After the dust settles

The decision by the US President Donald Trump to impose tariffs on most products coming from practically anywhere else in the world may have come as a surprise for some, but it may have been expected by others. For some countries, this decision could mean severe economic problems, while for others it will mean a readjustment of their economy. In any case, this decision can only be described as a trade war.

Before looking at it from our perspective or from a broad, global perspective, we need to first look at it from the US perspective.

The first consideration to make here is that Trump was given a mandate to govern. The strength of this mandate can be seen by the fact that he did not just win the elections. He won the popular vote against Kamala Harris, and the Republican Party won control of both the Senate and the House of Representatives.

Part of the policy to make ‘America great again’ (Trump’s battle cry) is to give a new lease of life to the manufacturing sector. The US manufacturing sector had received some very bad knocks when, at the beginning of the 1980s, the Federal Reserve had raised interest rates significantly, making the cost of borrowing exorbitant and strengthening the value of the US dollar. At that point, US manufacturing companies could not compete successfully against manufacturers based in Eastern Asia and other low-cost countries.

Raising import tariffs is expected to give a competitive edge to products manufactured in the US. Whether it will succeed or not will depend on the response of various countries, and we will find out if it will be successful only after the dust settles.

Since the announcement of the tariffs, the US has made some U-turns, such as giving a 90-day reprieve on the application of these tariffs or excluding certain products from such tariffs. We may not like what the US president has done, but what he did was in the interest of the US and, more specifically, his electoral base.

The EU needs to adopt the appropriate policies to renew itself to assume a leading role in the new world order which is being created

The ball is now in everyone else’s court. As I mentioned, for some countries, these tariffs will cause severe economic problems. The reason is that such countries need foreign currency to be able to pay for their imports and pay back their debt. Tariffs could mean less exports and, therefore, less foreign currency. A few of these countries may even default on their payments and their economy could spiral down into a recession.

Other countries will need to readjust their economy. I would put the EU and China in this category. Although the EU has 27 member states, and there are several areas where competence for such areas lies with the governments of the member states, in the area of trade, the competence lies with the Union and its organs. The EU institutions are backed by a strong, positive sentiment. Support for the EU is at its highest than it has ever been in the last 40 years. Moreover, there is the feeling in individual countries that by sticking together, the EU can better defend their interests.

In a contribution I wrote a few weeks ago, I had argued that the EU needs to look after itself. Sandwiched in between Russia’s invasion of Ukraine and the US trade tariffs, there is no better time than now to start doing so. The EU needs to adopt the appropriate policies to renew itself to assume a leading role in the new world order which is being created.

The EU has always sought to achieve economic growth while ensuring social well-being, cultural development and environmental protection. It needs to continue doing so through significant investment in technology, education and innovation. It needs to take on board the Mario Draghi report on how EU businesses and member states can regain their competitiveness. It may even seek agreements with the UK, China and other countries to develop further trade relations.

So far, the EU is allowing itself more time, exploring all options to reach some form of agreement among member states, and then with the US. It is allowing the dust to settle.

Once the dust has settled, the EU needs to ensure that it safeguards the interests of its citizens.