In a couple of months in office, Donald Trump has profoundly altered the international economic system. For decades, since the end of World War II, this system had been built on multilateral rules and low tariffs. But Trump has decided to break with that model: in what The Economist magazine called the ‘Day of Ruin’, the US president has launched a trade war with the rest of the world by imposing very high tariffs on imported goods.
As Nobel economist Paul Krugman has pointed out, Trump’s policies lack any logic or method. It seems to underlie a nostalgia for a US industrial past that can no longer be recovered, as I argued in this magazine in the article ‘Trump’s Impossible Return to the Past’. It also seems to reflect a mistaken view of the international economy as a zero-sum game, where if one country wins, another loses. In reality, well-managed international trade is a win-win situation for both sides.
Although its economic foundations are non-existent, the consequences of this Trumpist policy will undoubtedly be serious. Since the 1980s, with the emergence of China in global trade, the world economy has experienced a second wave of globalisation. Many companies moved their production to other countries and organised themselves into complex value chains that cross borders. The new tariffs, however, are forcing these chains to be rebuilt, which reduces the value of much of the investment already made, hence the logical fall in international stock markets. But there is an even bigger problem than the tariffs themselves: uncertainty. Trump’s policy, marked by constant back-and-forth and a break with the multilateral approach, generates an unpredictable environment. What company will dare to invest without knowing what the global scenario in which it will have to operate will be like?
From the Balearic Islands and Spain, the direct impact will be limited as trade with the United States is not so relevant. However, many Spanish companies sell to European countries that do have more intense trade relations with the US, which indirectly affects us. Moreover, the uncertainty and slower economic growth of our trading partners – including many of the Balearic Islands’ main source markets for tourists – will also have negative consequences. In the face of this, companies will have to adapt their strategies and governments will have to consider policies to mitigate the impact. Fortunately, and it is worth noting, the economic costs of this situation are far from what the COVID-19 pandemic meant for the world, Spanish and Balearic economies; its effects, however, could be more persistent in the long term.
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