OPD 10 July 2018
Donald Trump has started a spiral of commercial aggressions that will be very difficult to stop in the future. By imposing tariffs worth $34 billion on Chinese products – and receiving the reciprocal punishment of another $34 billion charged on U.S. products – and threatening new protectionist actions against Beijing, he is inflicting serious damage on the world economy. First, on his own country, because – to the alarm and irritation of parts of the business community – a lot of the taxed Chinese products are supplies or components that are assembled in the United States. In addition, international trade is panic-stricken; any economic area can be impacted tomorrow by the arbitrariness of Trumpism. World trade is taken hostage by the chaos that President Trump wants to sow, with no more reasoning than the most rancid mercantilism: the United States wants to reduce its trade deficit of $375 million with China, without taking into account its external balances of other magnitudes.
We must remember three destructive aspects of this policy, orphaned by rational explanation. When thinking with economic and business logic, the return from the protectionist phase will be complex and costly in terms of internal politics, because a part of the electorate defends the tariffs insofar as it does not directly suffer its consequences. It also reduces world growth, a reduction that, in turn, induces the reflex movement of more protectionism. Nothing better defines the chaotic strategy of the current American administration than a surprising phenomenon: while Trump cuts free trade with tariffs to defend American employment, the dollar depreciates in the markets. So the immediate benefits to the American economy end up going right out the window.
Trump is following a policy of intimidation – “harming the neighbor” – characteristic of a real estate negotiator. The most serious problem, after the one that causes a massive influx of concern in international markets – debt and stock markets are on the verge of a collapse, which can come from a disturbance that would be trivial under stable conditions – is that it does not distinguish between allies and enemies. Worse still, he is mistaking friends for enemies. Trump and his advisers should realize that it is not easy to contain the destruction caused by protectionism to strictly economic areas without its overflowing to other, more dangerous ones.
Europe, in regard to the euro, has to act in accordance with the fait accompli imposed by Trump. It is good to protest at the World Trade Organization, but it is more useful to follow the advice of the European Central Bank president, Mario Draghi: the euro zone must be institutionally set up. Trump’s economic nationalism must be taken as a spur in the race to create a Common Deposit Guarantee Fund and a Common Stabilization Fund. These are minimum conditions of security in the global economic disorder imposed by Trump.
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