Trump’s tariff surprise: The grand disruption
President Trump’s announcement of tariffs signals a drastic shift, prompting global alarm. However, it is also a potential opportunity for systemic economic reform.
Since his election last November, United States President Donald Trump has surprised the world with new ideas nearly every day. Last week, he delivered the biggest shock yet: He announced steep tariffs on imports into the U.S.
“Is he insane? How dare he? We must resist! He is destroying the economy. A recession will follow! A trade war! The end of free trade!” This has been the alarmed global reaction. Stock markets have been taking a hit. However, in reality, they are simply relinquishing some of the gains accumulated over the past 12 months after two years of unprecedented growth.
A new economic reality?
According to Albert Einstein, insanity is repeating the same mistakes over and over while expecting a different outcome. This reflects the policy approach of socialist economics over the past two decades, globally endorsed by the G20 and backed by the Organisation for Economic Co-operation and Development. These policies have consistently increased government intervention and led to a massive accumulation of debt. A technocratic, harmonized regulatory network has been imposed on the global economy and society. The result? Staggering and unsustainable debt and inflation. So far, a recession has only been avoided by injecting money belonging to future generations into the economy.
Since the Treaty of Lisbon in the early 2000s, the European Union has pledged to become the most competitive economy through regulatory measures and public initiatives, such as the EU taxonomy. However, the results have been quite the opposite. Recently, Ursula von der Leyen, the European Commission’s president, announced a new 10-trillion-euro strategic investment plan, which is to be funded at the expense of European households’ savings.
The delusion that planned economies and excessive government debt financing will yield positive outcomes is a catastrophic illusion.
Both China and the EU have relied on extensive government programs. Yet, eurozone countries have consistently lost growth, productivity and competitive standing. The world economy was already in a perilous state before President Trump was elected for a second term. Still, the solution was always the same: more government, more regulation, more debt and higher, more complicated taxes. This is a form of self-defeating protectionism masquerading as a commitment to values – a notable trait of Europe.
Prominent economists, including Nobel laureates like Paul Krugman and Joseph Stiglitz, have supported these politico-economic policies. The ideas, further exacerbated by the Modern Monetary Theory, can seem akin to the fairy-tale notion of spinning straw into gold. Such global strategies, prevalent in both democracies and autocracies, fit Einstein’s definition of insanity. Furthermore, excessive taxation drains businesses and limits consumers’ spending power.
The delusion that planned economies and excessive government debt financing will yield positive outcomes is a catastrophic illusion.
Disruptive changes are undoubtedly necessary. Disruption, similar to Austrian political economist Joseph Schumpeter’s concept of “creative destruction,” involves removing outdated practices and replacing them with better alternatives. A prime example is how the automobile replaced the horse-drawn carriage. In governance, the more entrenched and stagnant an old system becomes, the more intense the disruption necessary.
Unlike technocrats, ordinary people recognize the need for change and express a desire for it. This sentiment is increasingly echoed on both sides of the Atlantic, complemented by rising ambitions in the Global Majority and emerging countries. It seems that the era of achieving change through mere “soft landings” has come to an end.
The tariff gambit: Resetting the global game
Mr. Trump is a disruptor, which is why he was elected. Historically, raising tariffs globally has produced disastrous effects. While the 1929 stock market crash triggered the Great Depression, the later increase of tariffs made it longer and more severe.
While it might superficially seem beneficial because “foreigners will pay,” no economy operates in isolation; they are interconnected and rely on one another. Unfortunately, even while paying lip service to free trade, the EU has increasingly engaged in regulatory protectionism, damaging its own economy and reducing productivity. China has excelled at using illicit subsidies to artificially lower the cost of its export products. Countries in the emerging world, such as India, impose high import barriers.
As the U.S. implements drastic measures, it is essential to remain composed, sangfroid (calm) and pragmatic; we will not prematurely judge whether these measures are beneficial or harmful.
Instead of succumbing to indignation and impulsive retaliation, it would be wiser to thoroughly analyze the situation. What is the White House’s ultimate objective in imposing these reciprocal tariffs? Indeed, it involves “Making America Great Again” and challenging global actors. But will this approach be detrimental to the rest of the world in the long run? Not necessarily. It depends on whether the announced measures by the Trump administration and existing global practices are negotiable and could serve as catalysts for systemic improvements.
Any disruption, even if necessary, is a risky endeavor.
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It is difficult to assess whether the proposed measures will be beneficial or truly successful. As a proponent of free trade, I am generally opposed to tariffs; however, the intentions behind the White House’s actions are yet to be fully understood. Is the goal to genuinely shake the system, creating a necessary shock to build something new, healthier and more sustainable?
It is hard to believe this is simply an amateur’s pipe dream. Despite facing substantial criticism, the new administration is actively working to reduce the size of the government, a measure that is essential worldwide. Governments in Europe and beyond should seize this opportunity to think outside the box and develop new, sustainable and responsible economic, social and trade policies, regardless of whether President Trump is right or not. Where he definitely has a point is that significant disruption is needed to drive change.
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