David Willetts: With his tariff revolution, Trump has misjudged his newer, bigger coalition

David Willetts is a Conservative peer.

I’m in the US attending conferences in Washington DC and Colorado, so this is a report from the front-line of the Trump revolution.

We used to be taught that the USA constitution had checks and balances. Indeed critics found them so frustrating that they were renamed the deep state and blamed for political gridlock. Now Donald Trump is smashing through all those barriers with an extraordinary concentration of power in his hands, notably in the surge of over hundred executive orders (EOs).

Many ignore the allocation of powers in the Constitution. For example tariffs on the scale proposed are clearly a tax which require congressional approval but that has not been attempted. At some point they may be struck down but meanwhile Trump enjoys extraordinay power.

It is a striking display of political energy – so different from the doddering performance of Joe Biden towards the end. And there is a clear Trump narrative about the US economy, which goes like this:

“Globalisation was a mistake. It all went wrong when the old GATT regime was replaced by the WTO which gave a global institution a quasi-judicial power to decide what governments including the US could do. That was a massive error and the US will not allow a key economic policy to be set in this way. Open global markets led to countries with much lower pay to undercut American wages and hollowed out American manufacturing. The elites selling services gained and the workers making stuff lost out. Tariffs are the tool to bring back classic manufacturing jobs to the US.

“Those elites then doubled down on this injustice by elevating identity politics, to the advantage groups such as recent migrants. White working-class men were ignored and demeaned. The progressive elites were more interested in transgender rights. So the war on woke is the cultural arm of the economic war on foreign imports.”

For an observer from the UK, it is a surprisingly bleak picture of the US economy. On most measures the economic performance of the US has been strong, with GDP growing faster than in the rest of the G7.

But if you dig down the wages of the American “middle class” (what in Britain would be called the working class) have been doing poorly. Household incomes have only been kept up by a surge of women into the workforce, and that shift has not got much further to go. Trump is talking to these people whose wages have stagnated and he has a clear explanation of what has gone wrong – foreigners who have “looted” and “pillaged” the American economy.

There are clear parallels with the Brexit agenda. Ultimately economic problems are attributed to globalisation and giving too much power to foreigners. They divert attention from other explanations of what has gone wrong which would cause more problems for a right wing party.

American incomes are now more unequally distributed and a very high proportion of the gains have been captured by the elites – partly because of a regressive tax system. Organised labour has been weakened, and technological change has rewarded education more than ever, so being badly educated is now much worse for living standards than it used to be.

Even if you blame foreign imports for America’s problems, however, it is not clear that tariffs can do the entire job of rebuilding American manufacturing. They would have to be part of a much wider strategy for economic renewal.

Imports of goods are actually a much smaller part of the US economy than ours, and can’t explain all that has happened to wages. Trump is focussed on goods not services – where the US, like us, does very well. Americans spend about $3tn a year on imported goods compared with total US GDP of about $30tn. An average ten per cent tariff, Trump’s base case, might therefore raise about $300bn, or just one per cent of GDP.

Then there is the politics. Trump has a brilliant sense of who his voters are and how to communicate with them. But he built a rather different and bigger coalition this time than when he won in 2016. He was much more successful with younger voters in 2024; he did well with ethnic minority groups; he is reaching people struggling to make ends meet in small town America.

Not many of them are necessarily as focussed on manufacturing jobs as he is. Trump has a nostalgia for a certain sort of job, and big factories at the heart of old communities. In some ways it is a similar narrative to Bruce Springsteen’s ‘Born in the USA’ – but that was forty years ago. Many of those jobs aren’t coming back, and many of his younger supporters would barely recognise them.

Meanwhile the market turmoil continues. He is brashly saying, at the moment, that this is painful medicine that has to be taken. But he is not impervious to political and financial pressures. What matters for Trump now is how bad the reaction in the markets is over the next few weeks.

So far the effects have been on assets: Americans with 401k savings plans will be noticing. But next it will start showing up in retail prices, and that will be tougher politically.

If markets are still falling, prices are rising, and the US appears to be heading into recession, Republicans will start panicking about the mid-term elections.  Then he could well cut tariffs, announcing deals with many countries and taking them down to ten per cent or even lower. All this could happen quite fast – over the next few weeks, perhaps.