The economic “phoney war” of the past six months is over. America, Europe and the world are finally starting to suffer real damage from the destruction of the postwar trading system.

The International Monetary Fund gave the all-clear too soon in its latest World Economic Outlook. It gave the strong impression that the Trump trade shock was just a hiccup along the way, and that we have all adapted nicely. The IMF raised its global growth forecast for this year and next. Has it been completely captured by MAGA forces?

The impact of Donald Trump’s tariffs on the US economy will be hard to disguise even if the White House shoots messengers.Credit: AP

We have since learnt that US jobs growth ground to a screeching halt in May and June, just as labour economists had predicted. The picture has been getting slowly worse ever since.

Standard trade theory would tell you that America is – and will be – the chief victim of its own trade barriers, the highest since 1934 in an economy that is today an order of magnitude more dependent on foreign supply chains. But it will take time for US self-harm to become fully clear.

That said, the Biden boom is already giving way to Trump’s incipient stagflation. This will be hard to disguise, even if the White House shoots all the messengers.

The ISM manufacturing index is sliding into deeper contraction. The services index is catching up with a lag, hovering on the boom-bust line of 50. The employment sub-index for both is now at recessionary levels – the “redneck recession” for poor people, as the ever-irreverent Drudge Report calls it.

“Most key metrics that we track suggest labour demand is at its lowest point since the pandemic,” said Citigroup’s US economist Veronica Clark.

Citigroup says the Federal Reserve may rush through a half-point emergency rate cut in September if there is another jobs shocker this month.

Mary Daly, the San Francisco Fed........

© The Sydney Morning Herald