America First again, but what about Europe?
It’s done, it’s over. America voiced its will and appointed Donald J. Trump as president-elect. The country spoke out loud and its echo will resonate globally. Although mourning for a desired Harris-presidency may be tempting, Europeans cannot distract themselves by wishful thinking. Leaving aside awe and fear, it is mandatory to subject these developments and their implications to analysis.
To conduct this successfully and prepare policies accordingly, Europe needs to have clear sight of what to expect from a felon-led Oval Office. Remember, one of the few perks of welcoming a president back to office is a certain predictability based on actions in his first term.. Already eight years ago, the world first witnessed Trump rambling about his “America First” – philosophy to ecstatic supporters.
“America First” was built on the pillars of protectionist trade and isolationist defense policy – a reversal of American conduct in previous decades. Since history is the best learning material, American conduct in these two sectors toward the Union 2016-2020 can serve as a guideline for safeguarding European interests during a second presidency.
Tariffs and more tariffs
The imposition of tariffs on imports has long been a popular starting signal for a complacent presidency; apart from George H. W. Bush and Bill Clinton, every president since Ronald Reagan imposed these protectionist measures in his first term.
Following the precedent, the Trump administration similarly restricted imports, although much more forcefully than was known before. In 2018 alone, the US enacted tariffs worth $283 billion, ranging from 10-50%.
Arguably, the party hit most heavily has been China, with tariffs of 25% imposed onto key Chinese exports, such as EVs and semiconductors. The US preoccupation with the containment of its largest geopolitical rival led to a full-scale trade war; stretching from January 2018 to the present. It is important to note that the Biden administration too has been keen to continue this economic conflict and remedy its trade deficit with the Chinese. Any appeasement policies by the powers may not be expected as long as the economic conflict is accompanied by an ideological and geopolitical one. The EU, however, has not been at the forefront of economic containment policies of both the Trump and Biden administration. During the Trump presidency, it suffered from relatively marginal tariffs imposed upon steel and aluminum production, which are rather irrelevant European export goods. Estimates conducted in 2019 pointed out an expected 8% decrease of European exports to the US in the long run and 0,01% EU GDP decline due to restriction on steel and aluminum exports. Starting from 2021, the Biden administration even removed several EU tariffs, in contrast to Chinese tariffs, which saw a sharp increase.
This is a very broad status quo of the US-China-EU trade triangle; while trade relations between the US and China further deteriorate, the EU has been so far only victim of externalities of this inevitable power clash. Until now, European leaders' main concern has been choosing a side, or rather balancing interests in order to avoid the latter. Close ties with both global powers seem inevitable, with the US still being the EU's overall largest trade partner and China appearing a soaring power which particularly attracts European technology exports.
However, this period of consideration will now come to an end with the arrival of a second Trump administration. Remarks made during the election campaign are set to have sent shivers down the spine of European economic leaders.
Key proposals are a 10% universal tariff, 60% tariffs for all Chinese goods and a 100% tariffs on imported Chinese cars. While these tariffs superficially appear to hit Chinese exports the hardest, the actual impact on European economies may be horrific. A universal tariff of 10% will hit Europe hard; currently, the Union sports a positive trade balance of around $170 billion, as the US consumer market continues to soak up European exports. Main export goods are vehicles and machinery, with Italy and Germany as the most potent exporters. Any extra-tariff imposed would hit the EU, and its trade-oriented economies hard, especially in a time where the austerity of European consumers makes American consumption imperative. A recent Goldman Sachs estimate places an EU GDP decline at 1%..
A dangerous connection
Sharp protectionist measures will hit Europe’s tumbling economies hard. Even worse, the drastic measures directed to counter a seemingly unstoppable Chinese export economy will place Europe at a crossroads. 60, or respectively, 100% tariffs will lead to nothing but a further escalation of the on-going trade war; for us Europeans, this deepening of differences between our two most important trade partners may force us to become partisan, abandoning trade ties with one of them.
Picking a side, however, will impact an interdependent continent negatively; it must be an imperative for the EU to resist affiliating with either side too much and avoid being drawn into an economic conflict that we have no interest in. Detailed solutions will need to be elaborated on. What they will all share, however, will be suggesting strong internal policies, making use of our exceptional single internal market to counter foreign export restrictions and diversifying the EUs trade portfolio with third nations.
