This Is About Power

A new EU-US trade deal has just been announced. Going forward, most transatlantic trade from the EU to the US will be subject to a 15 % tariff. In addition, there will be a 50% levy for steel and potentially higher tariffs for pharmaceuticals, subject to President Trump’s discretion.

The new 15% is more than the 10% the EU currently faces on exports to the US, but less than the 20% reciprocal tariff the US threatened in April and the 25% cars were subject to. Needless to say, the new 15% is more than three times higher than the import tariffs before Trump came to power. For reference, average EU tariffs on US imports remain in the 5% range.

The new deal should finally end the discussion, also for those who still had any doubts after the previous batch of potential tariffs that were threatened a little more than a week ago: 30% on European and Mexican imports, 35 % for Canada, 25% for South Korea and similar tariffs in the offing for many emerging economies.

Brazil potentially faces a 50% tariff, ostensibly because of its poor treatment of a Trump political ally, former Brazilian President Bolsonaro.

Economists have made a mistake. Until now, we have tried to make sense of President Trump’s trade policies in economic terms. We have looked at them through an economic lens, studying and probing the multiple rationales the administration has offered. We have declared these policies inconsistent, economically incoherent and a bad idea—and we have left it at that.

If the administration were truly concerned about the US trade imbalance, economists have argued, it would not be ratcheting up future budget deficits with its “big, beautiful bill,” as those will only worsen trade imbalances.

We have noted the reciprocal tariffs announced on “Liberation Day” were, from an economic perspective, silly. The formula behind the tariff calculation put the administration’s incompetence on full display. Tariffs may affect bilateral imbalances, but they are largely ineffective at reducing a country’s overall trade imbalance—unless, of course, a world without trade is the aim. We have argued that legitimate grievances with China are best addressed by coalitions of nations leveraging their influence within the WTO, rather than through bilateral trade wars.

Economists have taken Trump’s claims literally: that his administration was intent on rebuilding the US industrial base and using tariffs to achieve that end. We have pointed out that the Trump tariffs ignore the complexity of international supply chains.

Even companies producing in the United States need to import. It is an illusion to think that Apple can produce all of its inputs for its iPhone domestically or that low-skill textile manufacturing from countries like Bangladesh can return to a high-wage, service-based economy like the United States.

We have pointed out that to stimulate domestic investment in manufacturing, companies need predictability around tariffs. Instead, the administration displays a knack for changing the rules whenever it suits its purpose. And while competition tends to be good for industry, even if one wanted to shield domestic manufacturers behind a wall of tariffs, any viable industrial policy must be coherent, multifaceted and future-oriented. The Trump administration’s proposals are not.

With the new EU-US trade deal and the other, potential tariff measures threatened before that, the time has come to move beyond economic analysis and call these incoherent and contradictory policies what they are: a random assertion of (economic) power.

President Tump implements them because he can—even when they are incoherent, contrary to America’s national interest, and harmful to other countries. He can do so because Congress and the Supreme Court leave his actions unchecked, and because the full impact of these policies may take time to materialise. As the president of a large country, Trump has the leverage and ability to hurt others. The message is clear: those threatened are being put on notice. They are expected to yield to the one who has the power and his changing focus.

In light of the long-term economic well-being of the United States, Americans may have hoped that the rest of the world would band together to formulate a unified response to the discretionary barrages of import tariffs. This, however, seems increasingly wishful thinking.

Countries have pursued their own narrow, and short-term interest, believing they could appease or outwit President Trump and get a better deal than others. The United Kingdom chose to go it alone first, independent of the EU. Japan followed and sought its own deal. And now the EU.

The EU did not claim retaliatory tariffs on services and did not ask for tariffs comparable to the low ones it offers US imports. Perhaps, the EU fears stronger opposition might make the transactional negotiator Trump change his mind on weapons for Ukraine. A case of trade interests subject to military power?

What is left is for US citizens to recognise these policies for what they are, a power grab and a threat. Until then, President Trump will keep winning his battles – at the expense of the US and its economic interests.