The Next Crash: Making the Fed an Instrument for Disaster

This piece first appeared in TomDispatch.

Warning: What you are about to read is not about Russia, the 2016 election, or the latest person to depart from the White House in a storm of tweets. It’s the Beltway story hiding in plain sight with trillions of dollars in play and an economy to commandeer.

While we’ve been bombarded with a litany of scandals from the Oval Office and the Trump family, there’s a crucial institution in Washington that few in the media seem to be paying attention to, even as President Trump quietly makes it his own. More obscure than the chambers of the Supreme Court, it’s a place where he has already made substantial changes. I’m talking about the Federal Reserve. 

As the central bank of the United States, the “Fed” sets the financial tone for the global economy by manipulating interest rate levels. This impacts everyone, yet very few grasp the scope of its influence.

During times of relative economic calm, the Fed is regularly forgotten. But what history shows us is that having leaders who are primed to neglect Wall Street’s misdoings often sets the scene for economic dangers to come. That’s why nominees to the Fed are so crucial.

We have entered a landmark moment: no president since Woodrow Wilson (during whose administration the Federal Reserve was established) will have appointed as many board members to the Fed as Donald Trump. His fingerprints will, in other words, not just be on Supreme Court decisions, but no less significantly Fed policy-making for years to come -- even though, like that court, it occupies a mandated position of political independence.

The president’s latest two nominees to that institution’s Board of Governors exemplify this. He has nominated Richard Clarida, a former Treasury Department official from the days of President George W. Bush who later became a strategic adviser to investment goliath Pimco, to the Fed’s second most important slot, while giving the nod to Michelle Bowman, a Kansas bank commissioner, to represent community banks on that same board.

Like many other entities in Washington, the Fed’s Board of Governors has been operating with less than a full staff. If Clarida is approved, he will join Trump-appointed Fed Chairman Jerome Powell and incoming New York Federal Reserve Bank head John C. Williams -- the New York Fed generally exists in a mind meld with Wall Street -- as part of the most powerful trio at that institution.

Williams served as president of the San Francisco Fed. Under his watch, the third largest U.S. bank, Wells Fargo, created about 3.5 million fake accounts, gave its CEO a whopping raise, and copped to a $1 billion fine for bilking its customers on auto and mortgage insurance contracts.

Not surprisingly, Wall Street has embraced Trump’s new Fed line-up because its members are so favorably disposed to loosening restrictions on financial institutions of every sort.  Initially, the financial markets reflected concern that Chairman Powell might turn out to be a hawk on interest rates, meaning he’d raise them too quickly, but he’s proved to be anything but.

As Trump stacks the deck in his favor, count on an economic impact that will be felt for years to come and could leave the world devastated. But rest assured, if the Fed can help Trump keep the stock market buoyant for a while - or at least the midterm elections - by keeping money cheap for Wall Street speculation and the dollar competitive for a trade war, it will.  

History Warns Us

At a time when inequality, economic hardship, and household and personal debt levels are escalating and wages are not, why should any of this matter to the rest of us? The answer is simple enough: because the Fed sets the level of interest rates and so the cost of money. This, in turn, indirectly impacts the value of the dollar, which means everything you buy.

Since the financial crisis, the Fed has kept the cost of borrowing money for banks at near zero percent interest. That allowed those banks to borrow money to buy their own stock (as did many corporations) to inflate their value but not, of course, the value of their service to Main Street.

When money is cheap because interest rates are low or near zero, the beneficiaries are those with the most direct access to it. That means, of course, that the biggest banks, members of the Fed since its inception, get the largest chunks of fabricated money and pay the least amount of interest for it.

Although during the election campaign of 2016 Trump chastised the Fed for its cheap-money policies, he’s since evidently changed his mind (which is, of course, very Trumpian of him). That’s because he knows that the lower the cost of money is, the easier it is for major companies to borrow it. Easy money means easy speculation for Wall Street and its main corporate clients, which sooner or later will be a threat to the rest of us. 

The era of trade wars, soaring stock markets, and Trump gaffes may feel like it’s gone on forever. Don’t forget, though, that there was a moment not so long ago when the same banking policies still reigning caused turmoil, ripping through the country and devouring the finances of so many. It’s worth recalling for a moment what happened during the Great Meltdown of 2008, when unrestrained mega-banks ravaged the economy before being bailed out. In the midst of the current market ecstasy, it’s an easy past to ignore. That’s why Trump’s takeover of the Fed and its impact on the financial system matters so much.

Let's recall that, on September 15, 2008, Lehman Brothers crashed. That bank, like Goldman Sachs a former employer of mine, had been around for more than 150 years. Its collapse was a key catalyst in a spiral of disaster that nearly decimated the world financial system. It wasn’t the bankruptcy that did it, however, but the massive amount of money the surviving banks had already lent Lehman to buy the toxic assets they created.

Around the same time, Merrill Lynch, a competitor of Lehman's, was sold to Bank of America for $50 billion and American International Group (AIG) received $182 billion in government assistance. JPMorgan Chase had already bought Bear Stearns, which had crashed six months earlier, utilizing a $29 billion government and Federal Reserve security blanket in the process.

In the wake of Lehman’s bankruptcy, $16 trillion in bailouts and other subsidies from the Federal Reserve and Congress were offered mostly to Wall Street’s biggest banks. That flow of money allowed them to return from the edge of financial disaster. At the same time, it fueled the stock and bond markets, as untethered from economic realities as the hot air balloon in The Wizard of Oz.

After nearly tripling since the post-financial crisis spring of 2009, last year the Dow Jones Industrial Average rose magically again by nearly 24%. Why? Because despite all of his swamp-draining campaign talk, Trump embraced the exact same bank-coddling behavior as President Obama. He advocated the Fed’s cheap-money policy and hired Steve Mnuchin, an ex-Goldman Sachs partner and Wall Street’s special friend, as his Treasury secretary. He doubled down on rewarding ongoing malfeasance and fraud by promoting the deregulation of the banks, as if Wall Street’s greed and high appetite for risk had vanished. 

Impending Signs of Crisis

A quarter of the way into 2018, shadows of 2008 are already emerging. Only two months ago, the Dow logged its worst single-day point decline in history before bouncing back with vigor. In the meantime, the country whose banks caused the last crisis faces record consumer and corporate debt levels and a vulnerable geopolitical global landscape.

True, the unemployment rate is significantly lower than it was at the height of the financial crisis, but for Main Street, growth hasn’t been quite so apparent. About one in five U.S. jobs still pays a median income below the federal poverty line. Median household income is only up 5.3% since 2008 and remains well below where it was in 1998, if you adjust for inflation. Workforce participation remains nearly as low as it's ever been. Meanwhile, the top 1% of American earners saw their incomes go up by leaps and bounds since the Fed started manufacturing money -- to more than 40 times that of the bottom 90%.

Just as before the 2007-2008 financial crisis, there’s a scary level of confidence among politicians and regulators that neither the economy nor the banking sector could possibly go bust. Even the new Federal Reserve chair views the possible need for bailouts as a relic of a bygone time. As he said at his confirmation hearing, “Generally speaking I think the financial system is quite strong.” When asked if there are any U.S. banks that are still too big to fail, he responded, “I would say no to that.”  

That’s a pretty decisive statement, and not strikingly different from one outgoing Fed Chair Janet Yellen made last year. By extension, it means that Trump’s new chairman supports laxer structures for the big banks and more cheap money, if needed, to help them. So watch out. 

When a crisis hits, liquidity dies, and banks close their doors to the public. Ultimately, the same formula for crisis will surely send Wall Street executives crawling back to the government for aid and then Donald Trump will find out what financial negligence truly is.

A Time of Crisis and Financial Collusion

As signs of crisis emerge, few in Washington have delved into how we can ensure that a systemic crash does not happen again. That’s why I’ll never forget the strange message I got one day. It was in the middle of May 2015, about a year after my book, All the Presidents' Bankers, had been published, when I received an email from the Federal Reserve. Every year, the Fed, the International Monetary Fund, and the World Bank hold an annual conference where the most elite central bankers from around the globe assemble. To my shock, since I hadn't exactly written in a kindly fashion about the Fed, I was being invited to speak at the opening session about why Wall Street wasn’t helping Main Street.

Two months later, I found myself sitting in front of a room filled with central bankers from around the world, listening to Fed Chair Janet Yellen proclaim that the worst of the crisis and its causes were behind us. In response, the first thing I asked that distinguished crowd was this: “Do you want to know why big Wall Street banks aren’t helping Main Street as much as they could?” The room was silent. I paused before answering, “Because you never required them to.” 

I added, “The biggest six U.S. banks have been rewarded with an endless supply of cheap money in bailouts and loans for their dangerous behavior. They have been given open access to these funds with no major consequences, and no rules on how they should utilize the Fed’s largess to them to help the real economy. Why should you expect their benevolence?”

After I returned home, I became obsessed with uncovering just how the bailouts and loans of that moment were only the tip of an iceberg, the sort of berg that had once taken down the Titanic -- how that cheap money fabricated for Wall Street had been no isolated American incident.

What my research for my new book, Collusion: How Central Bankers Rigged the World, revealed was how central bankers and massive financial institutions have worked together to manipulate global markets for the past decade. Major central banks gave themselves a blank check with which to resurrect problematic banks; purchase government, mortgage, and corporate bonds; and in some cases -- as in Japan and Switzerland -- stocks, too. They have not had to explain to the public where those funds were going or why. Instead, their policies have inflated asset bubbles, while coddling private banks and corporations under the guise of helping the real economy. 

The zero-interest-rate and bond-buying central bank policies prevailing in the U.S., Europe, and Japan have been part of a coordinated effort that has plastered over potential financial instability in the largest countries and in private banks. It has, in turn, created asset bubbles that could explode into an even greater crisis the next time around.

So, today, we stand near -- how near we don’t yet know -- the edge of a dangerous financial precipice. The risks posed by the largest of the private banks still exist, only now they’re even bigger than they were in 2007-2008 and operating in an arena of even more debt. In Donald Trump’s America, what this means is that the same dangerous policies are still being promoted today. The difference now is that the president is appointing members to the Fed who will only increase the danger of those risks for years to come.

A crash could prove to be President Trump’s worst legacy. Not only is he -- and the Fed he’s helping to create -- not paying attention to the alarm bells (ignored by the last iteration of the Fed as well), but he’s ensured that none of his appointees will either. After campaigning hard against the ills of global finance in the 2016 election campaign and promising a modern era Glass-Steagall Act to separate bank deposits from the more speculative activities on Wall Street, Trump's policy reversals and appointees leave our economy more exposed than ever. 

When politicians and regulators are asleep at the wheel, it’s the rest of us who will suffer sooner or later. Because of the collusion that’s gone on and continues to go on among the world’s main central banks, that problem is now an international one.

Jared Kushner, R.I.P. A Political Obituary for the President’s Son-in-Law

This piece first appeared in TomDispatch.

Here we are a little more than a year into the Trump presidency and his administration’s body count is already, as The Donald might put it, “unbelievable, perhaps record-setting.”

Among the casualties are Secretary of State Rex Tillerson; my former boss at Goldman Sachs, economic policy chief Gary Cohn; National Security Advisor Michael Flynn; FBI Director James Comey; White House Press Secretary and Communications Director Sean Spicer; four other communications directors including Hope Hicks who, having been Ivanka Trump's confidante, was elevated to the status of the president’s “real daughter” before her own White House exit; chief strategist Steve Bannon; Chief of Staff Reince Priebus; a bunch of other instant relics of Trumpian political history, and a partridge in a pear tree. (Actually, a 200-year-old magnolia uprooted from the White House grounds thanks to the first lady.)

Responding to Hope Hicks' departure and, perhaps subliminally, the rumored future exile of son-in-law Jared Kushner, the president typically half-lamented and half-quipped, “So many people have been leaving the White House. It’s invigorating, since you want turnover. I like chaos. It really is good. Who’s going to be the next to leave? Steve Miller or Melania?”

Melania has been unavailable for comment on her own possible future place among the fallen of the Trump era.  Perhaps, though, she’ll hang around and offer her husband a little comfort in Stormy weather, as rumors continue to circulate that his perfectly real daughter and her all-too-real husband may be ousted from the premises.

Not surprisingly, personnel issues seem to be on the president’s mind these days.  On March 6th, in the East Room of the White House and flanked by the Swedish prime minister, he boasted, “So many people want to come in. I have a choice of anybody. I could take any position in the White House, and I’ll have a choice of the 10 top people having to do with that position. Everybody wants to be there."

However, with constant media conjectures about yet more departures including National Security Advisor H.R. McMaster and possibly even White House Chief of Staff John Kelly, there seems to be a predisposition to move out of, not into, this Oval Office.  In a remarkably short space of time, President Trump has already achieved a record 43% turnover rate for top-level staff members, some of whom may be jumping ship in hopes of emerging with reputations relatively untarred, while avoiding lengthy prison sentences.

As collateral damage in his world mounts, it seems as if the only members of the Trump Empire, White House division, guaranteed job security are his lawyers and perhaps Treasury Secretary Steven Mnuchin. Even that most nuclear of families -- his -- seemed in peril of exploding, as the countdown to Kushner's exit approaches the zero hour. It looks as if we may all have scored front-row seats for the latest you’re-fired episode in the White House reality show.

Given the not-if-but-when nature of Kushner’s departure from the White House, it’s none too soon for media outlets to prepare themselves.  With that in mind, here is a prospective political obituary for him.

Bringing Peace to a Riven World

The political career of Jared Kushner met a slow death from unparalleled incompetence, conflicts of interest, and financial sleights of hand. He is survived by his father-in-law Donald Trump and -- though no one knows for how long -- his wife, Ivanka. At age 37, he had held the role of White House senior adviser and assistant to the president since the day Donald Trump entered the Oval Office. Just two months later, his wife agreed to take a similar advisory position.  Though together they were reported to be worth a mere $740 million, they generously offered to do their new jobs without pay from a sense of duty to country and the kindness of their hearts -- and also perhaps to avoid running afoul of an anti-nepotism law passed in 1967 when Lyndon B. Johnson was president.

Jared’s year-plus in the White House proved another Trump-style record setter, a pro bono financial odyssey of a sort no previous White House had ever witnessed.  While traveling the globe to carry out his “duties” and hobnob, negotiate, and pose for endless photo-ops with world leaders from Iraq, China, Israel, and a host of other countries -- a role once upon a time filled by the secretary of state -- the overworked adviser somehow found a few moments to cash in his diplomatic air-miles big time.

In his Rolodex of titles, he would also serve as head of a completely fabricated new entity, the White House Office of American Innovation. In both capacities, he stood ready to change the world, a goal he achieved handily -- if the world you happen to be talking about was his own financial one. And that was no small thing.  After all, it’s not easy to oversee and advance (or, in his case, even potentially depth charge) your private business interests while lending a hand running the country, not to speak of the world, and freeing your father-in-law to work on his golf stroke.

For example, Kushner attempted to extract from investors in Qatar a modest half-billion dollars in bailout funds for a cratering Manhattan skyscraper, 666 Fifth Avenue, that he had purchased for his family business while still in the private sector. Unfortunately, that particular deal fell through, after which Kushner and his father-in-law happily backed the Saudis in their blockade and quarantine of Qatar.

Taking his business-oriented focus on the road as the White House liaison for peace in the Middle East, Kushner was also tasked with the simple goal of brokering the settlement of the Israel-Palestine conflict. His familiarity with the region was significant since, among other things, he had gotten at least four major loans from Bank Hapoalim, Israel’s largest bank, for the Kushner family real estate company. (Hapoalim is undergoing a criminal probe by the U.S. government for tax evasion services it reportedly provided to its wealthy clients.) Shortly before President Trump’s visit to Israel in May 2017, Kushner Companies also received a $30 million investment from Menora Mivtachim, one of Israel’s largest insurers -- and what could be more peaceable than that? As everyone knows, Kushner himself left office just as peace was settling over the region (and the U.S. was moving its embassy to Jerusalem).

China, of course, had been a longtime target of Donald Trump until -- in a similarly diplomatic frame of mind -- Kushner helped organize a fabulous Dover sole dinner at the president’s Mar-a-Lago club with Chinese President Xi Jinping last April.  He would also prove to be a key figure in smoothing the way for better relations with that rising global superpower -- an approach that just happened to fit perfectly with the Kushner family business.  Only a month after that dinner, for example, his sister, Nicole Meyer, was already reportedly pitchingthe glories of One Journal Square, a Jersey City housing project the Kushner family owns that was in need of $150 million in investments, to a gathering of 100 potential Chinese investors at the Ritz-Carlton Hotel in Beijing. As part of that pitch, while dropping her brother’s name, she offered them a path into the U.S. EB-5 visa program, sometimes referred to as a “citizenship for sale” program, which they could enter through Kushner properties for a mere $500,000 each.

Building brilliantly on his Chinese portfolio, Jared Kushner, too, held private meetings with elite potential Chinese investors in... well, properties like his family’s and spent copious time with the Chinese ambassador to the U.S. during and after the election campaign. He allegedly also attended high-level meetings with the chairman of Anbang Insurance Group during the Trump transition period.  At the time, Anbang just coincidentally was considering making an investment in 666 Fifth Avenue.  Unfortunately, no deal resulted. Since then, the company has been seized by the Chinese government and its chairman prosecuted for “economic crimes.”  For Kushner, refinancing that single building in New York proved no easier than making peace in the Middle East.

But give him credit: while advising the president, he never stopped looking out for those closest to him (i.e., his family) and never forgot his role as a junior mogul on the make.  In the process, he entertained a cast of key bank executives.  In an office only doors from the Oval Office, he regularly connected with some of the biggest players on Wall Street, including those at bailout-prone Citigroup, scandal-ridden Deutsche Bank, and the asset-management goliath Blackstone Group. As the Wall Street Journal reported, he also remained in undisclosed business relationships with Goldman Sachs, investor George Soros, and billionaire venture capitalist Peter Thiel. All three had business stakes in a “real-estate tech startup called Cadre that Kushner co-founded and currently partly owns.”

Being the statesman he was, however, there can be little doubt that Kushner attended such meetings purely to explore the state of banking and investment for the sake of the economic well-being of the American people. After all, no portfolio, from the secretary of state’s to infrastructure and the opioid crisis, was beyond his skills.

In his brief time in the White House, one thing can be said: his generosity of spirit was second to none. He opened his arms to any financial firm that wanted to help him put the United States on a path back to being great again.  (Whatever multi-million-dollar loans to the Kushner family business occurred in the process surely represented no more than a random confluence of events.) Last November, for example, Apollo Global Management, one of the world’s largest private equity firms, loaned $184 million to Kushner’s family real estate company in order to refinance a mortgage on a Chicago skyscraper. That was after its founder, an adviser to the Trump administration on “infrastructure,” met numerous times with Kushner in the White House.

When that sum proved less than adequate for the family’s dreams, a far larger company, one that the U.S government had bailed out during the financial crisis of 2007-2008, stepped in and offered his family firm an even bigger loan.  It came from Citigroup, which lent Kushner Companies $325 million to help finance office buildings in Brooklyn.  As the New York Times reported, “That loan was made in the spring of 2017, shortly after Mr. Kushner met in the White House with Citigroup’s chief executive, Michael L. Corbat.”

In all such situations, the appearance of impropriety was at best circumstantial. In his year-plus in the White House, Kushner unfortunately became the subject of “fake news,” above all by reporters pushing the absurd idea that his family business had somehow profited by his unpaid position in the Trump administration.

Death in a Revolving Door

Only in February did things start going truly badly for the young presidential adviser.  Having held only an interim top-secret security clearance for more than a year while his background check stalled (reportedly due to fears that he might be manipulated by foreign powers over his family’s finances), he was suddenly downgraded to “secret” by White House Chief of Staff John Kelly, considered anything but a “Javanka” ally. Such a functional demotion meant that he suddenly had less access to key documents and crucial information of governing than the White House calligrapher.  In the process, he got pummeled in the media (through no fault of his own, of course).  

President Trump was reportedly “frustrated” by that media browbeating, but no less so by Kushner himself.  According to the New York Times, Trump now viewed his son-in-law “as a liability because of his legal entanglements, the investigations of the Kushner family’s real estate company, and the publicity over having his security clearance downgraded.” It even began to be rumored that the president had privately asked Chief of Staff Kelly to begin the process of pushing not just Kushner but his own daughter out of the White House. Given the president’s well-documented predisposition to turn his back on former loyalists, that proved to be the end of the road.  In Trumpian terms, Kushner quickly found himself not six feet out of power, but six feet under it.

It was with deep regret that Jared Kushner left behind his cozy office at 1600 Pennsylvania Avenue and his unfinished masterpiece: peace in the Middle East (and possibly the world). He did, however, retain the Washington residence that the first daughter and he had occupied for $15,000 a month. That humble abode was owned by Chilean mogul Andrónico Luksic, whose mining company happens to be mired in a dispute with the U.S government over billions of dollars (which, it goes without saying, had no bearing on the Kushners’ choice of a dwelling).

In his post-political life, Kushner faces another problem he couldn’t solve while in the White House: by January 2019 the Kushner family organization needs to cough up $1.2 billion to save its flagship New York property from defaulting, a building that, despite Kushner’s well known savvy when it comes to... well, everything, has been losing money since it was purchased for a record $1.8 billion in 2007.  Fortunately, who knows better than the Trump family and by extension the Kushners that, after every possible investor is exhausted, bankruptcy court is always an option.

In the end, Kushner’s White House journey was through a door revolving around the instability of Donald Trump’s judgment.

And so Jared Kushner’s political career ended. Of course, he’ll always have, if not Paris, then Jerusalem and the odd trip to Mexico.

He is survived in the White House by his father-in-law and, for the time being, his wife. Meanwhile, that revolving door continues to spin.

Trade Wars, Gateways to Diminished Credibility and Economic Hardship

This article first appeared in Truthdig. 

As Jonathan Swift once noted: “There is nothing constant in this world but inconsistency.”

That’s the operative motto for all things Trump, one that makes analyzing the gap between what he thinks and what he tweets much easier. Along those lines, my former boss from my Goldman Sachs days—Gary Cohn—just resigned from his White House post as chief economic adviser to the Chaos Producer in Chief. This was ostensibly in protest against the president’s  announcement  about imposing steel and aluminum tariffs. The next day, Trump signed the order sealing that deal, citing his actions as a “matter of necessity for our security.”

Along the way, he said there would be no exemptions to the tariffs, then said there would be—for Canada and Mexico. Trump glowed in the light of his new-found power grab over trade agreements, leaving himself room to decide which countries would be “in” and “out” with respect to these and other tariffs in the future. And that was the week that was in Trump World.

The timing of Cohn’s departure certainly put a wrench in his plans to convene executives dependent on steel and present their case against steel tariffs to Trump. Instead, Trump signed the tariffs order flanked by steel and aluminum workers supporting it. Speaking of steel, Cohn’s nerves were seemingly made of that metal. At Goldman, he was the man who regularly waded through deals without losing his cool (unlike Trump). On 9/11, I witnessed him directing traders to keep trading oil as shreds of debris and billows of smoke engulfed the windows of the Goldman trading floor, only a few blocks away from the World Trade Center.

 

He became president (or number two) at Goldman, continually handling the less “cool” behavior of chairman and CEO Lloyd Blankfein, who remained above him in the pecking order for decades. Cohn commanded daily activities at Goldman that led to the firm’s creation of shady financial instruments that were later at the core of the financial crisis. Under Cohn, Goldman was bailed out by U.S. taxpayers. The firm morphed, for government subsidy purposes, into a bank holding company, though it handled scant deposits from regular people. It did this to retain access to Federal Reserve support, as it has done, over the past decade. Cohn was also at Goldman when it reached a $5 billion settlement with the Department of Justice over its consistent misconduct regarding mortgage-related securities from 2005 to 2007.

That type of conflict-meets-crisis readied him for his government service. When Cohn came up against Trump, the president’s flavor-of-the-minute trade policy hawk, Peter Navarro, met “Globalist Gary” head on. Shortly therafter, Cohn’s Trump administration career was over.

The financial news media didn’t take Cohn’s departure well. Past transgressions forgotten completely, it considered Cohn, one of the few adults in the room, another Trump appointee biting the dust, pointing to what we already know: Inconsistency is the only constant in this White House.

The Tariffs

When Trump added imported steel and aluminum to his list of already announced tariffs for solar panels and washing machines, members of his own party joined the world in expressing their disapproval. Many business sectors reliant on raw steel expressed fears that the tariffs would ultimately lead to major job losses, not gains, throughout that U.S. economy. Though the action invoked Section 232 of the 1962 Trade Expansion Act, the rest of the world knows that imported steel costs don’t represent security risks, whereas the alienation of allies actually does.

As European Commission President Jean-Claude Juncker said: “We strongly regret this step, which appears to represent a blatant intervention to protect U.S. domestic industry and not to be based on any national security justification.” He vowed that Europe would retaliate.

There were three sets of tariffs proposed by the Commerce Department, run by billionaire Wilbur Ross, and the latest, a 25 percent tariff on steel and 10 percent tariff on aluminum imports, are the harshest so far. For the president to circumvent Congress on tariffs, it must allegedly alleviate what would otherwise be a national security risk. That’s just the loophole Trump used to ostensibly deliver on his campaign promises to American steelworkers. The problem is that the tariffs could wind up hurting those and other workers, as well as American consumers, instead. It would also add fuel to the fire in an already existing trade war.

Why is it already existing? Because Trump’s entire isolationist posture and dogma have already caused U.S. allies and adversaries to seek tighter relationships with each other, from a currency and trade agreement perspective. The latest tariffs are another element on the path away from diplomacy (which could be better used to create agreements that truly benefit workers on all sides of our borders) and toward the school-yard bullying tactics Trump adheres to.

Reactions from around the world were of anger. China’s foreign ministrycalled the tariffs “unreasonable and excessive” and, in true trade war style, promised that Beijing “will take necessary measures to safeguard its legitimate rights and interests.”

Our friend to the north, Canada, one of the biggest sources of steel for the U.S., and one of biggest buyers of American steel, was equally incensed. Foreign Affairs Minister Chrystia Freeland said tariffs on Canadian steel and aluminum would be “absolutely unacceptable.”

Even if Trump meant well (OK, a really big IF), his lack of diplomacy will ultimately render products the U.S. must import more expensive. As for American steel, any money made on extra tariffs will be lost on a reduced pool of buyers for our exported products. Domestic consumers ranging from home to bridge builders will inevitably face higher raw steel prices as a result.

Tariff Timing and Mexico’s Stance Affecting NAFTA Talks

Before Trump decided to levy the tariffs, conversations between the U.S. and its NAFTA partners, Mexico and Canada, were coming along, not perfectly, but well enough. Then, the subject of the border wall resurfaced during a phone conversation between Trump and Mexican President Enrique Peña Nieto. That stalemate continues. Peña Nieto reiterated that Mexico won’t pay for the wall. Trump “insisted that it would.” According to The Washington Post, an involved Mexican official said that the entire conversation sparked Trump’s temper. Surprise, surprise. Trump’s ongoing temper tantrums are a real chip at the wall of international diplomacy.

It was following that heated discourse (after which Peña Nieto canceled his trip to the U.S., the second time he has done so due to the wall dispute), Trump declared he would impose the tariffs.

Whether a negotiation technique, or a campaign promise confirmed to his base, Trump initially implied that the tariffs were aimed at China (from which the U.S. imports less than 6 percent of its steel). But they hurt Canada the most. Canada provides 16 percent of U.S. imported steel. Brazil and South Korea rank second and third. China isn’t even one of America’s top 10 suppliers. Worse for Canada, 75 percent of our northern friend’s total steel exports go to the U.S. The tariff would cripple one of Canada’s leading exports while we are trying to negotiate the “best” NAFTA deal with them.

But that’s exactly what Trump wants. By dangling financial threats and then taking them away, he elevates himself to being more of a dictator, and less of a leader, of the country’s trade agenda. On Monday, he tweeted that he might consider dropping the tariff on Canada and Mexico if they played ball with him on the new NAFTA agreement. Trump’s notion of reciprocity at that time meant Mexico paying for a wall and Canada “treating our farmers better.” Navarro, director of the White House National Trade Council, had said something different earlier that morning, but the mismatch between Trump’s tweets and people trying to do their jobs in perpetual guess mode as to his decision is par for the course.

All manner of diverse voices called out the tariffs. Goldman Sachs noted that “import tariffs make the U.S. less competitive by raising the prices of raw materials.”

In Hamburg, Juncker responded to Trump’s announcement with: “We can also do stupid.” He vowed to fight back against Trump’s tariffs, noting, “This is basically a stupid process, the fact that we have to do this. But we have to do it. We will now impose tariffs on motorcycles, Harley Davidson, on blue jeans, Levis, on bourbon. We can also do stupid. We also have to be this stupid.”

Trump retorted with an uppercut to the jaw. “If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S.,” he tweeted on Saturday. “They make it impossible for our cars (and more) to sell there. Big trade imbalance!”

Perhaps, just perhaps, competition for stupid isn’t in the interest of the U.S., other countries, or the workers and citizens of the world. Destroying U.S. credibility only reduces the desire of other countries to buy from the U.S., or to negotiate better terms for U.S. consumers or workers, and instead, trade more with each other.

Trade War Casualties

It’s not rocket science. If it costs more to import steel, either that cost will be passed on to the end user of steel-made products and to middlemen that build things using steel, or U.S. steel manufacturers will step up to the demand that comes from less imported steel.

The part of U.S. industry that uses steel is far larger than that which supplies steel. The ratio is more than 6.5 million workers to about 140,000 in the steel industry itself. And sure, as billionaire U.S. Secretary of Commerce Wilbur Ross pointed out, if a Campbell’s soup can uses 2.6 cents worth of steel, and if that steel cost rises by 25 percent, it adds only an extra six-tenths of one cent to the can’s price.

But that math doesn’t account for whether American companies can accommodate extra domestic steel demand, or whether they will also now raise steel prices—because they can. The U.S. has been behind in infrastructure surrounding the steel industry, one of the reasons U.S. steel mills have been at over, not under, capacity. Renovating mills would enable domestic steel producers to produce more steel for domestic use than raising tariffs on importing steel would.

When the Bush steel tariff was in effect in 2002, 200,000 Americans in industries requiring steel lost their jobs because of higher steel prices, versus 187,500 workers working in the steel industry. The reality is that there needs to be better infrastructure.

The Trade Deficit

Trump’s use of tariffs as a means to control trade deficits comes after his first year in office, during which the overall U.S. trade deficit widened 12.1 percent to $566 billion, its highest level since the 2008 financial crisis. Exports rose 5.5 percent to $2.33 trillion, while imports climbed 6.7 percent to a record $2.9 trillion. The trade gap with China increased 8.1 percent to a record $375.2 billion, and the gap with Mexico rose to $71.1 billion, the second highest on record.

According to the Department of Commerce’s International Trade Administration, the U.S. is the world’s largest steel importer, with U.S. imports representing about 8 percent of all steel imported globally. Part of the reason for that is not just the price of steel, but the ability of U.S. steel companies to produce it in the U.S. The top eight countries that export steel to the U.S. provide about 1 million metric tons each and make up 75 percent of U.S. steel imports. Canada, Brazil and Mexico send more than a third of their total steel exports to the U.S.

Treasury Secretary Steven Mnuchin tried to assuage fears of global trade wars at a congressional committee hearing, saying, “We are not looking to get into trade wars.” He added that he was “supportive” of imposing the duties, thereby contradicting himself, taking a page out of Trump’s book of bipolarity and reducing the legitimacy of anything the U.S. government says or does.

House Speaker Paul Ryan has also expressed repeated concerns about a trade war. Yet our internal dramas just serve to alienate us from the world, not obtain better overall “deals,” because we are doing so from a position of increasing weakness and erratic White House behavior.

1920s Isolationism and Tariffs

U.S. history during an equally isolationist and deregulatory period shows that alienating the world doesn’t help the U.S.—or the world. The Emergency Tariff Act, signed in May 1921, increased import taxes on wheat, sugar, meat, wool and other agricultural products.

The Fordney-McCumber Tariff Act, signed in September 1922, raised tariffs and extended them to industrial goods. The tariffs did encourage Americans to buy American goods. However, they did not help U.S. exports. Other countries retaliated by introducing tariffs of their own, so U.S. exports became more expensive and less popular.

In 1930, following the crash of 1929, President Hoover signed the Smoot-Hawley Tariff Act, against, raising already high tariffs on more than 20,000 imported goods to as much as 60 percent. That set off a global trade war, causing more trading partner retaliation, and a 66 percent drop in global trade between 1929 and 1934 that deepened the Great Depression. To lower the high tariffs, President Roosevelt passed the Reciprocal Trade Agreements Act in 1934.

Why Mexico Matters

Meanwhile, the seventh round of NAFTA talks between Mexico, Canada and the U.S. finished in Mexico City this week, three weeks before Mexico’s’ campaign season begins on March 30. Jared Kushner flew to Mexico City, having lost his security clearance and thus ability to negotiate world peace in the Middle East. Whether he had anything to do with it or not, the next day, Trump did relent, and agree to exempt Mexico and Canada from tariffs. That said, he could easily re-impose them if talk about a wall or other conversation goes against his demands.

A trade war is about more than prices in and prices out. It’s about considering how those prices impact real people and jobs. It’s about considering multiple trade and diplomatic relationships—not just between other countries and the U.S., but among those countries with each other.

Trump’s supporters may believe that drawing a line in the sand against China that impacts Canada is good for American jobs, but the devil is in the details, and details are not Trump’s forte. The reality is that America is losing its position on the world stage as a country that shows consistency in any capacity. These tariffs will inspire better trade relationships among other countries, something Trump’s isolationist stance has already put in motion. They will diminish U.S. credibility, the lack of which is a product Trump has coined as his main export.

In the 1930s, U.S.-initiated trade wars contributed to a global Great Depression, one factor that lead to World War II. This time around, the rest of the world is more likely to work together and less with the U.S., not quake in economic fear of U.S. retaliation. This is clear and evidenced by the recent agreement between Japan and the EU, and the Regional Comprehensive Economic Partnership, in which Japan and China are key participants, their historical differences set aside, in efforts to forge non-U.S. trade relationships.

The U.S. remains in a precarious economic situation, as does the world, and that means Trump’s trade war and nationalism, coupled with bank deregulation, could inflict more risk on depleted economies. That path would be a truly disastrous one for the U.S.