Trump’s High-Risk Gamble

We know when a war begins but can’t predict when it will end. Monday, China decided to answer the increases in tariffs on Chinese imports to the United States with its own retaliatory tariffs on American products. Wall Street was the first victim of this new aggressive escalation between the two First World powers. With their drop, American markets dragged European stock markets down with them. But the worst is yet to come if the two powers don’t quickly manage to find a path to agreement. The second effect is economic. Undeniably, China, dependent on its exports, has more to lose than the United States. But Donald Trump also risks slowing down America’s economic growth. Although the American president thinks of tariffs as punishments that will bring millions of dollars into the American treasury, they are in fact an additional indirect tax weighing on the consumers and on companies that import Chinese products. This increase risks limiting the beneficial effect on the economy caused by Trump’s own tax breaks. For the longer term, a trade war between China and the United States poses a major threat to the world, and to Europe in particular. Europe, a major exporter, would be hit by the slowdown in world trade. Even disregarding Trump’s repeated threats to increase the United States’ tariffs on European imports, notably automobiles, in the end it is the entire multilateral system that will be undermined. Admittedly, Trump is correct on several points: China must open its market more, and intellectual property must be better protected. But by resorting to unilateral sanctions that call for unilateral measures on China’s part, he is short-circuiting the international arbitrative role of the World Trade Organization. Europe is reduced to an observer’s role before the United States and China, especially as the trade war is taking place while Europe experiences immense difficulty in saving the 2015 accord limiting Iran’s nuclear capacity after Trump’s decision to withdraw. Certainly, by increasing global tension with China and Iran, the American president has, above all else, set his sights on his base ahead of the 2020 election. But he’s taking a big risk with the United States and the world.

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