AP Photo/Andrew Harnik Donald Trump.
- President Donald Trump has continually announced trade actions only to temper the move later.
- Economist Gregory Daco says it's like "somebody playing with a knife on a playground."
President Donald Trump spent the month of March talking tough about trade. One economist thinks that could come back to bite him in the long-term.
Gregory Daco, chief US economist at Oxford Economics, says Trump developed a pattern in recent weeks: He threatens tough trade restrictions, only to see a few concessions from other countries before dialing back the original measure.
For instance, Trump originally threatened that no country would be exempt from new tariffs on aluminum and steel. After a few weeks of negotiations, five of the top 10 importers of steel to the US now have received exemptions.
Daco said that approach appears slapdash, with Trump overstepping typical diplomatic boundaries and leaving other officials to repair relationships on the back-end.
In a colorful analogy, the economist said the strategy presents a potential host of problems in the longer-term.
"Think about somebody playing with a knife on a playground, the other kids might decide to be careful initially but after awhile there might actually be more severe consequences and actions for someone wielding a dangerous instrument," Daco told Business Insider.
Put another way, other countries will only put up with Trump's aggression for so long - even if it's mostly bluster.
Daco said this sort of rhetoric does have real consequences outside of international trade relations. Companies in the US depend on imports of materials, and the volatile trade changes make it difficult to parse out their future costs.
"If you're unsure if you're input costs are going to rise or stay unchanged because it's largely largely dependent ona unilateral decision by the admin, then you might be a little more cautious in making an investment. So yes, I do believe this uncertainty does affect business decisions," he said.
But ultimately, the concern is what would happen when other countries stop simply avoiding Trump - and try to take the knife away, so to speak.
"The worst case would be where the administration pursues its aggressive since on the trade front, partners get irritated and respond in kind and the further escalates US responds with further restrictions," Daco said. "And then you end up with not only a potential collapse in trade, but also the international trade framework."