Who will blink first: Trump or Xi?
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Welcome to The World in 10. In an increasingly uncertain world, this is The Times' daily podcast dedicated to global security. Today with me, Alex Dibble, and Tom Noonan. After weeks of tariff build-up and days of market fallout, Donald Trump has taken the world by surprise and reversed a whole host of tariffs on almost every country in the world.

Rather than the list of higher tariffs he showed off on that big chart in the Rose Garden, the president will only charge the baseline 10% tariff when the US imports their goods. There is one exception though, China. Beijing's goods will face 125% tariffs. In response, China's followed through on the threat of 84% tariffs on imports from the US. So with a trade war in full swing, who will blink first and what does it mean for everyone else?

Our guest today is David Lubin, an economist who is a Senior Research Fellow on the Global Economy and Finance Programme at the think tank Chatham House in London. David, since Donald Trump's reversal yesterday...

His team have been pretty bullish. His Treasury Secretary, Scott Besant, says it was Trump's strategy all along to, in his words, goad China into revealing itself as a bad actor. And the White House spokesperson, Caroline Levitt, says it was a secret plan to bring 75 countries to the negotiating table. Given your experience, do you buy it?

It's very difficult to believe, given the earlier warnings by Donald Trump and some of his cabinet and surrogates, that these tariffs were here to stay.

I think the bond market made Donald Trump blink. And it reminds one of the famous quote of James Carville, the well-known Democrat strategist in the 1990s, who said something along the lines of, if I'm ever going to be reincarnated, I want to be reincarnated as the bond market because the bond market can intimidate anyone.

And, indeed, the fact that yields in the bond market in the United States had risen so substantially since April the 2nd was a kind of weird thing. Given the fact that additional rate cuts by the Fed were being priced in, it was slightly odd that the bond yields were going up rather than down.

particularly given the fact that most economists analysis, including my own, was that the effect of the Trump, the tariff announcements on the on the 2nd of April were to increase the probability of a recession in the United States. If there's going to be a recession, bond yields should be falling, not rising. And so the fact that bond yields were rising, the fact that the dollar was was weakening,

indicated that there was something really dysfunctional about US capital markets. And that dysfunctionality, I suspect, was what allowed people around Trump to convince him that he had gone too far and that he needed to kind of readjust his policies. Obviously, the tariffs on China remain in place. Beijing says that it's open to a negotiation and wants the US to meet it halfway on trade. Do you believe that?

That's an interesting question, because I think that at some basic level, China has proven over many years that it has a preference for running large trade surpluses. And in my view, that preference kind of results from a willingness on the part of the Chinese to kind of consider trade surpluses as a form of economic protection.

Indeed, you know, you can argue that one of the things that characterizes Trump's policies is that he would like the United States economy to look a bit more like the Chinese economy. You know, the Chinese economy, China has a trade surplus and wants to keep it. The United States has a trade deficit and Trump wants to turn that into a trade surplus. There's a kind of mercantilism, a mercantilist instinct, both in Washington and Beijing. I suspect that

that China would be willing to reach some kind of negotiated agreement. But right now, the collapse of trust between Washington and Beijing is so intense, it's going to be very difficult to reach that stage. David, let's say negotiations don't get going then, and we're stuck in this standoff. Who do you think blinks first? Who backs down?

Well, we've already seen Trump back down yesterday. So there's a kind of evidence. And, you know, I think, you know, in a way, the answer to your question might boil down to whether deflation in China is a more sustainable option for Xi Jinping.

then stagflation is for Donald Trump. You know, the risk in the United States is that we're entering kind of stagflationary territory in which, you know, economic activity falls very sharply, perhaps into a recession, while at the same time, inflationary pressures remain

alive. And that puts the Federal Reserve in a huge dilemma. On the one hand, the needs of the real economy are suggesting that rates need to fall. On the other hand, the fact that inflation is sticky means that or rising means that rates need to go up. That, I suspect, could be politically much more uncomfortable for Donald Trump.

than the situation is uncomfortable for Xi Jinping in China. You know, the situation in China is that household confidence has been very, very weak for a number of years. As I say, you know, prices have been falling in the last couple of months or inflation has been negative in the last couple of months. But in any case, the Chinese economy is kind of flirting, has been flirting with deflation for a number of years.

I don't know. I mean, you know, the reality is that Donald Trump has midterms to face at the end of 2026. Xi Jinping doesn't. And it may well be that the discomfort of stagflation in the United States requires Donald Trump to make further adjustments to his policy in order to avoid in order to avoid bad things happening to him next November. And if neither side back down and this trade war goes on and on, what happens then? Well,

global trade growth is set to weaken very sharply. I mean, remember, you know, there's still the 10% tariffs and sort of baseline tariffs on the US's trading partners. In addition to that, there's the 25% tariffs on steel, aluminium and cars. And it's quite possible that in the next, you know, few days or weeks, Trump might announce further sectoral tariffs on pharmaceuticals, on semiconductors, on lumber, on copper, you

The trade environment right now is very, very bleak. And if trade gets squeezed, as seems very likely, given the fact that we live in a very globally integrated economy, as trade gets squeezed, global growth will get squeezed too.

And just turning away from China briefly, David, the decision to reduce the tariffs on other countries to that 10% baseline has obviously been welcomed by many politicians, leaders, economists around the world. But if you were to go back to January, before Donald Trump came into office, and said to people that by mid-April there's going to be a universal 10% tariff on US imports, then I suspect a lot of those politicians and leaders and economists would say that's a disaster.

It feels like Trump has normalised it. It's a massive shift in sort of expectation management, if you like. I mean, I think the, you know, you're quite right. There's a kind of sigh of relief now because the, you know, the sort of most dramatic aspects of Trump's tariff policy have been, you know, postponed for 90 days. But I think once the global economy starts to feel the consequences of these tariffs, even at 10%,

a tariffy world and the economic effects, the negative economic effects of a tariffy world are likely to become more and more visible. And one of the things that I think will happen is to kind of further

I don't know, tilt the United States economy towards some kind of autarky. And in a way, I think that that is in a way precisely what parts of the Trump administration are aiming for. You know, there is this sense that

within the Trump administration that the United States is bigger, stronger, richer, and more closed economically and geographically than the rest of the world. And so the rest of the world can go its own sweet way. And the United States, you know, surrounded by its kind of, it's the region that it has hegemonic power over, will be doing okay. That's very much a kind of

relativistic way of thinking about US power. It's US power, you know, it's a kind of zero-sum way of thinking about US power. But, you know, maybe Donald Trump has a kind of zero-sum way of thinking about these things.

David, thank you. That is David Lubin, Senior Research Fellow at the Chatham House think tank in London. Donald Trump's trade war has been generating huge debate and emotion in Canada, of course, and has helped make Donald Trump the issue in Canada's upcoming election, in addition to his dissent.

desire to make Canada the 51st US state. Yesterday, we looked into how this could come back to bite Trump and give him problems he didn't have before. Do go back and listen. That's it from us. Thank you for taking 10 minutes to stay on top of the world with the help of The Times. We'll see you tomorrow.

Breaking news, and this one is almost unbelievable. Yeah, it's all about new customers at Bet365 because they get $150 in bonus bets when they bet $5 win or lose. And even better, bonus bets can be used on the spread, totals, and player props. There you have it. Bet $5 to get $150 in bonus bets win or lose. And see why it's never ordinary at Bet365. 21 plus only. Must be physically located in Virginia. Gambling problem? Call 1-800-GAMBLER. TNCs apply.