In January 2017, as soon as he took office in the White House, Donald Trump signalled the new trade policy of the United States with two immediate moves: the exit from the TransPacific Partnership (TPP) and the project for a wall on the border with Mexico. These were accompanied by the threat to abandon the North American Free Trade Agreement (NAFTA). That thunderous debut now seems almost moderate, compared to the flurry of arrogant announcements and orders with which his second presidency has begun.
Multiple fronts
In just a few weeks, Trump has deployed an impressive and omni-directional arsenal of tariffs, making no distinction between allies and adversaries. The first targets were imports from Canada and Mexico, the US’s biggest trading partners. These 25% tariffs were immediately put on hold for a month, in exchange for symbolic concessions from the two neighbouring governments, aimed at countering the supposed emergencies of immigration and drug trafficking. Duties of 10% on China’s massive exports to the US, defined by Trump as an “opening salvo”, came into effect on February 4th; Beijing immediately retaliated with its own tariffs. Other duties of 25% have been announced on steel and aluminium imported from all over the world, which should come into effect in March.
The latest decision, at the time of writing, concerns the preparation of a “Fair and Reciprocal Plan” to be ready by April, with the aim of reducing the US trade deficit. The plan envisages tariffs that reflect the obstacles that US goods encounter abroad: not only tariffs, but also taxes that are considered unfair, including VAT, and so-called “non-tariff barriers” such as bureaucratic burdens and subsidies, exchange rate manipulations, etc. In Trump’s statements, the “reciprocal tariffs” will work “very simply”. In reality, this approach product by product, country by country is considered extremely complex and expensive. According to many commentators, the plan will be yet another serious blow inflicted by the United States on the World Trade Organisation, which is founded on the principle of “non-discrimination”.
Unforeseeable consequences
Raising or threatening to raise tariffs on goods imported from other economies does not imply an absolute protectionist closure, particularly when it comes to importing foreign capital. As Trump explained to the big finance and industry managers gathered in Davos: “my message to every business in the world is very simple: Come make your product in America”. The White House wants to attract productive investments from abroad, offering the carrot of low taxation and deregulation for those who produce in the US, and waving the stick of duties on imported goods. Thanks to this “revolution of common sense”, says Trump, “there will be no better place on Earth to create jobs, build factories, or grow a company”. But when it comes to the export of American capital, especially in the form of high technology, Trump is reintroducing protectionist nationalism, applying bans and sanctions.
From an economic point of view, the effect of Trump’s tariffs is difficult to predict. The law of unintended consequences, which is inescapable, is exacerbated by the fact that industrial production is increasingly globalised and fragmented in a tangle of international supply chains. A large part of world trade consists of intermediate components purchased by companies, in a process of progressive assembly through various countries and continents, before reaching the final consumer. Tariffs are additional costs in the passage between the different departments of this “world factory” and are therefore an imprecise weapon, the long-term effects of which are very difficult to calculate.
Self-inflicted damage
The major American newspapers, including The Wall Street Journal, which is generally well disposed towards the Trump administration, are united in denouncing the triple disadvantage of a trade war: on an economic level, on a domestic policy level, and on a diplomatic relations level. The prevailing opinion is that the cost of import tariffs is paid in the US by consumers in the case of finished products, and by companies in the case of goods and raw materials that enter into further production processes. As a result, Trump’s tariffs risk reigniting inflation that has not yet subsided from its recent peak and damaging the global competitiveness of US manufacturing. Jim Farley, Ford’s CEO, warns that in the “long term, a 25% tariff across the Mexico and Canada border would blow a hole in the US industry that we’ve never seen”.
Other alarmist assessments, including that of former Treasury Secretary Larry Summers, recall the historical precedent of the Smoot-Hawley tariffs which, in the domino effect of protectionist retaliation by other countries, contributed to the Great Depression of the 1930s. The possibility of a recession cannot be ruled out, but perhaps Trump believes that the United States can emerge from it sooner and better than other countries, gaining an advantage over its rivals, as it has in every economic crisis in recent decades.
United anti-Trump front
In Washington, the abuse of the presidency’s emergency powers allows it to bypass Congress, which is constitutionally responsible for trade policy; but it risks putting the presidency on a collision course with the judiciary and the Supreme Court. In foreign policy, the highest price will be paid by the reputation of the White House, whose offers of agreements and alliances will be considered less and less reliable. For the time being, even under threat, everyone is still willing to negotiate. Canada and Mexico responded with immediate counter-tariffs, before making concessions on border control and obtaining a month-long truce. China reacted with measured tariffs, signalling determination, but also a desire to avoid escalation. The EU has asked for negotiations, while announcing that it will respond to tariffs blow for blow.
In November, Christine Lagarde, the French president of the European Central Bank, suggested a “cheque book strategy”: buy peace with Trump by increasing purchases of arms and gas from the US. Her compatriot Pascal Lamy, former European commissioner for trade and head of the WTO, was scathing: “I find it curious that a high-ranking European authority should propose giving in to mafia blackmail”. For years, Lamy has been hoping that a broad multilateral coalition, led by the EU, could isolate and contain US unilateralism. Interviewed by the South China Morning Post in the autumn, Lamy proposed to the Chinese that they “build within the WTO a united front against American protectionism”. Similarly, the French economic newspaper Les Echos, argues that the EU must not bow to Trump, “who would multiply irrational requests”, but should respond with tariffs and, above all, “create, together with Canada, Mexico, and even China, a camp of free trade defenders, an axis of good that rejects the protectionist diktat”. Similar theories are circulating in the Japanese press, including the idea of the EU joining the Trans-Pacific Partnership.
Madness and method
With his saboteur attitude, Trump has relit a series of fuses on various trade fronts which he opened during his first term: against North American allies Canada and Mexico, against China and, in the case of tariffs on steel and aluminium, against the whole world and the entire WTO system. In the first four years of Trump’s tariff offensive, his vaunted real-estate “art of the deal” was described with various images: Trump barks but doesn’t bite; he places a loaded gun on the table, like in a Western, and then negotiates; he mixes spectacular wrestling moves with boxing punches, perhaps spreading more ketchup than blood. Ultimately, some method seems to reside in his madness. The conclusion drawn by the Chinese was that war and negotiation should be conducted simultaneously.
As The Economist puts it, Trump’s technique is to “make threats, strike deals, declare victory”. On NAFTA, a superficial revision and renaming as USMCA (United States-Mexico-Canada Agreement) preserved the strategic advantage of an integrated North American market. And today we can confirm the assessment that, were that outcome to be seriously compromised, a major political crisis would result in the United States. As for China, years of tariff skirmishes resulted in the signing of the so-called “Phase One” agreement, a mild compromise accepted by Beijing with the significant blessing of former Secretary of State Henry Kissinger. These important precedents are worth keeping in mind; but they are no guarantee that the White House trade war will have a similar happy ending. As Shawn Donnan of Bloomberg notes, Trump is the boy who cried wolf, but he is also the wolf.
Increasing risks
Compared to the first term, the current tariff war has started at a much faster pace, and with greater scope and intensity. In the coming months, will Trump’s bluff be called, and will a willingness to compromise prevail and the most serious threats be dropped? Or will there be a confirmation and perhaps an accentuation of the assault on trade multilateralism and the open economy? The dilemma, with all its combinations and gradations, runs through the entire system of international relations. In the field of trade, American unilateralism already has the increased force of a double confirmation. First, because Trump managed to win back the White House, despite his disconcerting handling of the electoral defeat in 2020, consolidating the “America First” line as the prevailing consensus in the Republican Party and among those running for its future leadership. Second, because, during the parenthesis of the Democrats’ time in government, President Joe Biden confirmed several of the main ingredients of Trumpian economic nationalism: anti-Chinese tariffs, abandonment of the TPP agreement, and rejection of the WTO’s arbitration role.
The trade war is obviously not the only dimension of American unilateralism, nor is it the most dangerous. Trump seems to act with the same careless decisiveness in the field of real wars, from Ukraine to Gaza, treating with apparent levity strategic issues that are crucial and sensitive for other powers. The risk of accidents is obvious. Trump’s return is a symptom of the crisis in the world order and could be a trigger of its explosive potential.
Lotta Comunista February 2025