‘Trump’s election could be a wake-up call for Europe, or accelerate its decline’ – Technologist

Donald Trump’s election is set to tip the global economy into a period of protectionism unseen since the 1930s. The US president-elect has promised to intensify the policy pursued during his first term, applying tariffs of 10% or even 20% on all exports to the US, and even 60% on products from China.

The European Union (EU) will have to come up with a response to ward off this new threat. It comes at the worst possible time. Europe is lacking in leadership, its growth is sluggish and pressure from Chinese exports is increasingly intense. Aware of their weaknesses, the 27 EU member states have yet to find the means to survive in this hostile environment.

Trump made protectionism his mantra throughout his campaign. “Tariff is the most beautiful word in the dictionary,” he declared in October. According to him, these taxes have every virtue: they lower the trade deficit, bring factories back to US soil, and fill government coffers. But to believe it is a miracle cure is to fall for the long tradition of the snake oil salesmen of the Far West.

In reality, tariffs play a limited role in a country’s trade balance, which is primarily the result of a macroeconomic balance between savings on the one hand, and investment and consumption on the other.

In the US, growth in household and business spending, supported by a lax fiscal policy and unlimited debt, mechanically translates into increased imports, resulting in a negative trade balance. Without tackling the issue of “twin deficits” (budgetary and trade), imposing customs barriers is like emptying the sea with a teaspoon.

Political success

Trump unwittingly demonstrated this during his first term. The US trade deficit grew by a quarter, without boosting industrial employment. By becoming more expensive, imported components increased US production costs, as many studies have shown. And, contrary to what the president-elect claims, the extra cost has not been paid for by exporters, but by US consumers.

If the first version of protectionism-à-la-Trump didn’t succeed economically, it was a political success. His voters are clamoring for more, without realizing that in addition to a decline in growth, as identified by the Centre for Prospective Studies and International Information (CEPII), the tariffs will lead to a significant increase in the prices of imported products.

The National Retail Federation has calculated that the measure could cut the purchasing power of US consumers by between $46 billion and $78 billion on clothing, appliances or shoes. While Trump won the election on the theme of fighting inflation, his policies paradoxically risk reviving it.

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