Yet Another Tariff Threat
- Karl Johansson
- 26 maj
- 3 min läsning
The world’s worst poker player once again challenges the US's trade partners. So far the bluffs have worked, but it will not last.
Last week president Trump once again threatened tariffs, this time on the European Union, and once again the stock markets had a freak out. The idea that raising tariffs is an uncomplicated strategy with only upsides seems deeply rooted in Trump, and his key economic advisors’ thinking. Otherwise why would he keep repeating the same gambit over and over expecting their trading partners not to wise up to empty threats? The latest news as of writing is that the EU will be subjected to 50% tariffs by June 1st unless they come crawling on hands and knees for a deal.
Economic theory holds that in trade conflicts it is generally that it is the exporter who is more vulnerable to an embargo or other barriers to trade. That may seem backwards, but the logic is that as long as there are other countries to buy the same product from it will hurt more to lose the export revenue for companies than higher prices for another source of imports will hurt the country. It can also help shield domestic industries until they become competitive with the rest of the world.
Still, the idea that the exporter is more vulnerable than the importer is a strictly economic calculation. Politically the importer is far more vulnerable. It is easy to get support from the government if your industry is arbitrarily targeted by a politician in an economically important export market. On the other hand loudly exclaiming to anyone who will listen that you intend to press the “make imports 50% more expensive” button is unlikely to make your voters happy when they find out that imports are almost overnight 50% more expensive.
I really do sympathise with team Trump’s desire to create a manufacturing renaissance. That is a worthy goal, and imposing tariffs while you get important industries back on their feet can be a helpful policy. Rather it is (as per usual) Trump’s way of going about his policy which undermines his chances of reaching his goals. If Brussels calls his bluff I’m convinced he will back down, as he did with China two weeks ago. Because Trump clearly does not care about detail and nuance when trying to craft policy which does not inspire confidence in his ability to create a new manufacturing economy. Doing so requires stable rules, and more than tariffs.
Huawei was famously hit with major economic sanctions during Trump’s first term in office, including a ban on advanced semi-conductors. What happened? Huawei developed their own tech to produce semi-conductors and now the US has decreased leverage. I frankly doubt that an American company could achieve the same feat in the most important industrial sector for consumers goods: automobiles. Boeing has struggled for a decade with only one viable competitor in Airbus. The idea that Ford or Tesla could become competitive with Toyota or Volkswagen during Trump’s administration is laughable, let alone compete with Chinese EV brands on price in a hypothetical no tariff environment. Sure, American brands are world leading in pickup trucks, but mostly because such vehicles are impractical in most of the world. And in the highest stake situations any serious militia, separatist, or terrorist rely on Toyota trucks[1][2][3].
To me, both the economics and the politics indicate that Trump’s tariff plan will collapse if foreign leaders have the wherewithal to simply call his bluff. Mark my words, the EU will get an extension on the current 10% tariffs at the very latest on June 15th.
[Edit]: The morning this post was scheduled to be published, Trump annouced that his 50% tariffs are suspended until July 9th. Though, I'm fairly sure the tariffs will be suspended again.
If you liked this post you can read a previous post about AI and Silicon Valley ideology here or the rest of my writings here. I also have a section for longer reads I call essays here, I particularly recommend my essay on Silicon Valley and AI called 'No Acoustic Guitars in Silicon Valley'. It'd mean a lot to me if you recommended the blog to a friend or coworker. Come back next Monday for a new post!
I've always been interested in politics, economics, and the interplay between. The blog is a place for me to explore different ideas and concepts relating to economics or politics, be that national or international. The goal for the blog is to make you think; to provide new perspectives.
Written by Karl Johansson
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Cover photo by İrfan Simsar from Pexels, edited by Karl Johansson
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