Credit: OLIVER CONTRERAS/AFP/Getty Images.
If you want to know how to respond to Donald Trump’s trade tariffs, just think back to what happened between the EU and the UK after the Brexit referendum. The EU thought it could pressurise the UK either into reversing Brexit or accepting a bad deal. The EU, as the larger power, believed it had a stronger position — and the media concurred.
But the EU had a big trade surplus against the UK, and so had more to lose from a trade war. And this is how it played out. The single biggest victim of Brexit was not the UK economy, but German industry. Germany’s spectacular decline started in 2018, kicked off by Brexit and followed by a string of supply shocks including the pandemic and then Russia’s war in Ukraine. Trump’s tariffs will be next. The overarching lesson here is that if you are the surplus country, no matter how large you are, you should not engage in trade warfare.
But that’s exactly what’s happening. After Trump imposed a 25% tariff on goods from Canada and Mexico, and a 10% tariff on China over the weekend, all three countries threatened retaliation. Justin Trudeau, the outgoing Canadian prime minister, has already announced a 25% counter tariff on $155 billion worth of US imports; Claudia Sheinbaum, the Mexican president, ordered her trade ministry to implement sanctions on US goods; China wants to bring a lawsuit in front of the World Trade Organisation. They are all outraged by Trump’s assault on the multilateral trading system and are ready to come out all guns blazing.
Europe, meanwhile, stands ready. Trump has not yet imposed any tariffs here. Not yet. But he has already said, ominously, “The European Union has treated us so terribly”, and described America’s deficit with the bloc yesterday as “an atrocity”. There are bound to be repercussions. Given the temperament of the President, there is no point in trying to predict what he will do. But the tariffs will surely come. In the coming weeks, if not days.
Economically, his tariff war will act like a tax on US consumers. The increased costs are inevitably borne by the consumers. But, as a form of rebalancing, it will raise a lot of revenue for the US treasury and together with the shrinking of the federal government, may well end up lowering the budget deficit and strengthening the US current account balance. Of course, there will be repercussions that could push in the other direction: the dollar might rise; the world might plunge into recession. But the truth is we have no experience of what happens when the largest economy on earth, with the dominating global reserve currency, imposes massive tariffs on its trading partners. Many economists reckon the tariffs will increase inflation and slow growth. “They will almost surely be inflationary,” said Joseph Stiglitz, the renowned economics professor.
But I would be cautious about such predictions. Macroeconomists lost their credibility as forecasters over Brexit and the first Trump presidency with their wild predictions. They are now simply expressing political views dressed up as empirical science.
In my eyes, Trump is too much focused on bilateral trade balances, rather than on the underlying dynamics of what causes them. And the underlying global economic imbalances are massive. In 2023, the EU ran a surplus against the US in the trade of merchandise goods of $209 billion. For 2024, the total will be the in the order of £230 billion. China’s trade surplus with the US was $279bn and will probably have surpassed $300bn for the year as a whole. Canada’s surplus with the US was $64.3 billion [note: the data are from census.gov. there are lots of different statistics out there, measuring different things]. The world has been fretting about these imbalances for more than two decades now and yet nothing much has changed. Germany and China, the world’s biggest export surplus countries, will never voluntarily cut down on their surpluses unless threatened at gunpoint.
This is partly because they frame their surpluses as a sign of economic success. The Germans like to believe that this has something to do with the quality of their goods, lauding themselves as “Export Weltmeister” — a meaningless category that comes without prizes. This is merely a celebration of dependency. Having relied on Russia for gas, and China for its exports, Germany has now also become dependent on the US. But, then, running trade surpluses against other countries is the only economic strategy the current generation of Germans has ever known.
The problem here, then, is that a country’s current account, which consists mostly of trade, has an exact mirror image in the financial account, which measures the difference between savings and investment. And it is better to think about the strength of German and Chinese economies in these terms, not trade. This tells what is going on underneath the hood, which is that they don’t know how to spend their savings. This is where their imbalance lies.
The better response to Trump’s trade tariffs, then, would not be to fight back, but to fix that underlying problem — the lack of domestic investment and consumption. Why not make it more attractive for companies to invest their surpluses at home? Why not deregulate the economy, especially the tech sector, support new businesses, reduce corporate taxes; attract the best talent from abroad; and get people off the welfare and sickness payrolls? The powerful response to Trump would be to focus on solving these twin problems — the imbalance and the dependency.
The worst response would be to stick with the same old model, and the same dependencies, and to embark on a trade war it cannot win. Canada, more dependent on the US than anyone else, will be crushed if it follows through with Trudeau’s policies. His response plays well with fellow liberals, but it achieves nothing economically — and Trump will no doubt double down if Canada retaliates.
The fear here is that the obtuse EU does the same. In anticipation of a Trump presidency, the European Commission has already prepared a sanctions hit list. During Trump’s first term, it put a tariff on Harley Davidson motorbikes. The EU already imposes a 10% protectionist tariff on all car imports. The irony here is that in this trans-Atlantic relationship, we Europeans are fuming at Trump for doing what we have been doing all along.
Europe is still in massive denial at what is about to hit. It likes to think it can change Trump’s mind. Friedrich Merz, Germany’s opposition leader, and the man predicted to be the next chancellor, thinks he can negotiate a trade deal with Trump. The Irish hope that they can stay below Trump’s radar since he could destroy the Irish economic model at the flick of a switch by removing a simple tax loophole on intellectual property rights for US companies that manufacture in Ireland. Meanwhile, Ursula von der Leyen, the EU Commission president, hopes to appease the President with a promise to buy more gas from the US. This is not how it will work. Trump will impose the tariffs. And that will be that.
Trump has learned from his past mistakes when dealing with the Europeans. They lied to him during his first term, and made promises they did not honour, including assurances that they would meet the Nato defence spending target of 2% of economic output. Back then, the Europeans had convinced themselves that Trump was just a phase, a fluke caused by a lopsided electoral system. Emboldened by their successful defiance of Trump back then, the Europeans concluded they could do it again.
I think they are wrong. Once they realise this, they will move to the second stage of grief — anger — where they will be stuck for a long time. They will try to retaliate, lose, and get even angrier.
There are parallels with the European approach to the war in Ukraine. Even as they support Ukraine, they don’t have an agreed war goal, let alone a strategy. They treat the conflict as a morality play. Underestimating Vladimir Putin and the resilience of the Russian economy, they overestimated the power of sanctions.
This complacency has, over the past years, become the defining character trait of the centrist European liberal, matched only by an unshakeable belief in their own virtue. And today, they are similarly underestimating Trump. They remind me of the Bourbons, they have learned nothing and forget nothing.
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SubscribeI think this article misses the point (that is Trump’s point) about these tariffs. He said that his objection to these three countries was not merely that they had trade surpluses with the US, but that they were the main direct sources of illegal immigrants and drugs to the US (China appears to have stopped shipping fentanyl direct to the US, but it supplies the precursor chemicals to Mexico.)
Thai is, this is an invitation to China, Mexico and Canada to quickly fix their sides of the US border problems, and thus avoid, or greatly reduce, any proposed tariffs.
What is the measure for knowing when the alleged problems are fixed? 0 immigration, 0 fetanyl? What is Trump planning on his side to reduce fentanyl to 0? Why is he imposing sanctions on canada when he could be trading in measures to stop us drugs getting into ? Why is he mixing his measures for canada – his words refer to canadian surplus and fentanyl and immigration – they have to “cure” all 3 to avoid tariffs? Thst could take a long time! What is your definition of “quickly”? Any prescriptions for what they might do? I think Canadian Fentanyl is about 1% of US fentanyl and the US manufactures 80+% of fentanyl domestically, is there no illegal leakage from that?
I think the way it irks you is the point. The uncertainty is motivating.
Seems like Canada & Mexico ought to start working now to ‘fix things’.
Your questions are their problem. Trump will just wait and see as any good deal maker would.
In fact it is set out for the Canadians in section 3 of the Executive Order imposing the Canadian tariff:
https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-flow-of-illicit-drugs-across-our-national-border/
It depends on sufficiently reducing the fentanyl flow: “The Secretary of Homeland Security shall inform the President of any circumstances that, in the opinion of the Secretary of Homeland Security, indicate that the Government of Canada has taken adequate steps to alleviate this public health crisis through cooperative enforcement actions. Upon the President’s determination of sufficient action to alleviate the crisis, the tariffs described in section 2 of this order shall be removed.”
No, it’s you who miss the point. In Canada’s case, at least, the immigration and drugs are only a manufactured rationale. The U.S. constitution reserves to Congress, not the president, the authority to regulate trade with foreign nations. Congress, in its wisdom, has delegated some of that authority to the president (legislatively, via the International Emergency Economic Powers Act of 1977), to impose economic sanctions unilaterally (without Congressional action) in the event of “any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.”
The immigrants and drugs are only a pretext for declaring a national emergency in order to activate those emergency economic powers. It’s just a fraudulent maneuver by Trump to evade his constitutional limitations. What he’s really after is Canada’s oil and gas.
…I would think he’s after solutions for all three issues. If congressional action is needed he’ll mostly get that too, eventually. Nothing fraudulent about that. It’s just shocking to the establishment that as Chief Executive, he’s actually executing.
What Trump says, means and does are three distinct things. This is by design. Not 3D Chess but a way to keep literally everyone off balance.
Already the Canadians and Mexicans have gotten a temporary reprieve. Rather meaningless in practice but symbolic in nature.
The signals intended recipient is China. The 4000lb Panda that does not honor free trade and currently has no intention to.
But they are facing a self inflicted real eastate crisis as well as a self inflicted population/ age crisis.
They are paying close attention. If Trump still has widespread popular support in 4-8 months they will be at the table to negotiate.
Great article! EU is in such bad shape right now, that the tariffs will be only the last nail into its terrible green and over regulated industrial coffin. Germany, the industrial heart, is in huge trouble and the next election in 3 weeks will add even more chaos.
Insightful. I agree with a lot of this. But surely the downside risk is much larger ? Trump might well like to achieve a weak dollar (like Regan actually did by negotiation). But there is no way today that China et al will agree to that. So, realisticaly the US could be faced with a rapidly increasing dollar whe they want it to be weak. So the ‘surplus’ countries will be unable to oblige Trump by doing a reverse ferret and purchasing more US goods , even if they even wanted to.
I think that’s the idea of handling each nation individually with different tariffs on different things and different sets of demands. Trump knows that nations, like people and businesses, have their own economic interests and ideals. They have different cultures, industries, technologies, resources, forms of government, etc. He also knows that the interests of nations rarely completely align with the US or with each other. Lining them up and dealing with each nation separately forces the nations to consider only their own interests and the deals he negotiates will largely reflect that. The points of economic synergy and conflict will no longer be blurred into a global market that erases all lines of demarcation, but rather they will be displayed in flashing lights for all to see in the deals they make with the US. Then he or whoever follows him can play them against each other.
I suppose its theoretically possible for some or all the nations of the world to band together as a group and adopt a unified stance to try to force Trump to back down, but as any student of history or psychology will tell you, it isn’t likely. It’s the prisoner’s dilemma on a global scale. As the US picks off and separates these nations policy wise into their own respective interview rooms they will have incentives to turn on each other, because those who do choose to deal with the US stand to gain in power, wealth, and influence while those that refuse will get shut out and/or punished in some way. This, ladies and gentleman, is why all forms of collectivism are unworkable and why globalism was always doomed to failure at some point. Somebody was bound to stab somebody in the back for their own advancement, given enough time and the right incentives, and the whole thing falls apart. Cheers to Trump for understanding basic psychology I suppose. Feels odd to congratulate somebody for clearing such a low bar, but here we are.
I believe that Trump will be deliberately constructive with the UK to demonstrate the benefit of US largesse. Ultimately it will prove your point about him playing off countries against others. His ‘support’ for the UK is also intended to showcase the benefits to others of EU-exit.
In the round this is truly an existential threat to the EU by forcing a hard assessment of self interest among its members, Germany in particular.
Trump is playing a cruel game by making the EU squirm in anticipation of tariffs and encouraging it to make the very same noises that will encourage him to hit hard. The EU is the hamster in the cage that Trump intends to poke with a very large stick.
A good point. The EU may or may not survive the transition to a multipolar world. The individual nations that make up the EU are not equal in power and have differing interests. The common currency of the euro is what allows German banks to essentially run the EU. I expect everyone else in Europe will eventually notice this and begin to object, and Germany will push back. There will also be added pressure from both the US and China to ‘pick a side’ and the nations of Europe likely won’t agree there either. I can easily see Germany and Hungary leaning towards China and Russia while Poland, France, and others lean towards the US. We could easily go from a united Europe to a continent divided into hostile US and Chinese client states that somewhat mirrors the Cold War era but more of a patchwork than a stark east/west dynamic.
This is a good article, filled with common sense, in the best sense of that phrase. We could be completely self-sufficient in a way very few other countries could, and Trump is not bluffing. Not only the trade imbalance but also the outdated tariff imbalance needs to go. A widespread tariff war would only hasten our reindustrialization. What will these countries do if they no longer have effective access to our markets? They are the ones which will go into a tailspin. Most will put up a show for their people and then capitulate. If not, so be it.
Quite correct, especially if we dump this net zero nonsense. We can easily become net energy exporters, have cheap energy and be able to be far less reliant on the whims and vagaries of other nations.
They’ll never dump net zero, too many people are making far too much money out of it
“…They remind me of the Bourbons, they have learned nothing and forget nothing.”
Perfect description of the EU.
An imaginative response would be to say “hey the US is willing to pay more for our goods” and add an export duty on them by the same amount rather than a duty on imports. Certainly something Canada could do on their energy exports to the US.
Canada does not have the infrastructure to make full use of its energy supplies, especially thick shale oil.
When someone unilaterally changes the rules it makes no sense to just follow their new rules. You have to be as unpredictable. When the dust settles it is likely that common sense based on mutual self interest will prevail. No country is so self sufficient that it does not need some international trade. Increasing self sufficiency takes investment and time, abrupt changes are expensive and inefficient.
Trump is setting off a train of events that might result in some of what the Author suggests, not all entirely unreasonable, but also might flow in markedly different directions. It is therefore quite a roll of the dice.
Putin and Xi will not be unhappy this morning. Xi doubly happy Musk quietly seeking to minimise the ‘hit’ against them. Nor Khamenai for that matter (remarkably Iran thus far seems to have avoided any strengthening of sanctions whilst US allies haven’t. Strange priorities?).
As other comments here note, a big risk is Trump shoots himself in the foot by increasing the value of the dollar. Pushing more towards China another.
The off-ramp isn’t clear either. The corrections Trump seems to want can’t be delivered quickly even if those Nations agreed with whatever he wants – which isn’t entirely clear anyway. Agreements wouldn’t change the experience of Trump’s ‘little guy’ and ‘left behinds’ rapidly either. Reshoring would take well beyond the mid-terms and probably best part of a decade. Businesses won’t make such moves until much surer what is happening.
So you just wonder how much Trump and his Courtiers have war-gamed this and who is telling him the sort of things he needs to hear but won’t necessarily like. We knew of course it’d be chaos contrived as some form of master-plan. Within a week or two we’ll have a better feel for the balance.
I’d be very surprised if Trump has ever war-gamed or simulated anything ! You suspect he’s operating mainly off gut instinct and always has.
I’m not sure he needs to be delivering short term results here – rather that he needs to be seen to be doing the sort of things he said he’d do, however fast or slow (or even never) they produce favourable results.
Not convinced by your argument about business investment. Once businesses sense a clear and lasting change of direction, they will invest. Trump has to create that enduring sense of direction (whatever it is).
I suspect sanctions on Iran are already near the max.
Also, the US is far less dependent on foreign trade than most other countries, so far more resilient than most of us imagine.
All that said, I have no certainty what’s going on or what this is going to end up looking like. It’s difficult to understand what NAFTA means if the US can unilaterally add 25% tariffs overnight. Or why anyone should trust a country that behaves in this way. It’s not just the tariffs that put up the cost of doing business – it’s also the reduced level of trust that comes with these actions. Very hard to understand why Trump is picking a fight with Canada or what possible gain there is from that.
Rationally, it’s hard to understand or justify Trump’s actions (at least regarding Canada and Mexico). Unless this is an unusual situation where an irrational approach works better.
It’s also strange just how much negotiating Trump seems to do in public.
There are certainly strange things happening all around. But we have been lulled into accepting the status quo on so many fronts for so long. Sometimes the mold needs to be broken and reformed. No one on the planet knows for sure what will eventually happen. In fact, most of the self designated oligarchs in the EU and the US have been completely wrong about so much over the last decade, so why even listen to them anymore?
Not disagreeing that the legacy mob are useless ! And quite agree with the mould breaking. Not so sure Trump is the answer once the mould-breaking’s been done. He could do a useful job for 2 years. But ultimately, someone a bit more stable and higher trust is needed if/when things settle down to a new pattern.
Summed on so many other issues too by
‘unshakeable belief in their own virtue.’ As a side note: Colombia, dependent on a £54Bn export market in the USA, reversed in a matter of hours, their objection to repatriation of illegal migrants. Keen to virtue signal support for Ukraine like schoolboys throwing stones over a supposedly Insuperable (NATO) fence, but reluctant to confront head on the assault of a playground bully in Crimea….
They remind me more of Canute, ignoring reality whilst it takes them down. Nice piece on the downsides of the mercantilist model; Mr Munchau explains economic concepts so clearly even I understand.
Starmer’s failure to successfully navigate between scylla and charybdis should be fun viewing. Doubtless we will end up with some form of free movement, accepting EU asylum quotas, whilst simultaneously finishing off our agricultural sector.
True, except Canute didn’t actually ignore reality – he was demonstrating to his courtiers that he had no control of the tides.
We’ve probably forgotten that he was King of England exactly 1000 years ago (1016-1035). Apparently one of the better ones.
Quite. The lesson Canute teaches us is that the momentum of power can be immune to reason, and often even beyond the control of those actually in power.
Since we’re on the subject of tides, Shakespeare is also relevant: the “tide in the affairs of men which when taken at the flood leads on the fortune” quotation really could do with updating to take account of how the EU does business: a “tide in the affairs of men which when taken at the ebb leads on to ruin”, or something of that kind.
One thing’s for sure, we’ve tried everything else to get those clowns in Brussels to wake up and smell the coffee, even some of their own clowns are now agreeing, and yet nothing seems to stop them. We might as well throw bad poetry at them at this stage.
The full quote, from Julius Caesar seems to serve.
“There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.”
Those in Brussels don’t care too much as they’ll all still wander off into the night eventually clutching their obscene solid gold and diamond pensions
Indeed, along with Alfred, the only two monarchs to rule England/Britain with the epithet ‘the Great’.
Sorry to be a pedant but Alfred was only ever King of Wessex. Athelstan, his grandson, was first King of the English (and thus England).
Our farmers much like most of our pensioners don’t vote Labour. Starmer cares not one jot
In the long run no one ‘wins’ a trade war, though short term gains and damage can be inflicted, but ultimately everyone loses as the volume and value of trade diminishes plus global investment, and economic (and political) relations are adversely affected.
In the long run we are all dead…J M Keynes
At the end of the 80s, with the collapse of utopian socialism in the Soviet Union and elsewhere, laissez faire global capitalism – undergirded by a humane but limited welfare safety net – seemed the only way to go. So much so that even quasi-socialists like Bill Clinton and Tony Blair were on board with it. But thirty years on, I think that the economic populists like the Trumpist regime have a strong case that our recent internet- turbocharged globalisation has taken laissez-faire down a wrong track. And Adam Smith – widely seen as the father of laissez-faire capitalism – would, if he were alive today, have agreed….Well probably anyway. ‘Free trade’ vs tariffs? – ultimately it’s a question of trade-offs; of costs & benefits: https://grahamcunningham.substack.com/p/globalism-vs-national-conservatism ….more expansive thoughts on all this.
I strongly disagree! The EU offered the UK the same solution as they have given to Island, Norway and Switzerland, a custom union, which the UK turned down. The poorly prepared negotiaters of the UK had the idea that they would be able to receive “an EU à la carte” which was a hopeless standpoint. All in all, the UK got a not too bad deal as far as Northern IIland is concerned.
The price of the customs union would have been free movement and the requirement to adhere the the EU’s trade rules. No one who voted for Brexit voted for that.
The UK would have been much better off simply leaving and negotiating all arrangements from scratch.
This is an odd, non sequitur reply to my comment. In it I neither said (nor even thought) anything about the UK/EU
“More haste less speed”.
For exporting countries, the optimal way to respond is probably not to respond at all. At least, that is what economists say, but I think the author correctly identifies that mainstream economists are often not the neutral apolitical scientists they think they are.
What is not mentioned, thought, is why some countries can run huge trade deficits in the first place. And certainly in case of the US, that is because capitalists from exporting countries invest their dollars back into Wall Street and US assets. I believe that the idea that Europe can be as attractive for investors, if only they would deregulate and lower taxes, is wishful thinking. Countries like Ireland and the Netherlands are essentially already tax havens for multinationals. But the euro is not the dollar. Moreover, it seems investors are, for a big part, just investing where other investors invest. That is why so much money flows to US private equity and asset management; it is not because their business model is so productive but simply because rent seeking offers better returns than anything else these days.
However, If the CCP orders to pull back investments from the US market and sell back bonds, I could see that would hurt more than any tariff. It might undermine the world economy as we have known it for the past 50 years. But it remains to be seen what Trump tries to achieve. Tariffs might as well be used as a way to negotiate deals that have little to do with trade. Also, if the US truly wants to re-industrialize, it is hard to see how this can be done without significant protectionism.
Interesting take. It does seem like the US’s trading partners will have to align to Trump’s wishes eventually.
They could always just take care of themselves…oh…hang on…perhaps they can’t…
This article makes a lot of sense to me, but then i am not an economist! If Trump wants to reverse the US trade deficit, then fine – let him apply the tools he thinks will do that. I understand the electoral and power politics of appearing not to respond to tariffs, but why is dealing with US tariffs any different to dealing with being excluded from the European Single Market? If this article is discussing an implementable way of transforming our national economies (and environment) in a more sustainable and resilient way than the last 40 years, then I am all for it!
If the US is manufacturing cars and producing agricultural products that trading partners do not want to buy – the business solution is to produce what people DO want to buy.
But that requires fewer barriers to trade, something that Brussels finds unimaginable.
Yes for years, probably due to its huge internal market, the USA was able to get away with producing crap cars, crap domestic appliances, food so full of chemicals it doesn’t count as food in the rest of the world. Eventually that was bound to catch up with them.
Their manufacturing sector needs to learn from their tech sector.
Trump’s deregulation push will make meeting market (vs government) demand much more possible.
“the Irish economic model at the flick of a switch by removing a simple tax loophole on intellectual property rights for US companies that manufacture in Ireland.”
US companies do not manufacturer in Ireland. Irish tax rates make it advantageous for US companies to artificially set up subsidiaries in Ireland to licence IP ands sell marketing across Europe and receive payment of the licence fees/marketing charges.
Of course individual European countries could tax these licence fees/charges at source, but I understand that Amazon, Google and Facebook threatened the EU with Armageddon if they tried
US Technology companies manufacture in Ireland. Particularly medical devices.
I remember, back during the 2008 crisis, that the German advice for the rest of the EU was that we all should be exporters and have trade surpluses. All of us, trading (it is supposed) with the USA and China.
An apology would be nice!
If only every country could have an export surplus! 🙂
Trump seems to be positioning the US to annex Canada by economic means (perhaps to create a North Atlantic bloc that would include Greenland). We’re already going the “retaliatory” route, rather than cleaning up our house. We are notoriously “risk averse,” and this, along with other factors (a federal leadership void, etc), may be our undoing.
Economically, the US has nearly annexed Canada, and it’s costing the US the figure quoted in the article. That’s the problem to be solved.
The EU stuck the UK with a very bad deal in the Brexit “negotiations” which were actually a surrender. Remember the other Donald, the Tusk one, who stated that there was a special place in hell for those who voted for Brexit. And then there were Juncker, Verhofstadt and Barnier who scorned our appointed negotiator but worked hand in glove with May’s Olly Robbins. The negotiations started with a fiscal surrender and were never conducted in good faith. That is why Brexit has harmed both the EU and the UK. They also miss our annual €15-billion contribution.
“The problem here, then, is that a country’s current account, which consists mostly of trade, has an exact mirror image in the financial account, which measures the difference between savings and investment. And it is better to think about the strength of German and Chinese economies in these terms, not trade. This tells what is going on underneath the hood, which is that they don’t know how to spend their savings. This is where their imbalance lies.”
Am I the only one who thinks this paragraph could have done with a bit more explanation? It rather implies that nations running trade deficits correspondingly have good savings and investment performance but as we see from the UK’s own example, this is not true at all.
If the Chinese spent more, their exports would be reduced.
Whether it be a country, community, company or a baby sitting circle paying in points, when one entity continuously acroos wealth, while another continually spends, the system will eventually break.
One country’s trade surplus is another country’s deficit and so, long term, there needs to be a balance. When one country has an increasing surplus, and another country and increasing deficit, it can’t continue for ever. China, the EU and the US have reached that point, and two of them won’t cooperate.
“In my eyes, Trump is too much focused on bilateral trade balances, rather than on the underlying dynamics of what causes them. And the underlying global economic imbalances are massive.”
This is misdirection, as the author explains later! And the reason, perhaps, in summary, is this:
“The world has been fretting about these imbalances for more than two decades now and yet nothing much has changed.”
Yes, for example, those knowledgeable in STEM subjects have been explaining (mostly to politicians with Arts and Humanities degrees), why NET Zero policies will, and are, pauperising the West, for more than two decades. And Trump knows continuing will be in vain, or even more detrimental to him, his country, and the West.
It’s all driven by Ideology, Green, DEI, and the rest, so well explained by one of the guests:
https://youtu.be/7muSGeqL5TY
China complaining to the WTO? Oh, the irony!
Any moment now, Rory Stewart will be along to explain why Trump’s tariffs are bad but the EU’s tariffs are nothing but good.
And it will play directly into Trump’s hands. He wants the Chinese to respond as strongly so he can then blame them for whatever economic chaos the unraveling of the neoliberal world order ends up causing, because neither he nor anybody else has any clue what’s going to happen next, how far it could go, or how bad it could get if things go sideways. He does know that if China takes a hard line stance as one would expect them to given the temperament of their leader, that will give him a scapegoat to take the blame. Most political observers and students of history pretty much understand that at this point, the US/China conflict is a foregone conclusion, it’s just a matter of establishing what form that will take and then getting past the economic trauma of decoupling gradually if possible swiftly if necessary. An international conflict provides both nations a convenient way to blame the other side for the economic pain that’s coming. The population of America is overwhelmingly hostile to the CCP for many reasons, and the population of China is being gaslighted by their government and has little choice but to believe and do what they’re told. Truth be told, both sides will have reasonable grounds to place blame because neither side is innocent and both contributed to the conflict that is now inevitable. Historians will be arguing about the causes of the conflict and who’s more to blame for starting it centuries hence.
The US has ‘form’ in this area Viz: –
“Remember the Maine”
‘The Lusitania.’
“Day of Infamy”
and last but NOT least ‘WMD’!
And I wonder what the next one will be?
.
You missed “American blood on American soil.” The designated excuse for the Mexican War but come on Charles you know that geopolitics is nasty. Every country that has ever gone to war over anything has an excuse, and whether it’s a good excuse depends on who wins, not who was right.
Sanctions always take far longer to bite than experts think. It took 4 years of embargoing Germany to get them to breaking point in WW1. People, countries, are more resilient and inventive than experts think. Sanctions are, for sure, hurting Russia. But they are taking a lot longer than forecast, and I don’t know how much more Ukraine can take. My grandmother was from Ukraine so this is really painful.
Whilst the EU as a whole enjoys the trade surplus with the USA, I doubt for one moment that it is true of each member. The challenge for the EU is that this is going to be a crisis of self-interest for member states. Germany at the heart of all this faces the negative impact of the tariffs and the burden of funding the EU. No matter how much the French wish to wave the flag and encourage Germany to maintain the fight, something will have to give. With pressure on the Euro and the cost of debt funding, the contradictions within the EU will be well and truly exposed.
Meanwhile we have Toolman seeking his reset. If he had any sense he’d listen to the overtures from Trump and keep his distance from the EU. Sadly we can’t rely upon Starmer’s judgement, particularly when the unfolding of events is going to make him look even more ridiculous for his ardent support for the Remain cause.
Good article, especially the last two paragraphs. Same old EU, keep making the same mistakes over and over again and expecting a different result.
US is ultimate consumer economy. German and Chinese cultures of thrift and wise money mgt. US wins all day long in trade war. Creating 1.4 billion superconsumers to replace trade with US is pushing on a rope.
Why not deregulate the economy, especially the tech sector, support new businesses, reduce corporate taxes; attract the best talent from abroad; and get people off the welfare and sickness payrolls?
Hahahaha! Politicians want MORE tax so they can SPEND more to buy votes with handouts and stay in office to salve their egos and fatten their bank accounts. And they want to regulate so they can control others and reward their supporters (who send them money). The incentives for politicians to de-regulate, lower taxes, and reduce the size of government are ZERO. That’s why we are all f’d.
“The incentives for politicians to de-regulate, lower taxes, and reduce the size of government are ZERO.”
Not if maintaining those priorities loses them elections.
Come on how could you expect trudeau to know about math? Surely everyone knows “maths” is racist white supremacy – just ask Rachel from accounts.
I could not even read this, the title so put me off. My thought is BULLSHIT!
Headline:
US, EU and UK stock markets hit by global trade war fears as JPMorgan says Trump administration may be ‘business unfriendly’
Imagine that, Emperor Don creating “Business Unfriendliness”!
The swamp mud is so swirled up you yahoos have make up your justifications in total murk.
” [Economists] are now simply expressing political views dressed up as empirical science.”
As they did with voter opposition to the EU membership, mass immigration, Net Zero, and anything else that the Left loves. Vote Reform whenever you can.
Trump does not want a tariff war. He just likes having them as a negotiating tool.
This is partly because they frame their surpluses as a sign of economic success. The Germans like to believe that this has something to do with the quality of their goods, lauding themselves as “Export Weltmeister” — a meaningless category that comes without prizes. This is merely a celebration of dependency. Having relied on Russia for gas, and China for its exports, Germany has now also become dependent on the US. But, then, running trade surpluses against other countries is the only economic strategy the current generation of Germans has ever known.
Writer argues of German dependencies – yes shutting down nuclear energy was very bad decision however where else would one have sourced the energy e.i natural gas ? USA is no answer due to coast and same applies to Quatar hence the decline in industry. And part of this energy deal goes back to fall of the berlin wall and the fackt that german tax payers took the bill to rehouse russian troops that left from DDR !
Writer should have also remembered the steel sanktions Trump imposed on China on his first term and what happen to US construction industry or the washing machines. Domestically made Westinghouse rise the price to match the sanktioned import ones. Consumer paid the bill.
The former SEP-youthmember Angela Merkel has finally lost her gloria. The cheap gas from Russia and the export modell has completely derailed! Not so much because of Brexit. More of the Chinese states efforts to buy German mashineries and produce as good cars as the German companies do.
We have to remember that the Republican party has always been the isolationistic party in the US and that Trump won the election fairly. The fundaments of the globalistic world are shaking and the backlash is here.
Excellent. The tariffs are nothing but an opening salvo to start negotiations. Changing the underlying issues that already exist would be the best course for everyone. The question is “Are they smart enough to realize that’? Canada will change parties soon and Mexico will have to change and they will. It is the clowns that control the EU that make change in Europe a crapshoot. They are legends in their own minds and when coupled with no leadership abilities, incompetence, and narcissism, it will get interesting.
Somewhere, Pat Buchanan is smiling and if Trump’s tariff strategy works, Pat will have earned a bust in the Rotunda.
I lived in France for 18 years and now go back every year. I am shocked to see how the country has declined over the past 30 years. Worst of all, is the depressed cynical spirit of the people. They have no opportunities, a corrupt system will meet their minimum needs but not much else.
This quote from Richard Lebow is very relevant, even though he is talking of real rather than trade wars:
It already seems as if Canada (though not Mexico) is winding itself up into a fury of indignation over these tariffs – so that Ontario has cancelled a $100 million contract with Starlink which is clearly not a economic decision at all but based on “spirit”.
The EU, Munchau fears, is going to go off in the same fashion like some errant squib on Bonfire Night which fizzes briefly and then goes out no-one having paid much attention.
Economically, his tariff war will act like a tax on US consumers. The increased costs are inevitably borne by the consumers.
He did it last term and prices did not rise, fuel and energy prices went down.
Plus, when push comes to shove, when it comes to tariffs (as with economic migrants) it will be every EU Member State for itself. Trump knows that.
The defining characteristic of the Left and specifically the EU Left:
…… “matched only by an unshakeable belief in their own virtue. “
There is simply a vast asymmetric equation between US exports to Europe and what Europe sells to the USA.
I don’t see how the USA loses a trade war. Sure EU goods become more expensive to Americans and that could be called ‘inflation’. However, they have a choice to buy other cheaper products and a % margin of people will do just that. Some will buy American – where is Trumps loss in that?
Trump is signaling China. Be a partner in free trade or be a pariah. Clinton gave China Most Favored Nation status to Chine. They never met the condition and have implicitly and explicitly rejected fair and free trade.
No western leader until Trump has challenged this destructive imbalance.
A similar situation exists with Hamas. They openly reject the right of Israel to exist and openly attacked Jews.
No western leader until Trump has called Hamas and other Iranian proxies out. Hostages are being released but a permanent cease fire is only possible (and sensible) when Hamas openly declares Israel is a sovereign nation.