How To Respond to Trump’s Tariffs without Disturbing Beijing

For years we’ve heard that the market is fine but needs to be governed. Well, government has arrived in the guise of tariffs. Did they think it was going to be painless?

Wall Street is rightly unhappy with U.S. tariffs, but it also must accept that Main Street sent Donald Trump to the White House. And Europe should tread carefully with opportunities in new markets, or risk jumping from the frying pan and into the fire.

The United States is currently questioning a globalization that has endured for almost 30 years and which has so far boosted the economy, creating unprecedented wealth, thanks to the 164 countries that joined the World Trade Organization, facilitating more than 90% of global trade. Everyone involved benefited, some more than others. At purchasing power parity, American and European gross domestic products per capita have tripled, while the Chinese have grown their GDP by a factor of 12. The free economy has brought manufacturing to where it was most convenient, such as Vespa taking its production to Vietnam.

This explains how Trump’s tariffs are not actually there to grow the economy, but serve as a political statement instead. While still favoring an animal spirit, the tariffs aim at distributing the wealth it produces according to the needs of society. The duties accomplish this domestically through taxes and externally through tariffs. Taxation on imports addresses the imbalance of cheap labor or energy costs in the countries that sell their goods to the U.S. It also takes accounts for those countries that have fewer environmental laws putting pressure on efficient production. For years, it’s been said that the market is doing fine but needs to be governed properly. Well, government has arrived and it’s called “tariffs.” Did they think it was going to be painless?

Of course, it remains to be seen whether these tariffs will achieve their objective, given the complexity of globalized and interconnected production chains. The American political scientist Francis Fukuyama predicts that the tariffs will bring war in the long run and reintroduce century-old trade protectionism, and thus considers imposing them to be a “stupid decision.” However, in the 90’s ,Fukuyama declared the “end of history,” which didn’t actually come about. It’s important to remember that the Aristotelian idea that history repeats itself has long been superseded by a linear view of time that continuously develops.

In the meantime, what can Europe do? It should avoid a knee jerk reaction to tariffs, which risks turning a simple problem into a massive disaster. Remember, tariffs are not just the folly of a single man (who’s no fool) but a response, however ineffective and dangerous, to the many imbalances in global commerce that many U.S. citizens refuse to tolerate. Today America, tomorrow maybe us? Rather than react, perhaps we need to evaluate whether or not the EU also needs to adjust some of its commerce with the east beyond just the silk route.

The economy is too interconnected for globalization to really end, but neither can it continue as before. Substituting a customer from Texas with one from Kerala might not be hitting the jackpot in the same way, and any new international trade deals would certainly not be a one-way street. If they import from us, they will want us to import from them. In this match, the European team’s jersey is more colorful than its American rival when it comes to labor, energy and environmental constraints; are we really betting that they’ll get the better half?

In conclusion, we can adjust the imbalances of globalization and continue to create wealth, maybe a little less than before, but certainly with less aggravation. It’s better not to think about the alternative.