The intermittent announcements of the new US trade policy they destabilized the global economy and financial markets for a few weeks. Italian and European companies, especially those more internationalized and inserted in global production chains, are reorganizing to absorb the umpteenth shock that comes not from the economy but from (geo)politics. For the part most closely linked to investments, at home and abroad, European manufacturing needs a "point of arrival" on tariffs that the United States and the European Union will apply to each other.
Behind the political and governmental part, to "unravel" and put in order with respect to the decisions of the leaders there are the super-negotiators, the technicians who have to make the impetuosity of the leaders and the realism of the economic and commercial dossiers coincide. The US diplomat Peter Chase is a senior fellow in the Brussels office of the influential German Marshall Fund (GMF), with a past as vice president for Europe of the US Chamber of Commerce from 2010 to 2016 and above all as director of the US State Department's office for EU affairs.
Mr. Chase, what is your view on what is happening?
“President Trump believes that previous American presidents have opened the US market for a “hypothetical geopolitical advantage” – as the first trade policy document of 2017 put it – at the expense of American workers. Foreigners have “taken advantage”, as their trade surpluses demonstrate. Trump sees China and the European Union as the worst culprits precisely because they are the ones with the largest surpluses. He believes that the international agreements that underpin this opening are intrinsically flawed, and for this reason he ignores them altogether, preferring force to shared rules. This willingness to violate international commitments allows Trump to use tariffs to make “foreigners pay” for the reindustrialization of the United States”.
In alternating, incredibly close phases, the Trump Administration changes the targets and the possible intensity of the tariffs.
“In that sense, his Administration is likely to keep a much higher base tariff than in the past on all goods from any country. I also believe he will keep the national security tariffs on steel and aluminum, cars and auto parts, semiconductors, and pharmaceuticals (as well as other products like copper and lumber), which cover a significant portion of US-EU trade. So while Trump has backed down on some tariff threats, he is fully intent on building a wall around the American market. And while he thinks foreigners will pay the tariffs, in reality it will be importers who pay them. His tariffs are a new tax on Americans, especially US businesses.”
Is there a specific strategy on the part of the United States or are tactical backtracking possible with respect to the great tension widespread among economic operators?
“Trump and his team believe they have a coherent trade strategy, one of tariffs and other measures to ‘protect’ American workers, boost manufacturing, and force countries and companies to behave in certain ways. Unfortunately, they are finding that the reality is more complex. A manufacturer without access to even a single critical component can be forced to shut down production, and many of those critical components come from overseas. This is one reason the US trade deficit widened in the first quarter and then fell sharply: companies have been stockpiling to protect themselves from an increasingly arbitrary government. Stock market volatility is another consequence. However, I doubt that these tangible costs will be enough to dissuade Trump. Don’t expect a return to business as usual, although perhaps the unpredictability could be reduced.”
Is the US ready for Trump's tariff revolution?
“No, that’s the point. Few understand the complexity of private sector supply chains and how critical imports are to domestic production. Arbitrarily reducing them will only lead to factory closures and forced unemployment. Imports are not ‘bad’ and there is no good reason not to use them.”
Which economic sectors will decide the reconfiguration of transatlantic trade relations?
“The economic relationship between the United States and the EU is unique, based more on investment than trade. American companies have invested over $2.600 trillion in the Union, while European companies have invested over $2.400 trillion in the United States. Over half of the $1.300 trillion in trade between the two sides of the Atlantic takes place within the same multinationals. These investments concern all sectors, including agri-food: for example, an Irish company is among the largest cheese producers in the US. This is also why Trump's trade policy is so misleading”.
Could the trade escalation between the US and the EU bring Europe and China closer together again, perhaps in different forms, on an economic level?
“The transatlantic economic relationship is driven by the private sector, not by governments. It will remain strong precisely because it is based on investment, not just trade. That said, businesses and governments are starting to question the reliability of the US government and the coherence of its policies. They will naturally seek to strengthen ties with other countries, including China. However, Beijing can also be 'capricious', both in foreign and economic policy. The EU's approach, which sees China as a partner, competitor and systemic rival at the same time, is correct. Many would suggest adding 'security threat', given Beijing's more or less overt support for Russia's invasion of Ukraine and its efforts to project military power in Asia. Until this changes, it is difficult to foresee a structural improvement in EU-China relations”.
In your opinion, to what level of rupture with historical allies, first and foremost the Europeans and NATO partners, is Trump prepared to go?
“Trump does not want a break with his allies. He wants them to pay more. Not only for defense, but also to support America economically. According to him, a reindustrialized nation is the most effective defense against any threat. But it should be remembered that Trump distinguishes between “European countries and NATO partners” and the European Union. He hates the EU because he knows that united European countries have more power. Without the EU, even the strongest European country would be forced to follow Washington’s line. The European Union, on the other hand, can oppose it.”
Could the centrality of the “American model” in the economy, in strategic currency choices, in soft power, decline unexpectedly quickly?
“Yes, and this is another key point. It is surprisingly easy to destroy what has taken years to build. Many things we value are based on trust, and trust can vanish in an instant. This may be one of the main costs of Trump’s abrupt changes, and I fear he does not fully grasp the consequences. Trust is particularly crucial in finance: foreign investors hold $33 trillion in US financial assets, including $9 trillion in government bonds. Investing in the US makes sense because it is the deepest and most developed market in the world, and because there is legal certainty. If for some reason they doubt this, they may start selling. And financial events can go haywire very quickly.”
How will international relations change in the coming years?
"By abandoning his country's commitments under international law, Trump is effectively trying to bring the world back to a logic of power rather than rules. Paradoxically, and sadly, Russia and China also seem to prefer a world where their power is not limited by law. For the EU, born out of international law, this is an existential threat. And I think many other countries are reluctant to be told what to do by dominant powers."
With what consequences?
“A positive consequence of the chaos created by Trump could be for the EU to work with other “intermediate powers” to rebuild the global legal order, including a reform of the WTO. Just as European countries are stronger within the EU, smaller states are also stronger in a world based on stable and fair rules. There are many potential alliances: the United Kingdom, Norway, Switzerland, Canada, Mexico, Brazil, Japan, Korea, Taiwan, Australia and others. It will require diplomatic work, but the EU and its partners are perfectly capable of it”.
In addition to scenarios of global recession and chronic uncertainty in the markets, what is the main risk in the international order that you see emerging?
“Aren’t these enough? We are already immersed in terrible and costly wars: the Russian invasion of Ukraine, conflicts in the Middle East and Africa. Too many other ‘hotbeds’ of tension exist, and more could arise with climate change. We could do so much to alleviate human suffering and improve living conditions everywhere, if we were not obsessed with making our countries ‘great again’ at the expense of others.”
China appears to be reacting in a subtle way in terms of communication but is preparing significant countermoves on tariffs, commodity exports, movements in capital markets. Are the world's major economies destined to reconsider their relationship with China from here on out?
“It is understandable that China is not intimidated by Trump. The fact that it is preparing countermeasures is not, in itself, a reason to review strategic economic relations with Beijing. Countries and companies should always have had a realistic vision. China has become a huge market and many foreign companies have benefited from it. But at a high price, often losing technology to Chinese competitors. Beijing has long begun to “instrumentalize” the dependence of others, as demonstrated by the blockade of rare earth exports to Japan in 2010, and more recently with Lithuania and Australia, not to mention the economic and technical support to Russia in the war in Ukraine. Therefore, it is right to continue trading with China, but with awareness and caution. There are benefits, but also risks. A wise entrepreneur will never be excessively dependent on suppliers in a country whose government has already shown that it can interrupt trade relations at will”.
Last question on the heart of Europe: how do you evaluate the prospect of a German rearmament, which will take place in a climate of return to protectionism, with extremist tendencies within the country that are stratifying year after year?
“I'm not worried about the German rearmament, especially because it takes place in the context of a united Europe that wants to be a strong global player. In this context, it is not just a question of “German rearmament”: it is and must be seen as a German contribution to a coordinated and coherent European defense strategy”.
