Trump's tariff threat: Implications for EU and global trade

Donald Trump referred to relations with the European Union during the last briefing aboard Air Force One on his return from Florida, where he spent the last three days. As he argued, America’s foreign trade partners are eager to negotiate with him. He emphasized that it is only possible if they agree to balance their trade exchange with the USA.

“The United States cannot lose $1.9 trillion on trade. We can’t do this while spending a lot of money on NATO to protect European nations, protect them militarily, and lose money on trade. The whole thing is crazy, and I was elected on this basis,” stated Trump.

He stressed that although European leaders "come to the table" and want to talk, "there will be no talks until they pay big money every year, first for the present, but also for the past." Trump did not clarify what he meant but suggested it would be compensation for Europe "taking a lot of wealth from America."

According to Artur Nowak-Far, a lawyer and economist, and former deputy foreign minister from 2013 to 2015, one can be ironic about the US president's idea, but it reveals something very serious.

— Namely, the Trump administration has the idea that the wealth accumulated in the European Union should move to America. The US President dreams of something similar to what happened—through a completely different mechanism—after World War I. Europe was then destroyed, and the United States was selling it a lot, producing very serious surpluses, getting rich rapidly. And this is a natural mechanism; there's nothing wrong with it. However, now Trump wants to artificially provoke it,” says WP Nowak-Far, a professor at SGH (Warsaw School of Economics).

In his view, Trump’s idea for European manufacturing plants and companies to move to America will trigger a mechanism that increases costs and impoverishes the world.

— Trump does not calculate this rationally and does not grasp certain threads; he only thinks one-dimensionally. And he imagines that his policy will encourage American producers to bring manufacturing back home. But such a move will create poverty elsewhere. Because there will be no companies, money, and capital there if they have to move to the USA. And additionally, production costs in America will increase because wages will be at the level of the United States, not, for example, like in Bangladesh,” comments Artur Nowak-Far, professor at SGH.

According to the expert, what Trump is doing is very strongly populist.

— In practice, it will look like other capital, not from the United States, will take positions in Bangladesh, etc. And these products will still be produced and will be cheap there. However, in the USA, they will be expensive. If there were only a few, it would still be possible to create the impression through marketing that it is worth buying them. But there will be thousands… - remarks the Wirtualna Polska interlocutor.

In his opinion, everyone will emerge weaker from this, but Russia will benefit.

— Trump “has targeted” the European Union because the largest available wealth is in Europe. Judging by the way of thinking or speaking, the new presidential team “has an appetite” for European goods. Europe, in response, should be wiser. And not impose similar tariffs as Trump on a retaliatory basis. Instead, it should analyze where the factories are, and producers associated with congressmen, and senators from the Republican Party. And "hit" products from those factories with tariffs—believes prof. Artur Nowak-Far.

Let's recall, in the case of the EU, the new tariffs imposed by Donald Trump will amount to 20%. Earlier, the White House announced 25% tariffs on steel, aluminum, or cars. In practice, tariffs already cover about 70% of the EU’s exports to the United States. On Monday, the European Commission is to propose a list of products to be subjected to new tariffs.

According to prof. Artur Nowak-Far, Europe cannot be a slave to Trump’s trade war.

— He started it, he must also end it. And if he doesn’t get “slapped on the wrists,” he won’t end it. We will always be under his control. It annoys him that Europe can cope because it is very wealthy. Its task is to protect this wealth so that it does not flow across the ocean and into America,” the former deputy foreign minister tells us.

And as he predicts, with such an approach, Trump will miscalculate.

— Besides doing business around the world, there are emotions. The biggest mistake that Trump makes is not behaving like a businessman, but that he doesn’t want to give dignity to his previous partners. He wants to see submission and fear. Nations do not function like that. Whenever Americans have done that, in the long run, they have lost, recalls prof. Artur Nowak-Far.