EU respons on Tariffs



US tariffs, the economist: "The EU is wrong to respond with retaliation. Now the real challenge will be with China"

by Chiara Brusini

Interview with Tommaso Monacelli, professor of international macroeconomics at Bocconi. "Without retaliatory measures the effect will be limited. Better to focus on reducing internal barriers and on new trade agreements with third countries"

“The effect for Europe, if it does not adopt retaliatory measures, will be limited . It would be smart not to respond with counter-duties , but to accelerate the removal of internal barriers within the EU and focus on the challenge with China , which will benefit greatly from Trump’s moves”. For Tommaso Monacelli , a full professor at Bocconi where he teaches macroeconomics and international finance, the EU will make a serious mistake if – as already decided – it reacts to the reciprocal tariffs announced by Donald Trump by initiating an escalation. Further limiting free trade and “ closing itself off ” in response to American protectionism would be a boomerang , explains the expert in international macroeconomics: on the contrary, the Twenty-Seven should leverage their commercial power – together they are the second largest exporter and importer in the world – and move to compensate for the loss of market share in the US with a strengthening of internal trade within the Union and new agreements “with Mercosur, Canada, India, Japan, Brazil”.

Let's start with the announcement: reciprocal tariffs calculated with an extremely crude formula , based on the US trade deficit. Those data are bogus. As an approximation of the tariffs imposed by various countries on the US, to which Washington responds with the "reciprocal tariffs" presented by Trump, the trade deficit in relation to imports was used. It's pure propaganda, it starts from an ideological and not logical-economic assumption: for the White House if the EU has a surplus it is equivalent to saying that it is unfairly damaging the US with tariffs and barriers, but this is false . There is an accounting identity for which the balance of payments surplus is equivalent to the difference between savings and investments of the entire economy, and the US has a trade deficit because consumers and the federal state save little and their highly developed capital market attracts investments. In short: it is an expression of strength , not weakness. On the contrary, the EU has a surplus because we consume less and are less capable of channeling savings into investments.

Will the trade deficit that obsesses the White House tenant now be reduced?

On the contrary, Trump's policies will tend to widen it: the duties will cause an appreciation of the dollar that will make goods produced in the US more expensive , counterbalancing the tariff protection provided to domestic companies. Of course, Washington could want to use them as leverage to bring trading partners to the table and try to negotiate agreements with them aimed at devaluing the dollar ( as planned by Trump advisor Stephen Miran, ed. ). But this is an unrealistic and unrealistic vision: at the time of past agreements of this type, such as the Plaza , the global economy was much less integrated, there were fewer relevant players and steering exchange rates was much easier.

US consumers will therefore see prices rise. What does Trump gain from this?

I think it is a political calculation: he is already thinking about the mid-term vote and winking at the electorate of the Rust Belt by proposing a seemingly simple solution to deindustrialization and the consequent reduction of manufacturing jobs. Which in reality certainly does not depend on the trade deficit but on technological evolution, and it is a structural change that affects all advanced economies. Thinking of stopping it with tariffs makes no sense.

What will the consequences be for Europe and Italy?

For Italy, the US is an important market, but not as much as Germany and France. The most exposed sectors will suffer a slowdown, but my calculations show that the impact will be relatively small, about 6 billion in export contraction in the first year out of a total of 73 in 2024: we are talking mostly about niche products such as pharmaceuticals , oil , parmesan, which are not easy to replace. Broadening the view, a study I conducted for the European Parliament together with other authors estimates that the consequence of 20% duties will be a potential overall loss of GDP for the euro area of ??1% in the first year. This is without taking into account the depreciation of the euro, which will partly offset the impact, and any more expansionary monetary policies by the ECB which in turn would further weaken our currency, making our goods more convenient.

All this, however, assuming that Brussels does not respond. And what if the retaliations are confirmed? It would be stupid, in that case the negative effect will be greater. Better not to react and see the duties as a push to break down - along the lines of what the new Prime Minister Mark Carney is doing in Canada - barriers and implicit costs within the Union. By completing the single market we could recover in the Old Continent what we will lose on the US market: after all, the main trading partners of the large EU countries are other EU countries. Then it is time to push for trade agreements with other third countries.

So are counter-duties harmful?

They are a wrong answer, only political, without any logic of economic advantage.

And hitting Big Tech using the anti-coercion tool , as advocated for example by France, does it make sense?

It would make the situation worse. The EU is not a technological giant, closing ourselves off from importing services from the leading country would only make us lose productivity.

Should we negotiate?

We need to see what Trump wants to achieve. If it's about the devaluation of the dollar, satisfying him seems unimaginable to me.

Besides looking at other markets, what is the priority for the EU?

From now on, the real challenge will be with China. Trump has imposed duties of 34% on it, much higher than those on the EU, so the yuan will depreciate more than the euro and Chinese goods will become more competitive. Further favoring Beijing's exports to Europe. So it will be important to be able to attract direct investments: to take the example of the automotive sector, to open Chinese car factories in the EU.





Questa mattina mi sono alzato
o bella ciao, bella ciao, bella ciao ciao ciao
questa mattina mi sono alzato
e ho trovato l'invasor.


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this morning I woke up
and I found the invader.

  
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