How the Trump presidency might affect the global economy
With his threat to impose tariffs on all imported goods, the rest of the world will have to learn how to better work together, without becoming too dependent on each other.
Former President Donald Trump’s victory in the 2024 election — and his threat to impose tariffs on all imports to the United States — highlights an important problem for the global economy.
The U.S. is a technological powerhouse, spending more than any other country on research and development and winning more Nobel Prizes in the last five years than every other country combined. Its inventions and economic successes are the envy of the globe. But the rest of the world needs to do everything in its power to avoid being too dependent on it.
And this situation would not have been much different had Harris won.
The “America first” approach of Trump has actually been a bipartisan policy. At least since President Barack Obama’s policy of energy independence, the U.S. has been on a mostly inward-looking quest of maintaining technological supremacy while ending the offshoring of industrial jobs.
One of the major choices Trump made in his first term was to accept higher prices for U.S. consumers in order to protect national producers by slapping high tariffs on almost every trading partner.
For instance, Trump’s 2018 tariffs on washing machines from all over the world mean U.S. consumers have been paying 12% more for these products.
President Joe Biden — in certainly a more polite way — then increased some of the Trump tariffs: up to 100% on electric vehicles, 50% on solar cells, and 25% on batteries from China.
At a time of climate emergency, this was a clear choice to slow down the energy transition in order to protect U.S. manufacturing.
While Biden signed a truce with Europe on tariffs, it started a perhaps even more damaging battle by launching a subsidy race.
The U.S. Inflation Reduction Act for instance contains $369 billion of subsidies in areas such as electric vehicles or renewable energy. And the Chips Act committed $52 billion to subsidize the production of semiconductors and computer chips.
China, Europe, and the rest of the world
This U.S. industrial policy might have been inward-looking, but it has clear consequences for the rest of the world. China, after decades of mostly export-based growth, must now deal with massive problems of industrial overcapacity.
The country is now trying to encourage more domestic consumption and to diversify its trading partners.
Europe, despite a very tight budget constraint, spends a lot of money in the subsidy race. Germany, a country facing sluggish growth and big doubts on its industrial model, is committed to matching U.S. subsidies, offering for instance 900 million euros to Swedish battery maker Northvolt to continue producing in the country.
All those subsidies are hurting the world economy and could have easily financed urgent needs such as the electrification of the entire African continent with solar panels and batteries. Meanwhile, China has replaced the U.S. and Europe as the largest investor in Africa, following its own interest for natural resources.
The incoming Trump mandate might be a chance to fix ideas.
One might, for instance, argue that the full-scale invasion of Ukraine, and the thousands of deaths and the energy crisis that followed, could have been avoided had the Biden administration been clearer to Russian president Vladimir Putin about the consequences of an invasion, and provided modern weapons to Kyiv before the war.
But the blame is mostly on Europe. Credit where it’s due, the strategic problem of becoming too dependent on Russian gas is something Trump had clearly warned Germany about during his first mandate.
There is a clear path forward: Europe could help China fix its overcapacity problems by negotiating an end to its own tariff war on Chinese technology such as solar panels and electric cars.
In exchange, Europe would regain some sovereignty by producing more of its own clean energy instead of importing record amounts of liquid gas from the U.S. It could also learn a few things from producing with Chinese companies, and China could use its immense leverage on Russia to end the invasion of Ukraine.
The European Union could also work harder on what it does best: signing trade deals, and using them as a way to reduce carbon emissions around the world.
This is not only about Europe and China. After decades of continuous improvement on all major dimensions of human life, the world is moving backward.
The number of people facing hunger is increasing. War is raging in Gaza, Sudan, Myanmar, Syria, and now Lebanon. The world had not seen as many civilian casualties since 2010.
For better or worse, it is unlikely that a Trump administration will reverse the path of lower U.S. interventionism. It is also unlikely to lead any major initiative on peace, climate change, or on the liberalization of trade.
We do not know what will happen to the U.S. Maybe the return of Trump will mostly be a continuation of the last ten years. Maybe prohibitive tariffs or destroying the institutions that made the U.S. such an economic powerhouse will make the U.S. economy less relevant. But this is something Americans have chosen, and something the rest of the world simply has to live with.
In the meantime, the only thing the world can do is learn how to better work together, without becoming too dependent on each other.
Renaud Foucart is senior lecturer in economics at Lancaster University Management School, Lancaster University, in England.
This article is republished from The Conversation. Read the original article at theconversation.com/us.