Whether or Not the Tariffs Are Here to Stay, the Damage Has Already Been Done*

It’s no news at all, and yet it still takes us by surprise every day to see Donald Trump acting like a bull in a china shop. This goes for his nonexistent gift for diplomacy as much as his approach to economic policy. The U.S. president’s far-reaching tariffs have been an affront to political and business leaders all over the world. Then came the bombshell that a U.S. federal court had ordered the administration to lift its trade levies. The Court of International Trade ruled that the executive’s invocation of an emergency law** was illegal. The U.S. administration promptly filed its appeal and won a stay of the order in another court. Yet, whatever ruling stands at the end of the legal process, the damage has long since been done.

It is not only because companies and investors have lost a lot of money in recent weeks and months, but also because they had previously depended on the United States’ rule of law, with its associated regulatory framework. This is a key factor when companies decide to build factories, set up sales offices or train and employ people in a remote location. To be sure, lucrative sales markets and lower energy and wage costs are also important aspects of any director-level decisions to explore new locations, but these amount to little without a reliable legal framework. If managers have to worry that trading conditions might change from one day to the next, they are bound to think twice about investing in a country, even if the courts eventually find in their favor in cases of marketplace disadvantage.

1 Bad US News Story after Another

In recent months, businesses have had to brace themselves for one bad news story after another coming out of the United States. They have had to pore over every contract to determine whether they can pass on the variously imposed, lowered and sometimes entirely rowed-back-again tariffs, to their customers. They have had to look for new sales channels and think long and hard about whether selling into the U.S. market makes sense in the long term.

Businesses need certainty to make plans. And this precise commodity seems to be in short supply in the U.S. now; at least, there’s far less of it around than there used to be. That's a bad thing for the American economy, with its reliance on products imported from abroad, since companies will ultimately seek out other, more stable markets in which to build their factories and hire their workforce. It will come at the expense of jobs, growth and consumer purchasing power. And the U.S. economy, sustained as it is by domestic consumption, needs citizens who are willing to spend.

Too much uncertainty only reduces everyone's appetite for risk and damages an economy that is already on shaky ground. In the end, we are all going to feel the headwinds. Granted, Europe can make some capital out of the situation. But if Brussels continues to drag its feet on the Capital Markets Union, digitalization and cutting bureaucracy, it will squander its advantage as a reliable trading location.

*Editor's Note: This article is available in its original language with a paid subscription.

**Editor’s Note: The law referred to is the International Emergency Economic Powers Act of 1977.