DThe election of Donald Trump will tip the world economy into a period of protectionism unprecedented since the 1930s. The American president-elect has promised to intensify the policies pursued during his first term, by applying customs duties of 10%, even 20%, on all exports to the United States, and even 60% on products from China.
The European Union (EU) will have to provide a response to counter this new threat. This comes at the worst possible time. Europe lacks leadership, its growth is sluggish and the pressure from Chinese exports is increasingly intense. Aware of their weaknesses, the 27 EU member states have not yet found 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 all the virtues: they reduce the trade deficit, bring factories back to American soil and fill government coffers. But to believe that it is a miracle cure is to fall for the long tradition of the snake oil salesmen of the Wild West.
In reality, customs duties play a limited role in a country’s trade balance, which mainly results from a macroeconomic balance between savings on the one hand, and investment and consumption on the other.
In the United States, growth in household and business spending, supported by lax fiscal policy and unlimited debt, automatically translates into an increase in imports, leading to a negative trade balance. Without addressing the issue of “double deficits” (budgetary and commercial), imposing customs barriers amounts to emptying the sea with a teaspoon.
Political success
Trump unwittingly demonstrated this during his first term. The American trade deficit has widened by a quarter, without stimulating industrial employment. By becoming more expensive, imported components have increased production costs in the United States, as have numerous studies showed. And contrary to what the president-elect claims, the additional cost was not paid by exporters, but by American consumers.
If the first version of Trump-style protectionism was not economically successful, it was a political success. His voters are demanding more, without realizing that in addition to the decline in growth, identified by the Center for Foresight and International Information (CEPII)the tariffs will cause a significant increase in the prices of imported products.
The National Retail Federation calculated that this measure could reduce the purchasing power of American consumers between 46 and 78 billion dollars in clothing, household appliances or shoes. While Trump won the elections on the theme of the fight against inflation, his policy paradoxically risks relaunching it.
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