The Tariff Plague
This week, Trump launched a tariff offensive that raised import taxes to heights unseen in decades. Even the most skeptical analysts were caught off guard. The immediate effects are already visible: investment freeze, stock market crash, threats of retaliation. The likely recession could shrink global output by an amount comparable to the 2020 collapse. Another pandemic—this time, mental.
Unlike the biological virus, which was contained in months, rebuilding trade may take years. If we’re lucky. If not, this breakdown could weigh on global growth for a generation.
It’s a mental virus because Trump’s tariffs rest on a common but false belief: that trade is a zero-sum game—one side’s gain is another’s loss.
Trump seems to want the U.S. to have no trade deficit, either overall or with any specific country. Under this logic, if the bilateral balance with, say, Germany is negative, the answer is to penalize German imports until the account balances. But punishing Germany for exporting too much is like fining a baker for selling too much bread.
This reasoning ignores the fact that trade balance is neither necessary nor desirable. When a country imports more than it exports, it’s usually attracting foreign capital. The U.S. saves little but has many good investment opportunities. It makes sense for it to borrow from abroad. Its trade deficit reflects that the world is funding its projects. In contrast, countries like Germany run surpluses not because they produce more, but because they invest less: their economies—straitjacketed by internal political choices—offer few attractive options at home.
Even if a country were more efficient at making everything, specialization would still make sense. If the U.S. produces natural gas and Germany makes BMWs, each should focus on its strength. Specialization lets both produce more and get more of both goods through trade.
The rhetoric of reciprocity is equally misleading. In fact, Trump’s tariffs are not based on unfair practices or specific barriers, but on a simple accounting trick: the rate applied to each country was calculated by dividing the bilateral trade deficit by the volume of imports from that country—and then dividing that result by two. Thus, the larger the relative deficit, the higher the tariff. This formula assumes that deficits (but not, inversely, surpluses) reflect some kind of abuse rather than a productive specialization that, ironically, has been encouraged for decades by the United States itself. As a result, these tariffs do not punish misconduct—they punish patterns of specialization. They are vindictive in the worst sense: they penalize the partners who have competed most effectively.
If the economic consequences are serious, the strategic ones may be even worse. The U.S. isn’t just hurting consumers and weakening its own industry. It’s also destroying its role—as flawed as it was—as the guarantor of a rules-based trade order.
Since 1945, American leadership has relied on more than just strength: on a willingness to honor agreements, bear costs, and mediate conflicts. The stability of the system—and, crucially, the specialization of its trade partners, many of whom have also been strategic allies—depended on the predictability of U.S. behavior. By undermining its commitment to free trade, the United States is destroying its reputation and excluding itself as a guarantor of global trade and security. Any hypothetical gains from exploiting its partners’ export dependence are Pyrrhic. Many of those investments are owned by American companies and, more importantly, the damage to the country’s standing is irreparable. This kind of reputational capital, once destroyed, is not easily rebuilt.
This abdication could be explained by considering Trump’s career—and that of many of his aides. Most of them thrived in a legal system that upheld contracts and let them succeed in business despite shaky reputations. They now apply that experience to international relations—a realm with no state, no monopoly on force. They fail to see that reputation is the only enforcement mechanism available. When you can’t use force, trust is all you have.
Europe, meanwhile, has responded with a mix of diplomacy and countermeasures. These can work as bargaining tools. But if the U.S. holds firm, Europe should not raise its own tariffs. That would only hurt its firms, consumers, and jobs. Instead, it should seize this crisis to deregulate, deepen the single market, boost competitiveness, and sign new trade deals with Asia and Latin America.
But it’s unlikely our leaders will take that path. They may not stomach the political cost of openness or restraint. Worse, the usual opportunists may use the crisis to grab power, hand out subsidies, and reinforce the kind of crony capitalism that—under the guise of “resilience”—leads us to poverty. Our own government is already headed that way. And it’s not alone.
Trade policy is the new pandemic. But don’t expect a vaccine. The good news? Good hygiene is enough: just keep your head cool—or, at least, don’t lose it.
English version prepared with ChatGPT-4.0