The Pause That Doesn’t Refresh (April 11, 2025)
Welcome to Home & Away. Heads up: although I limit myself to two topics this week—tariffs and the Middle East—this edition is somewhat longer than usual.
Physician, Heal Thyself
It is fitting that during the week of the Masters, where more than one golfer will suffer from the yips—essentially nerves-induced spasms or twitches that make putting near impossible—that a “yippy” bond market led President Trump to back off some of the more extreme elements of his economic policy after days of insisting his tariff plan was here to stay.
Wednesday’s announcement that the so-called reciprocal tariffs would be paused for 90 days to allow time for negotiations with countries and companies ushered in a massive sigh of relief. Within minutes, the stock market shot up nearly eight percent. 401(k) plans, which for many had become 301(k) plans, were now looking better, even if they had not fully recouped their losses.
So, all’s well that ends well, right? Not by a long shot, and the unsettled stock market suggests as much. Let me suggest ten reasons why any sigh of relief should be shallow.
It is far from clear that anything has been definitively resolved. A pause is just a pause—a ceasefire rather than a peace treaty. Where things will stand tomorrow, much less in 90 days, is anyone’s guess.
Even if most of the negotiations succeed, we are still likely to end up with higher tariffs overall than when Trump took office. The 10 percent across-the-board tariff seems set to remain, as do some of the sectoral tariffs, such as those on automobile parts and cars, steel, and aluminum. And many country-specific rates could also end up higher than they are now. The tariffs that remain will cost jobs and fuel inflation.
Markets are suffering from whiplash and are on a hair trigger. It would not take a whole lot in the way of statements, tweets, or policy announcements to bring about a selloff. Uncertainty and unpredictability will also make it difficult for CEOs to commit to long-term investments that would only pay off over time. Growth, innovation, and employment will suffer as a result.
The economy will emerge weaker from this episode. We may have dodged a recession for now, but stagflation is still a real possibility owing to lower growth and higher inflation—caused not just by tariffs but also by immigration policies that will result in a shortage of workers and higher wages, driving up prices for consumers. The expanded tax cuts being discussed by Republicans in Congress would only add to these inflationary pressures.
Many leaders around the world will judge that President Trump has a low tolerance for pain and blinked. And they would be right. This could make it more difficult for him to negotiate tariffs down over the next 90 days…and potentially more difficult to negotiate successfully on other issues. More broadly, the rest of the world has come to see the United States differently—and for the worse. This country is increasingly judged to be untrustworthy and irresponsible. The tariffs are just the latest example that friends and allies will not be treated as such by this administration. What has happened will also hasten a move away from the dollar, away from near unconditional tolerance of U.S. debt, and away from deep economic and security relationships with us that could now be weaponized at a moment’s notice.
Where this will leave U.S.-China relations remains arguably the biggest question mark. As of this writing, the United States has imposed tariffs of 145 percent on China, and China has responded with its own tariffs of 125 percent against U.S. products. U.S.-China bilateral trade, which last year alone totaled close to $600 billion, is poised to fall dramatically as things now stand. Near total decoupling, seen just months ago as both impossible to achieve and undesirable, is a possibility. Both economies (the two largest in the world) stand to lose significantly: China exported $439 billion in goods to the United States last year, while many American companies depend on access to the Chinese market or on items made there. A deal is still possible, although prospects for a good one have been made weaker by U.S. unwillingness to work with friends and allies to forge a common approach toward a China that continues to base its economic growth on exports. What is certain is that how this plays out will affect a range of economic issues beyond trade (China’s willingness to hold U.S. debt for one) and the two countries' ability to avoid confrontation over other matters, including the South China Sea and Taiwan.
There is no way to know if this economic crisis was a one-off or a harbinger of things to come. We will have to see what the Senate does with the spending and tax measure that just passed the House and what both chambers do on future debt-ceiling votes. Budgeting realities won’t be made any easier by DOGE’s gutting of the IRS, which could lead to a significant fall-off of tax receipts, something that would only increase the gap between what the government takes in and spends and, as a result, increase both the deficit and the debt.
To the extent things have calmed, it comes as no thanks to the Republican majority in Congress. As usual, they shied away from confronting the president on his misguided policies. We still have a government of few checks and multiple imbalances.
It is difficult to come away from this experience with much in the way of confidence. Don’t take my word for it. Listen to Elon Musk, who described one of the architects of Trump’s trade policy, Peter Navarro, as “dumber than a sack of bricks.” There is a gang-that-can’t-shoot-straight quality to the administration. Policies launched with little or no analysis or consultation. Erroneous calculations that led to the so-called reciprocal tariffs failing to pass the seriousness test. Rationales that kept changing: it was never clear whether tariffs were a means to an end or ends in themselves. No one stepped up to stop all this madness from happening or resign when he or she could not. To the contrary, aides are shredding what little credibility they retain by describing what happened as planned and a fantastic success when all the evidence points to the contrary.
Many Americans, along with much of the world, may be somewhat relieved right now. But that is not the same as being reassured. What has occurred over the past week is a stark reminder of how vulnerable we all are—Americans and non-Americans alike—to the whims of one man. There is no getting away from the bottom line that these tariffs ought never to have been introduced in the first place. What we are experiencing is not something that emerged from the economy but rather something that was introduced to it. Beyond that, all that is transpiring now (gyrating stock markets, damaged bilateral relationships, reduced growth, and much more) is not the result of unintentional error, as was arguably the case with the overstimulation of the economy coming out of Covid or when mortgage securities were not adequately regulated two decades ago. Rather, the disruption is the result of intentional policy, above all, the sudden and unwarranted imposition of massive tariffs.
Doctors, it turns out, have a word for this: iatrogenesis. The term refers to an injury or illness resulting from medical treatment, be it from an incorrect diagnosis or flawed care. It can be caused by anyone in the chain of medical services and can result from missing or misreading symptoms, incorrectly interpreting test results, administering the wrong drug or dosage, poor technique in the operating room or elsewhere, and/or negligence of one sort or another. It is almost always unintentional. Tens of thousands of deaths in the United States are attributed to such errors each and every year.
The diagnosis that led to the prescription of tariffs was deeply flawed. As was discussed here last week, bilateral trade deficits are not inherently bad. They may simply reflect that we have a greater interest and ability to buy what another country makes than they do in buying from us. Trade, when it works, is not a zero-sum affair: we sell things we are relatively good at making (think airplanes) that most other countries cannot make, and we buy things we want but for one reason or another do not produce at all or cannot produce as cheaply.
To introduce tariffs to “fix” what is not broken makes no sense whatsoever except in those special circumstances where the case can be made that the other country is subsidizing its exports to make them artificially competitive or putting up tariff and/or non-tariff barriers to keep American goods and services out. But to blame others for the loss of many manufacturing jobs here when the jobs mostly disappeared because of fair competition or new technologies that reduced manpower needs makes no sense. While the president spoke of tariffs as a necessary cure for a very ill patient, the reality is that he took a relatively healthy patient and made him sick.
Paying attention to Gaza
As long-time readers of this newsletter will recall, Gaza featured prominently in these editions following the horrific events of October 7, 2023. Here and elsewhere, though, there has been a considerable falling off of coverage since then, less due to a lack of developments in and around Gaza than to the flood of developments elsewhere in the Middle East, the emergence of diplomacy involving Ukraine and Russia, and the various domestic and international policies of the 47th president.
We may have tired of the seemingly hopeless situation in Gaza, but it has not stabilized. Since the breakdown of the Israeli-Hamas ceasefire following the implementation of its first phase, Hamas has been reluctant to release more hostages in exchange for anything but a permanent ceasefire, as without them it has few, if any, bargaining chips. Hamas also has no interest in disarming or in peaceful coexistence with Israel. That there have been some public demonstrations against it in Gaza seems not to have affected its behavior—certainly not for the better.
For its part, the Israeli government has been reluctant to implement the ceasefire’s second phase, which among other things would require it to vacate all of Gaza and maintain a cessation of hostilities, potentially sinking Prime Minister Netanyahu’s governing coalition, allowing for elections and a formal inquiry into October 7 that could well find negligence on his part. What is apparent is that getting the hostages back is not a priority for Israel’s government, even if it is for a majority of the Israeli people.
Instead, Israel has resumed intense military attacks on Gaza. The death toll has now climbed above 50,000. There are credible reports of Israeli defense forces killing Palestinian paramedics and journalists. There are as well reports that Israel is preventing humanitarian supplies from entering the area. Israeli forces are now said to have moved Palestinians out of approximately half of Gaza with plans to maintain wide swaths of the territory as permanent buffer zones free of Gazans.
One question is whether Israel will refuse to let the two million Palestinians of Gaza rebuild and re-enter large parts of the territory when fighting dies down and instead open it up for development and settlement for Israelis and others. This would be consistent with Donald Trump’s Riviera plan. It is possible too that there is an agenda to make life so miserable for Palestinians that many would opt to leave. This would reduce the Palestinian presence in Gaza while allowing the Israelis to claim no one had been forced out. This too would be consistent with Trump’s plan.
A policy of open-ended pressure on Gaza could begin to resemble nothing so much as Israel’s policy toward the three million Palestinians living in the occupied West Bank. The West Bank (what Israelis call Judea and Samaria) is divided into three areas: Area A (Palestinian civil and military control), Area B (shared control) and Area C (Israeli civil and military control.) One could imagine what might be described as the “West Bankization” of Gaza, with areas designated for Palestinians or Israelis. Ironically, it would come at the same time we are witnessing something of a “Gazafication” of the West Bank, where what had been a degree of political and economic coexistence is increasingly being replaced by one of armed confrontation between Israeli defense forces and armed settlers on one hand and Palestinian civilians and militias on the other.
What is noticeably absent in either area is a political process that would offer Palestinians a conditional path to self-rule and conceivably a state of their own with security assurances for Israel. It is increasingly difficult to avoid the conclusion that Israel has no intention of offering such a prospect.
There has been a parallel change in U.S. policy. Gone are the days of the Biden administration’s critical, if largely ineffectual, U.S. stance. Even farther removed is the more than half-century-long, bipartisan commitment to an Israeli-Palestinian peace process and a two-state solution. Current U.S. policy seems to be nothing so much as hands off, another way of saying that Israel has a free hand to do what it wants in both Gaza and the West Bank.
The free hand also extends to what this Israeli government does inside Israel proper. Bibi Netanyahu has been weakening independent actors within Israel’s government either by firing or sidelining his critics. The Trump administration has neither an interest in criticizing Netanyahu nor the moral standing to do so as there is more than a little similarity between what is going on there and here. The Trump administration has similarly been unwilling to criticize the autocratic president of Turkey. Promoting democracy and human rights, be it by example or word, something long supported by Democrats and Republicans alike, is no longer a feature of American foreign policy.
The one aspect of the Middle East that seems to have caught the attention of the Trump administration is Iran. The president’s go-to-for-just-about-everything envoy Steve Witkoff will be heading up a delegation meeting this Saturday in Oman with his seasoned Iranian counterparts. It is unclear whether the talks are to be direct or indirect, pre-negotiations or negotiations. More important is that the ambition is unclear. To be sure, the U.S. aim is to prevent Iran from developing nuclear weapons, but to be determined is what it will insist on when it comes to limits on enriched uranium, missiles, verification arrangements, and Iran’s regional activities. Ideally, any agreement would place a low, verifiable ceiling on relevant Iranian capabilities. In exchange, there could be meaningful sanctions relief, with additional sanctions reduction linked to the reduction, or better yet end, of Iranian support for its regional proxies such as Hezbollah, Hamas, and the Houthis. My own thinking on this negotiation can be found here.
What gives these talks a chance is Iran’s military and economic vulnerability. The threat of force emanating from Israel is real, and any Israeli government (even one as polarizing as the current one) would enjoy widespread public backing if it were to attack Iran’s nuclear installations. There is a strong strategic case for not allowing Iran to possess nuclear weapons or being in a position to acquire them with little or no warning. Nuclear weapons would give Iran far more confidence to employ its destabilizing proxies without fear of reprisal. Such a development would also increase pressures on other regional governments to develop or acquire nuclear weapons of their own.
Never forget: as bad as the Middle East often is, it can always get worse. Given all that has transpired since Trump first pulled the United States out of its nuclear agreement with Iran in his first term, we are right to try to head off these Iranian advancements using diplomacy, both to prevent Iran’s nuclearization and yet another war in the region.
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Richard Haass in the news
Friday, April 4: Closing Bell (on tariffs)
Monday, April 7: Morning Joe (‘Economic Malpractice’: Why Trump's 'Economic War of Choice' Is Creating Problems, not Fixing Them)
Check out The Bill of Obligations: The Ten Habits of Good Citizens