable than previously assumed (a perversely awesome achievement), and the two largest economies in the world remain locked in something even worse than a trade war.

For all practical purposes, absurdly high tariffs in excess of 100 per cent on both sides have frozen trade in physical goods between America and China. That in itself will stymie economic progress for at least the next few months.

There is no spin that can explain the events of the past week as anything other than an unmitigated disaster. The capital markets have bounced back but from a brief but vicious bear market. Confidence has been drained from the world economy, and investors, businesses and households remain in a state of post-traumatic stress, despite the palpable relief.

Some, like Trump’s cult apostle Scott Bessent, installed as Treasury secretary, claim with an impressively straight face that this was all some grand plan by President Trump to “goad” the Chinese into a corner and force them into a deal. Implausible as it certainly is, this fanciful account is contradicted by the president himself, who wandered out of the White House to shrug his capitulation off. The president freely conceded that he’d changed course because of the reaction in financial markets, especially US Treasury bonds: “You have to be flexible... I thought that people were jumping a little bit out of line. They were getting yippy. You know, they were getting a little bit yippy, a little bit afraid.”

The “Trump put”, in other words — a policy correction called forth by market volatility and observed during various crises in his first term - is still operational. It is also, evidently, still required to save the world economy from the ever-present danger of some blunder that would result in a Trump Slump. The “bond vigilantes” administered some strong discipline on the White House in recent days, and, after some windy reluctance, the president eventually meekly complied. If only he were so obedient to the courts and the provisions of the Constitution of the United States. President Trump is a man so lacking in self-awareness that his reflections on his tariff fiasco carry a satirical air. “No other president would do what I did,” he proudly declared.

And he was right. No other president in history would have been so foolish. He has deliberately taken an economy in rude health and subjected it to the punishment he has meted out since he returned to office. The 45 men who served before President Trump had to face wars, depressions, inflation, riots and countless crises - but none has so deliberately unleashed such harm on the living standards of Americans and on the world economy.

Nor would they have been so asinine as to tell the Chinese leadership to call them first for negotiations, at the same time as they were bragging that world leaders were queuing up to “kiss him”. President Xi, Trump also observed, correctly, is a proud man who wants to find a way to strike a deal. Why, then, insult him? Why let the vice-president scorn “Chinese peasants”?

China — unlike Denmark, Panama or Ukraine — is far too big to be pushed around by the US. It will lose perhaps $500bn in export earnings soon, but that is also half a trillion dollars that won’t be lent to the US Treasury to keep the federal government afloat. Such is globalisation. Such is the reliance of America on borrowed money and a vigorous world economy to fund its giant twin deficits: the federal budget and international trade.

“Panicans”, Mr Trump called those who expressed doubt about the ability of tariffs to rebalance these deficits and make America wealthy again. These sirens hopelessly appealed to reason and the political damage he was causing to Republicans. They were being rational. In the end, though, it was he who panicked, and for that small mercy all should be grateful.

We have known for some considerable time that Mr Trump is not always a man of his word. We also know him to be a menace to constitutional governance, continually testing the limits of his powers and pushing his luck. He has seen off multiple legal challenges, packed the Supreme Court, appointed the most unworthy and under-qualified cabinet in history, captured the Republican Party and converted it into a personality cult, ignored Congress, suppressed the media and generally behaved as a disgrace to the office he holds.

The Independent