To compare Covid-19 and Donald-25 may seem frivolous. But in economic terms, the similarities illustrate two key points of my 2021 book Doom: The Politics of Catastrophe: namely, that all disasters are in some sense man-made and that the biggest disasters involve network contagion. For years, we were told that the Sars-CoV-2 virus originated in a so-called wet market, whereas the evidence keeps growing that it leaked from a Chinese laboratory conducting gain-of-function research on coronaviruses.

• Shoppers warned they will pay for shipping disruption from tariffs

Like the Covid virus, the protectionist mind virus spreads through contagion. The millions of Americans who voted for Donald Trump, whether they knew it or not, voted for a radical change in American trade policy. Trump had tried and failed to deliver this in his first term. He explicitly campaigned as “Tariff Man” in 2024, citing President William McKinley, an arch-protectionist, as his role model, and promising a Reciprocal Trade Act.

Having won re-election by a wider margin than pollsters had predicted, Trump concluded that he had a mandate to turn the economic clock back all the way to about 1909 and to impose tariffs at far higher levels than we have known in our lifetimes. While it makes sense for the US to reduce its reliance on a geopolitical adversary for such essential things as pharmaceuticals, computer hardware and weapons components, the measures Trump has announced since January 20 will achieve that only at an intolerable cost.

In 2020, Covid-19 spread through the global social networks connected by the world’s airports — and permanently altered those networks. Today, Donald-25 is having the same effect on the networks we call supply chains. In 2020, the rest of the world responded to China’s pandemic by using fiscal and monetary stimulus to offset the shock. Now, in response to the American mind virus, the rest of the world is forced to do the same. In 2020, the rest of the world recoiled from China: as surveys by Pew showed, its approval rating slumped almost everywhere. The same is happening to the US today.

It was last week’s travel statistics that first stirred my half-buried memories of Covid. According to the International Trade Administration, the number of visitors from western Europe who stayed at least one night in the US fell by 17 per cent in March compared with a year ago. For some countries, the volume of travel fell by more than a fifth. There has been a surge of flight cancellations by Canadian, French and German travellers. Indeed, Canadian reservations for flights to the US are down 70 per cent.

Of course, these are responses not so much to Trump’s tariffs as to his generally abrasive treatment of American allies, not least his inflammatory claim that Canada should become the 51st state, and his vice-president JD Vance’s roughing up of Europeans at the Munich Security Conference in February. Foreigners read news stories about non-citizens being deported from the US to El Salvador; such stories are offputting.

• Dominic Sandbrook: So you think JD Vance is pushing it a bit?

Yet the pandemic-like behaviour of the world economy has more to do with tariffs than anything else. Already the volume of goods coming into the port of Los Angeles is down steeply. Daily container bookings in the US-China trade route have tumbled by a quarter since the end of March relative to this time last year. On the East Coast, the latest New York Federal Reserve’s Empire Survey points to a slump in business expectations even steeper than in early 2020. And measures of US and global policy uncertainty clearly show that Trump is the biggest source of uncertainty since Covid.

This time five years ago, no one was certain what the infection fatality rate of Covid was. The recommendation of someone with a name similar to mine that we should “lock down” our social and economic lives resulted in a sudden stop in a huge proportion of human activities.

The equivalent uncertainty in 2025 is that no one knows where US tariffs will be tomorrow, much less in three months’ time. The result is a lockdown of a large part of the trade between the two largest economies in the world. Like the pandemic, this implies a huge hit to the world economy as a whole. JPMorgan said last Wednesday that it is now “more likely than not” that the US economy will shrink later this year. On top of recession fears, we narrowly avoided a full-scale financial disaster in the US bond market on April 9 — much like in mid-March 2020, when the Federal Reserve had to step in to mitigate a fire-sale of assets by funds scrambling to raise cash.

To appreciate why Trump’s trade policy is proving almost as economically disruptive as a pandemic, it’s important to put the tariffs he has imposed since his inauguration into historical perspective. The average US tariff rate trended down from the 1940s until the 2010s, reaching an all-time low of 1.27 per cent in 2008. The average from the year I was born (1964) until then was 3.67 per cent. In the wake of Trump’s “Liberation Day,” and even after two significant steps back, the figure is now above 20 per cent, according to Bloomberg Economics — roughly ten times the average tariff rate last year.

This represents more than just a huge tax hike on Americans. It is as if the US has imposed economic sanctions on itself. This is because the most radical part of Trump’s trade war consists of tariffs on China that are now so high, no one is quite sure what the cumulative rate is. (The White House said on Tuesday that it’s 245 per cent. The Chinese Foreign Ministry questioned its arithmetic.) Even after the exemptions on smartphones, laptop computers, hard drives, computer processors and memory chips — stealthily announced eight days ago — this amounts in effect to a prohibition on importing a very wide range of goods that American companies and consumers have grown accustomed to sourcing from China.

To illustrate the point, here are some of the categories of products for which between a third and three quarters of US imports were from China in 2023: in descending order, Christmas and other festive goods, toys, plastic household articles, games, electromechanical domestic appliances, lamps, rubber or plastic footwear, sports equipment, electric heaters, women’s suits (knit), batteries, house linen … And that’s just the top dozen. It’s essentially the contents of every Target store in America. Tripling the price of all these things is a supply shock comparable in its scale with the energy crisis of the 1970s — with the difference that the oil price hike was forced on American consumers by Arab governments, whereas this is being imposed by their own government.

Only the start of the contagion

That’s only the beginning of the economic contagion, however. Just as Covid began by crashing Chinese manufacturing, then global travel, then the stock market and finally the bond market, forcing governments and central banks to activate the money printer, so Trump’s trade war is having a cascade of economic consequences.

The US may run a huge goods deficit with the rest of the world — Trump’s great bugbear — but it partly offsets this by running a $300 billion services surplus, selling the rest of us software services, financial services, travel and much else. The biggest US services surpluses are with the EU, China, the UK and Canada; three of which Trump seems intent on alienating with his entire foreign policy. The dramatic collapse in the numbers of Europeans and Canadians flying to the US is just one symptom of the backlash Trump has triggered. This will cost the American economy many billions.

The US also relies heavily on the readiness of foreigners to invest in its bonds and stocks. About 30 per cent of all US Treasuries and 20 per cent of all US equities are foreign-owned. But that sucking sound you can hear is European and Asian asset managers reducing their dollar exposure. (As I warned after the World Economic Forum in January, when the global elite was still bullish about Trump and bearish about Europe, you should always bet against Davos Man.)

US tech stocks (the Nasdaq index) are now down 19 per cent from their peak earlier this year. The S&P 500 is down 14 per cent. But what really terrified Wall Street ten days ago was the simultaneous weakening of the dollar and rise in long-term US interest rates as measured by the yield on the ten-year Treasury. In the wake of Trump’s reciprocal tariffs announcement, the US currency slid, while yields rose.

• Fed chair Jerome Powell says Trump’s tariffs will hit inflation and jobs

In over half a century there were just 20 days in which, over the five preceding days, there was more than a 2 per cent decline in the dollar index and more than a 20 basis points increase in ten-year yield. The market action between April 7 and 11 was the third-largest such move. The other examples include the collapse of Long-Term Capital Management in September 1998 and the bankruptcy of Lehman Brothers in September 2008.

This explains why Trump was prevailed upon to postpone the imposition of the reciprocal tariffs at lunchtime on April 9. The treasury secretary, Scott Bessent, with some assistance from other Wall Street figures such as Charles Schwab, had — after days of trying — persuaded the president he was about to trigger the next global financial crisis. It also explains why Susan Collins, head of the Federal Reserve Bank of Boston, was sent out last Friday to reassure markets that the Fed “does have tools to address concerns about market functioning or liquidity should they arise”.

But that doesn’t mean the US is going to avoid at best a severe slowdown that will take growth down from 3 per cent to 1 per cent; at worst an outright recession. The reciprocal tariffs have merely been “paused” for 90 days. That is not a long time to negotiate the 75 bilateral trade deals the administration has talked about (though in fairness only a handful of these really matter). Elon Musk may envision a “free trade zone” between Europe and the US, but he has in effect been ignored on trade since he picked an online fight with Peter Navarro, the key architect of Trump’s reciprocal tariffs. As for the crucial trade negotiation with the Chinese president, Xi Jinping, which Trump has requested more than once, don’t hold your breath.

The administration and some smart commentators (step forward, Izabella Kaminska) believe that Trump has the upper hand in the game of liar’s poker he has started with Xi — “escalation dominance”, in the language of nuclear game theory. I am not so sure. This looks to me more like a simple game of chicken in which one driver is going to swerve. I don’t see Xi swerving.

China’s plan to offset the shock

First, China has a game plan to offset the shock of Donald-25 with large-scale fiscal stimulus, just as the US offset the shock of Covid-19 five years ago. Second, just as Americans blamed China for Covid in 2020, the Chinese blame Trump for the trade war today. Third, as the leader of a democracy, Trump faces domestic constraints that Xi does not. Lastly, and crucially, Trump has already swerved — once when he paused the reciprocal tariffs on April 9 and again, two days later, when he exempted electronic goods from most of his tariffs on China as well as his baseline 10 per cent tariff.

Although Trump has reserved the right to impose sectoral tariffs on whatever he defines as a semiconductor, using Section 232 authorities, the Chinese are probably assuming this will never happen because, by the time the relevant investigations have been completed, the US economy will have rolled over.

There are cascades in politics as well as in economics. In 2020, the pandemic led not only to lockdowns; it also led to the “mainly peaceful” Black Lives Matter protests after the death of George Floyd, and Trump’s defeat in the presidential election of that year. In 2025, the trade shock will lead not only to higher prices, job losses and lower if not negative growth; it will also lead to another political backlash against Trump — whose approval rating has already fallen by 14 points since Inauguration Day.

As Republicans realise that they risk losing both House and Senate in next year’s midterms, their post-election deference to the president will rapidly decay. All this will revive Trump’s sworn enemies in the universities, the law schools, the courts and the many government agencies still smarting from the onslaught of Musk’s Department of Government Efficiency (Doge). The third attempt to impeach Trump is where the cascade inevitably leads.

It is all such a wasted opportunity. Much of Trump’s programme was potentially popular: the crackdown on illegal immigration; the pushback against “diversity, equity and inclusion” in education; the attempt to reduce bureaucracy and wasteful government spending; the deregulation of the economy. Even a return to the use Trump made of tariffs in his first term — as a negotiating lever, not a revenue source, much less a tool to reindustrialise America via autarky — would have been tolerable.

However, you may as well say that gain-of-function research on coronaviruses might have yielded scientific benefits. Trump without his mind virus just wouldn’t be Trump. It’s just a pity the whole American economy had to catch it too.

See Fraser Nelson and Niall Ferguson live on Wednesday, June 4 at Cadogan Hall. Book tickets here