Editorial: Seismic waves hit global trade order

After three months of anxiously waiting and guessing what trade arms US President Donald Trump would announce on his ‘Liberation Day’, political and business leaders now know what lies ahead of them. The first shots have been fired and most countries have felt the seismic waves.

In essence, Trump imposed a minimum trade tariff of 10% on all imports to the US but the rate of the ‘reciprocal tariffs’ varies from country to country. These tariffs are based on what the US views as the level of tariff and non-tariff barriers that countries impose on US imports.

EU member states will be hit with an export tariff of 20%, which will go up to 25% for motor vehicles. European Commission president Ursula Von der Leyen said the cost of doing business with the United States will drastically increase, adding that “what is more, there seems to be no order in the disorder – no clear path in the complexity and chaos that is being created, as all major trader partners are hit”.

Calling the tariffs a major blow to the world economy, von der Leyen warns: “Let’s be clear about the immense consequences: the global economy will massively suffer, uncertainty will spiral and trigger the rise of further protectionism.”

Realistically, Malta’s open economy will not be immune to the consequences of this trade war.

We import practically everything we consume and export primarily services. The value of the goods we export, especially to the US, is relatively small. Still, as members of the EU, we will be affected by the 20% tariffs imposed by the US on EU exports.

The current global trade war’s most immediate effect could be a financial market crash. Expert market analysts and political and business policymakers will be crunching the numbers Trump announced to calculate the tariffs’ impact on global trade.

Many are already predicting an escalation of inflation and a severe correction in financial asset prices.

This is not good news at all and a global recession is a very real possibility. This would be the worst-case scenario for major EU economies struggling with economic stagnation at a time when they need to invest more in their security.

Political leaders must think strategically before reacting to the thick fog that shrouds this trade war. The US under Trump equals chaos and trade destruction and his speech announcing the tariffs was, without doubt, the most economically illiterate speech ever made by a US president.

The EU will likely retaliate immediately with counter tariffs on US exports – but it must also calculate the consequences of escalating the trade war. While the US’s stark departure from international trade rules will affect the global trade order, the EU has plenty of clout to defend its interests.

In a scenario of the EU retaliating, Brussels would consider Trump’s blackmailing approach unacceptable and invoke various legislation and regulations to impose new trade barriers for US exports. This could be a high-risk option if it shuts the door to tough negotiations to instil some order in the present chaotic trade scenario.

Another option is for the EU to take the path of acquiescence, hoping that, beyond the sabre-rattling rhetoric on both sides of the Atlantic, the US and the EU leaders will be pragmatic when engaging in a give-and-take negotiation process.

This latter strategy, however, will likely be perceived as a sign of weakness to Trump that looks at the world in purely transactional terms.

There are no winners in Trump’s unnecessary and illogical trade war. However, as the rest of the world reacts to these latest measures and increases cooperation and economic ties with each other, the biggest loser will, undoubtedly, be the US.