Trade wars: What is Trump's goal?

President of the USA Donald Trump fulfilled another of his pre-election promises: he imposed customs duties on goods from almost all countries of the world. Among the countries he imposed tariffs on, there are even islands where no people live, only penguins. Russia, Belarus, North Korea and Cuba were excluded.

The first customs duties came into force on April 5, the second is scheduled for April 9. For most countries, the tariff rate is 10 percent. For countries like Vietnam, Japan, and South Korea – several tens of percent; for Chinese goods, tariffs are as high as 104 percent.

If you listen to Trump, he says: “In the last 30–50 years, the whole world has economically looted the USA, the USA bought their goods, but they bought nothing from America. We will change this.” In other words, as if the whole world turned the USA into an economic colony and exploited it...

Is that really so? Absolutely the opposite! Yes, the USA has a trade imbalance with many countries. But the reason is that the USA buys more material, physical goods from the outside world, while it exports more services, ideas, and digital products.

Export of services and digital, cultural products brings the USA a huge income, but they are not counted in the USA's trade balance like ordinary goods. That’s why Trump is not including them. For example, Hollywood sells many movies to other countries, or Microsoft’s Windows and other products bring in billions of income. The companies in Silicon Valley, California, sell a lot of digital products to the world and earn hundreds of billions.

In reality, in the past 30–50 years, unprecedented economic growth has occurred precisely in the USA. In terms of per capita GDP and total GDP, compared to Japan and the European Union, the USA had greater economic growth.

According to Trump’s Trade Minister Howard Lutnick, the USA has five trillion dollars to develop domestic production, and Trump’s goal is to bring back the factories that once left the USA and strengthen internal production. But the main issue is this: the USA has no surplus labor force. Moreover, in the USA you need to pay each worker at least 4–5 thousand dollars a month, otherwise, they won’t work. In Mexico or China, there are many who will do the same job for 1000–1500 dollars. Everyone knows that expensive labor in the USA increases the cost price of products several times!

Trump’s talk is like going to the market, buying goods, and then saying to the seller: “You took my money!”

The consequences of the policy started by Trump can be very negative. For the USA and for others too! A hundred years ago, the economic interdependence between countries was very low. In the 1920s–30s, only 15 percent of world GDP came from international trade. Everyone consumed what they produced themselves. But over the last century, the economy constantly searched for ways to make goods and services cheaper. Today, global trade makes up 60 percent of the world GDP. A hundred years ago, even the tire, steering wheel, and engine of an American car were made in Detroit. That meant that an “American car” was fully made on American soil by American workers. But today, for example, in a car made by Ford, the engine can be made in Korea, other parts in China, the steering wheel in Mexico, the tire in Europe, and all can be assembled in Mexico or Canada. Only the name and the design are American.

Economists can’t understand what Trump’s goal is. Because from an economic point of view – America doesn’t win, it loses. Others also lose. According to calculations, due to higher tariffs and the imposition of retaliatory tariffs by other countries, each American family will have to pay an additional 5 thousand dollars. This is an extra cost!

As a result of Trump’s tariffs, China, Canada, the European Union, and other countries have also announced that they will impose “retaliatory tariffs” on American goods and services. True, some countries are looking for ways to reach agreements with Trump – for example, India, Israel, and others. But on the backdrop of Trump’s tariffs, stock markets have begun to fall sharply, and the capitalization of America’s largest companies has seriously dropped. If Trump’s tariffs remain, most small and medium-sized businesses in the USA will collapse. The reason is simple: they will lose their customers both inside and outside the country.

According to the Democrats, Trump’s goal is not the economy. He is thinking about staying in power indefinitely. After the current tariffs, all American companies will come to Trump and beg, “Please, remove tariffs on this sector or from these countries!” And Trump will say, “Okay, I will do as you ask, but on one condition — you stay loyal to me! Do what I say! Support my political projects!” — this is what the Democrats claim.

The world economy is connected like a chain. In 2020, when the pandemic happened, we saw how interdependent the world is. What Trump is doing now can trigger a new recession, a crisis in the world economy. And in a recession, usually, the weakest economies suffer the most.

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