ROME — For the United States, it’s back to the future. American protectionism has returned, with tariffs that vary by country, but are permanent. Donald Trump wants to go back to pre-1930 America. That was when, in his view, the import duties served the purpose of financing the treasury without income tax.
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The erga omnes tariff barrier, a minimum level of 10%, has multiple purposes: fiscal revenue in lieu of taxes, bringing industry back to the U.S. and attraction of investments from abroad. Rebalancing the trade deficit becomes almost secondary and/or automatic.
Therefore, the tariffs announced Wednesday are not temporary, but meant to be long-lasting. There will be exceptions and specific negotiations but, in Trump’s intentions, they become one of the foundations of the American economy. That new paradigm begins today.
“Freed” from oppression
Whether a percentage point higher or lower, the duties were nonetheless expected. Reciprocity — we will discover from the U.S. Treasury report the method by which it was calculated — was applied with a generous 50% discount: each country faces a duty equal to half of what that country applies to U.S. imports, according to the report. Of course it is added to all existing duties.
Against everyone if necessary. Benevolent (perhaps) towards those who submit.
The blow to the United States’ partners is also expected, 20% to all countries of the European Union. The global tariff broadside with universal destination but at differentiated rates did not surprise anyone. The only surprise was perhaps that Elon Musk didn’t have more of an impact on Trump’s decision, perhaps confirming the rumors of an amicable separation in sight between the two men.
Donald Trump has announced the America he wants: strong, closed, rich and alone. Against everyone if necessary. Benevolent (perhaps) towards those who submit. Without international constraints. The antipodes of the America of everyone from Harry Truman to George W. Bush. To this end, it needed to be “freed” from the oppression suffered at the hands of the rest of the world, the EU first and foremost, explained the President.
Moving into the real economy
But Liberation Day also frees us from the accumulated debt of solidarity, trust and friendship towards Americas that no longer exist. Any relationship with this America, even the alliance we want to maintain, will have to always be based on a quid pro quo. We suspected this since January 20th. Now it’s even clearer.
The America that Trump wants faces two challenges. The first is economic. Knowingly, the would-be liberation of America occurred exactly at the time of Wall Street’s daily closing. Nobody wants a sudden market collapse to overshadow the celebration. Thursday and Friday we will quickly see how the markets react — even if investors may have already anticipated the tariffs.
More importantly is the next phase: when the effects move on to the real economy. There will be invisible repercussions given the industrial interdependence of many value chains between the U.S. and the rest of the world. The immediate risk is inflation. It won’t take long for the new tariffs to transfer to the prices of imported goods. We’ll see how much they will affect spending behavior.
Two structural contradictions will then come to the fore. If tariffs reduce imports as they are more expensive for consumers and, at the same time, U.S. domestic industrial production increases also due to the import substitution effect, where do those 0-0 billion a year in tariff tax revenues come from? Trump is banking on that revenue balancing the federal coffers, and allowing further cut taxes.
European firepower
The second challenge is international. Hit by American tariffs, U.S. partners are preparing to respond with counter-measures. The lightest hit United Kingdom (10%) is doing it calmly, China (34%) relatively calmly, Mexico and Japan (24%) reluctantly … but everyone is inexorably preparing the responses.
The EU has the market size that makes it capable of dealing on almost equal terms with the United States
No one has the ability to inflict damage on the U.S. equal to what they receive, but taken together they will have a non-negligible impact on the performance of the American economy. Just one, the EU has the firepower and market size that make it capable of dealing on almost equal terms with the United States. EU Commission President Ursula von der Leyen immediately announced a strong response in due time. The EU and European capitals, including Rome, must give themselves time to digest the duties announced Wednesday, and to develop the most effective and incisive countermeasures.
Negotiate? We must certainly try to open a commercial dialogue with Washington, keeping in mind, however, that America’s tariff “fortress” is destined to remain standing and that any hope of restoring a full free trade relationship with today’s America is illusory. That simply doesn’t fit into Donald Trump’s vision of the world.
