| When
President Donald Trump beamed into a room of business elites in Davos,
Switzerland, this past January, he made his agenda clear. “If you
don’t make your product in America, which is your prerogative, then,
very simply, you will have to pay a tariff — differing amounts, but a
tariff — which will direct hundreds of billions of dollars and even
trillions of dollars into our Treasury to strengthen our economy and pay
down debt,” he told the gathering at the World Economic Forum. At
the time, the assembled dignitaries and financiers mostly chuckled and
laughed off Trump’s threat. Even though the prospect of new tariffs had
loomed over his campaign for the presidency, many of the Davos set were
bullish about the potential disruption to come. Some assumed Trump would
course correct when faced with a tanking stock market. Others reckoned
that his second term would play out similarly to the first — where grand
ideological posturing was often followed by symbolic gestures or renegotiations of existing deals. But Trump’s declarations
Wednesday — his so-called “Liberation Day” — have ushered in a whole
new era of global politics. Trump announced a 10 percent tariff that
would apply to imports from every country and a separate set of what he
called “reciprocal” tariffs that impose additional higher import taxes
on dozens of countries. Trump officials told my colleagues that the White House is not interested in backing down on these tariff rates, and that they were not up for renegotiation. By Thursday morning, indexes were plummeting
around the world. Governments from Asia to Europe to the United States’
neighbors grappled with an astonishing assault on their economies and
the seeming collapse of decades of intertwined global trade policy. Even
if European officials had anticipated the extent of Trump’s aggressive
moves, “we consider the U.S. a traditional ally that respects values and
the international order,” Teresa Ribera, an executive vice president of
the European Commission, the executive body of the European Union, told
me during a visit to Washington. “What we did not expect is this set of
unilateral measures that in the end create situations that may harm the
global economy, Europeans and Americans.” “The global economy is fundamentally different today than it was yesterday,” Canadian Prime Minister Mark Carney said in a Thursday speech.
“The system of global trade anchored on the United States … is over.
Our old relationship of steadily deepening integration with the United
States is over. The 80-year period when the United States embraced the
mantle of global economic leadership, when it forged alliances rooted in
trust and mutual respect … is over.” Trump’s moves are expected to cost ordinary Americans and U.S. businesses billions of dollars this year. They
triggered a steep sell-off in the stock market and dramatically
heighten the risk of recession in a country that was in robust economic
health — certainly, relative to its peers in the developed world — in
the days before Trump taking office. And they accelerate the fracturing
of the post-World War II geopolitical and economic order that the U.S.
spent decades building. “The
country that created, and has gained mightily from, the global trade
system is now trying to destroy it,” Zanny Minton Beddoes, the editor in
chief of the Economist, wrote in an email. “The question for countries
reeling from the president’s vandalism is how to limit the damage.” The calculations the Trump administration used to justify
its “reciprocal” tariffs have baffled economists. Trump officials found
the ratio between the U.S. trade deficit with a country and that
country’s total exports to the U.S., and then divided the ratio in half
to produce what the administration called a “discounted reciprocal
tariff.” The crude maneuver assumes at its core the Trumpian principle
that trade deficits are implicitly unfair. It also casts the various
barriers to trade that exist in other countries, including standard
value-added taxes, as discriminatory tariffs — something those measures
fundamentally are not. Trump sees the
tariffs as necessary to redress imbalances in the global trade system
and compel many multinational companies to return manufacturing
operations to the U.S. The White House has already touted pledges from
the private sector to invest in new operations on U.S. soil as proof
that its methods will benefit U.S. workers. But
the tariffs’ more immediate and real damage to the U.S. economy may
outweigh those putative gains. Meanwhile, Trump’s belief that tariffs
will generate trillions of dollars in new revenue for the U.S. is at
odds with his insistence that they will simultaneously return the
country to being the factory of the world — if overseas companies avoid
the punitive tariffs in shifting their operations to the U.S. Meanwhile, the blow delivered to the U.S.’s global partnerships may be harder to quantify. Everywhere
one turned Thursday, they could see governments rethinking their
relationship to Washington. French President Emmanuel Macron was the
most prominent of European officials suggesting a suspension of European
investment in the United States. In Japan and South Korea, the U.S.’s
closest allies in Asia, officials bridled at the sweeping 25 percent
tariffs placed on automobile imports. “We
are bewildered,” Thitinan Pongsudhirak, a senior fellow of the
Institute of Security and International Studies at Chulalongkorn
University in Thailand, an American treaty ally, said to my colleagues.
“It’s worse now to be a U.S. ally than to be an adversary. As an
adversary, at least you know what you’re getting. To be an ally and then
be treated like an adversary … that is not expected; it’s not nice.” On Thursday, China’s foreign ministry produced a video
decrying the “hegemonism” and “protectionism” of the U.S., a bit of
propaganda that cuts deeper now than it may have weeks ago. Trump’s
gambit, “which is so unprincipled, so abrupt, so profound in its impact,
calls into question what kind of partner the U.S. will be,” Susannah
Patton, the director of the Southeast Asia Program at the Lowy
Institute, an Australian think tank, told my colleagues. “It will play into China’s narrative that the U.S. is an unreliable, distant partner that can come and go.” The
new environment is leading an array of countries to contemplate
alternatives to U.S. exports and the American market. Brazil’s
agricultural sector is expecting bumper demand for commodities like soybeans. European governments are stressing the need to keep their major planned investments in defense local, much to the dismay of leading U.S. arms companies. Ribera,
the top E.U. official, said the continental bloc would deepen its
partnerships with a host of other countries — from the Mercosur trading
bloc in South America to India to Canada. “We are not going to remain in
a corner accepting the existing situation to keep on going as it is,”
she told me. “We will try to avoid any clash, but we will remain firm in
terms of the defense of our values, our interests and the world order.” |