Imposing High Tariffs on the EU Could Lead to Greater Fluctuation
The policies of the Trump 2.0 administration are causing a great deal of uncertainty. Interestingly, the announcement of a 50% tariff on EU imports has not led to a significant weakening of the euro. In fact, it has weakened the US dollar. This may be surprising given the EU countries’ high surpluses in goods trade, but the US economy is also vulnerable because, when services are taken into account, its trade deficit with the EU is nowhere near as large as Donald Trump claims.
Some are Putting Pressure on the EU
Trump has repeatedly expressed his annoyance that the EU was founded with the aim of weakening the USA. While this is essentially correct, the intention was actually to counterbalance the USA’s growing strength and prevent a single “very small European state” from being completely undermined. Additionally, Europe should become less dependent on foreign trade, a goal that has yet to be realised. Throughout the crises of the last 30 years, the EU has demonstrated its remarkable ability to function effectively in times of crisis. The more pressure Trump exerts, the more likely it is that the EU will speak with one voice once again. Even the more right-wing, EU-critical parties in France and Germany will recognise that it is better to tolerate the unpopular EU than to face pressure from the US alone.
Pressure from the USA is Likely to Increase
I think it is unavoidable that the US will become more hostile towards other countries due to its debt problems and the growing reluctance of other countries to invest in US bonds. Donald Trump is the first president to fight back with vigour. It will be difficult to convey to the American people that decades of mismanagement by all presidents and parties have led to the US having too much debt and becoming increasingly dependent on foreigners. This problem will not solve itself, and subsequent US politicians will prefer to blame foreign countries rather than emphasise their own involvement in the problems and their solutions.
The Majors are under Multiple Pressures
The US intends to offset some of its substantial deficits by imposing tariffs on foreign producers, which will make them bear at least some of the costs. Unlike in the 19th century, however, the USA is not in a position to supply its own population with all goods, so imports are necessary — and these will simply become more expensive as the tariffs can be passed on. This exacerbates the USA’s fundamental issue, as higher prices lead to higher interest rates, which further exacerbate the national debt. This increases the USA’s potential for aggression. Ultimately, the conflict is most likely to be discharged through the most readily available valve: A broad and strong devaluation of the USD on the currency market. President Trump is known to consider this desirable. Understandably, this is most likely to occur at the level at which US companies can produce ‘just as cheaply’ as foreign companies.
The USA is not Very Productive When it Comes to Production
The reason for outsourcing production abroad was that the US was unable to produce goods at the same level and price. To stay in business, US companies therefore outsourced production. The US’s inability to produce cost-effectively has not changed. Foreign countries and the EU will continue to produce more efficiently. However, this situation may persist for a long time.
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