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Your guide to what the 2024 American elections mean for Washington and the world
On March 3, Donald Trump made two very significant decisions. One was to impose tariffs in Canada and Mexico at a rate of 25 percent, as well as Chinese imports at a 10 percent rate at the top 10 percent imposed last month. A 25 percent fee of imports from the EU is expected to follow. Together, these four economies produce 61 percent of the US goods imports. The other and most significant decision was to suspend US military aid to Ukraine, giving the surrounding country what seems to be Hobson’s choice between surrender and loss. Trump’s friend Vladimir Putin must be ecstatic: the American president is tearing the West before his happy eyes.
These are merely two groups of decisions in the whirlpool that accompanied Trump’s second presidency. But for the outside world, they are of great importance. They represent the conclusion of liberal, predictable and regular trade relations with the most powerful place in the world and also what created the system itself. They also represent the abandonment by the US for essential alliances and commitments in favor of a closer relationship with a first enemy. Trump clearly thinks Russia more important than Europe.
In both cases, he is very mistaken. As Maurice Obstfeld has noted, the former EMF leader, US trade deficits are not due to fraud by trading partners, but for the surplus of its income spending: the largest determinant of America’s trade deficits is its large federal fiscal deficit, currently at about 6 percent of GDP. Republican -controlled Senate Plan to make Trump tax reduction 2017 permanent guarantee that this deficit will continue at least as long as markets fund it. Given this, efforts to close the tariff trade deficits are like trying to flatten a fully stuffed balloon.
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To understand this would require knowledge of macroeconomics that Trump lacks. But this is not his only folly. Trump also says: “Let us be honest, the European Union was formed to deceive the United States. This is its purpose. And they have done a good job for him. “Moreover, he said about Europe:” They don’t get our cars. They don’t get our products on the farm, they get almost nothing and we get everything from them. “
Both complaints are meaningless. The EU was formed to bring prosperous economic relations and political cooperation on a continent destroyed by two terrible wars. SH.BA realized for a long time and actively promoted this reasonable response. But that was, alas, one very different from the deceiver of today’s self-pity.
Moreover, as the Danish economist notes, Jesper Rangvid on his blog, Trump only looks at bilateral goods trade, ignoring the trade of services and income from capital and work. It is so that the revenue that the US derives from its exports of services at least to the Eurozone and the returns to the capital and the salaries it has exported there compensate its bilateral deficits in goods. The overall balance of the eurozone’s current account account with the US is close to zero, not that this is also important. But bilateral balances only in goods are less important than overall bilateral balances. Given the way he earns his money, Trump has been running a large deficit of goods throughout his life. It seems to have done a lot of harm. (See lists.)
For Mexico and Canada, the economic costs of these tariffs will be high, as their goods exports to the US were 27 percent and 21 percent of GDP respectively, in 2023. EU exports to the US were only 2.9 percent of its GDP in 2023. However, it would still be an act of unjustified economic warfare, indeed economic illiterate. The EU will have to take revenge. Transatlantic relationships would be permanently damaged.
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Even the trade war, though it is, compared to the ambush of Volodymyr Zelenskyy in the Oval office by the US president and vice president last Friday and the subsequent suspension of military aid to Ukraine. The goal may be the obligation of zelenskyy to sign the mineral agreement. But the biggest problem is that Zelenskyy does not trust Putin, for good reason, and now there is no reason to trust Trump. Also Trump may want a “peace arrangement”, but why would Putin agree with an original if Ukraine is his for receiving?
Both men are underestimating the will of the Ukrainians to be a free people. But if this goal is achieved, Europe will have to take the burden of both its insurance and support that of Ukraine. Friedrich Merz, the other German Chancellor, was right when he said that “his absolute advantage would be to strengthen Europe as soon as possible so that, step by step, we can really achieve independence from the US” these steps should also be taken quickly. One will be to accelerate the transfer of more than 200bn € to Russian seized reserves in Ukraine. Another will be a large defensive construction now that the US NATO engagement has collapsed.
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The EU Plus the United Kingdom has a 3.6 -time Russian combined population and a PBB, with purchasing power, 4.7 times larger. The problem, therefore, is not a lack of human or economic resources: if (a big one if) Europe can cooperate effectively it can balance Russia militarily in the long run. But the difficulty is in the middle term, as Europe is unable to make some important military equipment, on which it and Ukraine hang. Would the US refuse to provide such weapons if Europeans bought them? Such a refusal to supply would be a moment of truth.
Trump is waging economic and political war on American allies and addicts. But the result that results in the trust of the countries that once share its values will end very expensive for the JSC also
martin.wolf@ft.com
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