How Trump's tariffs on China could backfire | DW News

Key Concepts

• Tariffs: Taxes imposed on imported goods.
• Trade War: An economic conflict where countries impose tariffs or other trade barriers on each other.
• Retaliation: Actions taken by a country in response to another country's trade policies, often involving tariffs.
• Global Recession: A significant decline in economic activity spread across the world.
• Decoupling: Reducing economic interdependence between countries.
• Anti-Coercion Instrument: A trade tool used by the EU to counter economic pressure from other countries.
• Trade Surplus: When a country exports more than it imports.
• Macroeconomic Causes: Economic factors at a national or global level that influence trade balances.

Market Turmoil and Trump's Response

• Global stock markets are declining due to fears of a global recession triggered by Donald Trump's tariff announcements.
• Trump defends his tariff policy, stating, "Sometimes you have to take medicine to fix something."
• Edward Alden (Council on Foreign Relations) believes Trump overestimated the willingness of other countries to negotiate quickly and underestimated their willingness to retaliate.
• Alden expresses concern that Trump is fixated on tariffs, a long-standing issue for him since the 1980s.
• Alden notes that Trump "owned this policy," making it harder for him to back down.
• Alden suggests that Trump's business associates are likely pressuring him to address the market turmoil.

Trump's Trade Strategy (or Lack Thereof)

• Alden argues that there doesn't seem to be a clear strategy behind Trump's trade policies, leading to market uncertainty.
• Trump's core beliefs: tariffs are good, they rebalance relationships, bring in revenue, and force concessions.
• Alden believes Trump "massively overreached" by taking on the whole world with tariffs.

US-China Trade Relations

• China retaliated with its own tariffs on US goods and export curbs on rare earths.
• Trump threatened additional 50% tariffs on Chinese goods if China doesn't remove its tariffs.
• Alden emphasizes that the US needs China due to critical inputs into US manufacturing and defense industries, including rare earths.
• Alden argues that Trump has weakened the US position by alienating other nations, making it vulnerable in a trade war with China.
• China has "a lot of chips" and is not powerless.
• Retaliation is a game theory calculation: to be credible, you must be prepared to carry out threats, hoping it will cause the other side to change course.

EU's Response and the "Trade Bazooka"

• The EU is considering activating its "anti-coercion instrument" (nicknamed the "trade bazooka") against the US.
• This instrument gives the EU power to do more than simple tariff retaliation, potentially targeting US tech companies.
• Alden warns that such actions could lead to further escalation and damage core US interests.
• Tariffs hurt the imposing country's consumers by raising prices.

The US as an Unreliable Trading Partner

• Alden believes no good will come of Trump's sweeping tariff measures.
• He argues that the US is behaving like a "rogue nation" and is no longer a reliable trading partner.
• He cites the lack of consultation with allies and the "ridiculous crude formula" used to calculate tariffs as evidence of irresponsible behavior.

China's Stance and Impact on the US Economy

• Morris Obstfeld (Pettison Institute) believes there's a good chance China will stand firm in the trade dispute.
• China has taken steps to insulate itself and has decoupled more from the US.
• China can inflict significant damage on key Trump constituencies, such as the energy and agricultural sectors.
• Tariffs will raise prices and increase costs for US businesses, damaging the US economy.

Broader Impact and Potential Solutions

• Obstfeld argues that Trump is at war with all of his trading partners, not just China, leading to pervasive global effects.
• Big names in the US private sector have been remarkably quiet so far, but their criticism could influence Trump.
• Obstfeld sees Trump as deeply committed to tariffs and difficult to dislodge from this path.
• The EU is considering dropping all tariffs on US goods and pitching a free trade agreement.
• Obstfeld notes that Trump's tariffs are based on bilateral trade surpluses, which are linked to macroeconomic factors and cannot be easily addressed by trade barriers.

Synthesis/Conclusion

The video analyzes the escalating trade tensions initiated by President Trump's tariff policies. Experts argue that Trump's approach lacks a clear strategy, has alienated allies, and is damaging the global economy. China is likely to stand firm, and the EU is considering strong retaliatory measures. The US is portrayed as an unreliable trading partner, and the long-term consequences of this trade war are uncertain and potentially severe, with a global recession being a significant risk. The experts suggest that Trump's focus on bilateral trade surpluses is misguided, as these are driven by macroeconomic factors rather than trade barriers.