There is no plan other than tariffs, and the tariff plan is whatever it wants to be on a given day: negotiating tactic for better deals! Bringing manufacturing jobs back to the U.S. (but for the robots!)! Raising revenue! Explaining it is impossible because Donald Trump is such a deal-making genius that you couldn’t even grasp it if you tried!
“We don’t know what the U.S. is doing. We don’t know why they’re doing it, and they seem to revel in the fact that they’re causing trouble, economic pain, and consternation all across Europe and the world,” said Ryan Monarch, an assistant professor at Syracuse University who researches the effects of tariffs on supply chains.
This chaos is shocking other countries into measured steps to minimize the risks of dealing with the United States. In the short-term, some, like the European Union, have said they will respond in kind if they face tariffs, but leaders really don’t want a trade war if they can avoid it, so they’ve stressed they’re open and ready to talk to the White House. It’s just not clear if anybody is answering the phones.
“The EU-U.S. relationship, trade and investment, is the biggest economic relationship in the world,” said Maria Demertzis, an economist and leader of the Economic, Strategy, and Finance Program at The Conference Board Europe. “This is what we need to get right, for the economic gains to be visible. And that is why I am saying the EU is not prepared to abandon this relationship. We need to really try to preserve it. I think the minute voices we’re hearing about zero-for-zero trade tax is exactly what they would want. But how do you get Trump on the table?”
“If Trump is not coming to the table, then we can’t do it,” Demertzis added.
Which is why partners, like Canada and the European Union, are also preparing for a future with a more destructive U.S., on everything from trade to security. “Let’s just assume that the United States will no longer be a reliable partner, and base our planning on that,” said Achim Hurrelmann, a professor at Carleton University who researches the European Union.
Or as Canadian Prime Minister Mark Carney put it: “The 80-year period when the United States embraced the mantle of global economic leadership, when it forged alliances rooted in trust and mutual respect and championed the free and open exchange of goods and services, is over.”
Though Canada and Mexico mostly got spared from “Liberation Day” tariffs, they’ve already been dealing with Trump’s on-and-off-trade war since his inauguration. In recent weeks, Canada has reduced dozens of internal trade barriers among provinces, which the Canadian government said was vital as it “positions our domestic economy to respond to the threat of tariffs from the United States.”
In March, Japan, South Korea, and China met for trade talks for the first time in five years, and they committed to fostering “a predictable trade and investment environment” in the region.
The Trump administration’s disdain for Europe, and its cozying up to Russia, already forced Europe to think about ramping up its defense industrial base. Germany has even reformed its constitution to spend more on defense and infrastructure. France hasn’t yet dropped its long-standing resistance to the EU-Mercosur deal with South American countries, but the country’s trade minister told Politico that, with some tweaks, France would accept it.
“Diversifying our trade outlets must be a priority if we want to make Europe not only a power ready for a showdown with the United States, but also a power open to other regions of the world. Mercosur is one of them, but the agreement just has to be acceptable. As it stands, it still isn’t,” said French Trade Minister Laurent Saint-Martin.
As Tucker said, the international conflict around trade has a “way of focusing the mind of policymakers to overcome the points that they haven’t been able to do during normal times.”
Both Europe and China are also doing outreach to the rest of the world, an opportunity to both expand trade and influence. The EU agreed last week to start trade talks with the United Arab Emirates. This week, Chinese President Xi Jinping is visiting Vietnam, Cambodia and Malaysia to strengthen ties.
The EU and China are also talking to each other, with the EU reportedly agreeing to enter into talks with China about setting minimum prices for Chinese-made electric vehicles, in lieu of tariffs imposed last year.
One of the most obvious risks of Trump blowing up the global economy is that, in his effort to stop the U.S. from relying on China, he may push the rest of the world closer to Beijing. Again, it’s too soon to say this is definitely happening, but it’s a real concern. Europe is very nervous about China flooding the continent with cheap goods otherwise bound for America. Australia has reportedly rejected China’s offer to “join hands” in the face of U.S. tariffs. But Prime Minister Anthony Albanese noted that “eighty percent of trade does not involve the United States. There are opportunities for Australia and we intend to seize them.”
As Monarch said, “it’s a trade war, but it hasn’t turned into a global race to the bottom.”
One country, the United States, generated this huge macroeconomic shock. “Other countries are just sort of saying, ‘Well, you know, go ahead and do what you want to do, but we believe that international trade flows are a good way to make people in our country better off,’” Monarch said.
Still, the world’s largest economies – who trade some $580 billion between them – are now engaged in an all-out economic war, and it will be very hard for the rest of the world to insulate itself from the fallout. Although, as experts pointed out, by the time this article is published, or perhaps even in the course of reading this article, there could be completely new tariffs, or the tariffs could be gone altogether, with Trump negotiating lower trade barriers, chasing his unprecedented protectionism with a shot of even freer trade, something encouraged by Republicans like Ted Cruz, who has criticized the president on tariffs yet has refused to use his lawmaking powers to do anything about it.
No matter the outcome, none of this is a great way to run the American economy, or really anything at all. So much of the tariff talk has focused on the increased costs of goods to U.S. consumers, but it perhaps failed to fully account for how quickly Trump’s tariff mania could squander faith in America’s ability to make sound economic decisions at all. Investors are not buying U.S. Treasuries, typically a safe-haven in tumultuous economic times. The dollar is depreciating, as people lose confidence in the American economic model – or whatever version Trump is trying to create.
“The U.S. assets and the dollar are part of what I call trust,” Demertzis said. “The trust in the U.S. economy has always been there, irrespective of which government comes there, because there was a respect of the institutions that they will do a good job to stabilize the currency and to provide liquidity if need be.”
All of America’s trustworthiness is now in doubt, and probably should be. Even if Trump reverses course on tariffs, what “Liberation Day” unleashed cannot be undone.
“The trust is just no longer there,” Hurrelmann said. “International economies are looking at their options, and certainly not relying anymore on the trade arrangements that were in place by January 19.”
Or as Monarch asked about the trade war: “After the wreckage, what happens then?”
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