Tariff agreement: Europe's weakness in the face of Trump isn't just Ursula's fault.

To understand the economic consequences of Trump's unilateral tariff decisions (let's stop calling the result of imposition an "agreement" ), it doesn't seem like a bad idea to examine what happened when Trump, in his first term, imposed tariffs on imports. Former IMF chief economist Maurice Obstfeld concluded his analysis: " Not only did the prices of goods subject to tariffs rise, they rose by the full amount of the tariffs: American households and businesses shouldered the entire burden; nothing was passed on to foreign exporters."

Will it be different this time? It can't be ruled out, but a similar outcome—in strictly economic terms—remains the most likely outcome: as Lorenzo Codogno noted ( Il Foglio, July 30), American manufacturers, aided by the Administration, will strive to replace a significant portion of currently imported goods with US -made goods, but if they reach 10% of the total, it will be a major achievement. The remaining 90% will continue to be imported, and the "beautiful" tariffs will be an additional tax paid to the federal government: for American citizens and businesses, the "victory" Trump is celebrating today could have a bitter aftertaste. Why isn't Trump concerned about this risk, which could reserve unpleasant electoral surprises for him in the medium term, starting in the midterm elections? I don't rule out the possibility that the economists advising him have convinced him that the effects of tariffs on American prices will be limited and, in any case, largely offset by the boost the American economy will receive from the "great and beautiful" budget bill he managed to get approved by Congress, which requires the tariff revenue to offset the drastic tax cuts on middle- and upper-income taxpayers . But I believe Trump's choices are inspired—rather than by these specific fiscal policy objectives—by the need to fuel that imagination that is a key to Trump's strategy and that demands the daily announcement of a new challenge, of an adversary to humiliate (now it's the European "parasites" ' turn), of a fight to wage, to keep his MAGA boss busy with an agenda that doesn't have to be coherent, but rather "tell" a story of victories, in an ever-changing "battle."

Not repeating what Trump considers the main mistake of his first term: significantly departing from the promises made to "his" people. The dream of "tariffs" that fill state coffers and make amends for the "mockeries" inflicted on America by friends (above all) and adversaries must be realized at all costs: whether there will be corrections to be made remains to be seen, but today the important thing is to move quickly towards the full affirmation of America first. That's politics, baby... Even his super-rich friend Musk—who was already posing as a "real" president—had to acknowledge this when he dared to obstruct the progress of the budget bill. Trump's second-term method does not involve win-win games: what the US gains, others "must" pay, in an ever-changing sequence of conflicts. America first is a system of ideas and choices that changes the nature of the US in the international context: from "indispensable nation " to "extractive superpower " ( Bertoldi and Buti ). For this reason, it was a grave mistake for President von der Leyen to acknowledge the assumption of an "imbalance" in the trade balance - to the detriment of the US - as well-founded : "Europe has a surplus, the US has a deficit, we must rebalance."

In truth, this isn't the case: the two economies are highly integrated and—demonstrating that the theory of productive specialization and the advantages of international trade has some foundation—they complement each other, in a relationship that presents neither excessive surpluses nor enormous deficits. If we take into account both manufactured goods and services (in the former, the deficit is the US; in the latter, the deficit is European), a substantial balance is revealed. Not to mention that a huge portion of both US imports and exports is attributable to intra-multinational trade. In other words, large American service corporations underestimate—for tax reasons—exports from the US and overestimate imports, thus giving rise to an imbalance that has little to do with economic reality and much to do with tax havens within the European Union. Underestimating the importance of these data and admitting the imbalance was not a technical or statistical error. It was a political mistake, because it allowed Trump to secure from the outset what he values most: a " narrative victory " for his voters. I forced them to admit it; they've exploited us for years. But enough is enough: I'll make them pay.

While this error could and should have been avoided, the same cannot be said for the structural factors underlying the European Union's weakness in its confrontation with the American administration . It is certainly not President von der Leyen 's fault that—in the face of the " long-term threat " (according to the document from the latest NATO summit) posed by Putin 's Russia to the security of the entire European Union—we are substantially lacking in deterrent capacity, despite the fact that the combined national defense spending of European countries is dwarfed by that of Russia (which spends a significantly higher percentage of GDP on its aggressive military, but has a much smaller GDP). Nor is it primarily the responsibility of the current European Commission that we have accumulated such a serious delay compared to the US in the development of key technologies. This delay constitutes—even more so in the presence of an American administration whose fundamental objective is to "extract" utility from the rest of the world, starting with its European allies—a second factor in our strategic dependence on the US.

No amount of diplomatic skill or tactical foresight can quickly remove these two fundamental weaknesses. Nor can we indulge in the hope that Trump will first be weakened by the outcome of the midterm elections and then defeated by a Democratic candidate in the next presidential election. We can leverage—in the confrontation/confrontation with the Trump Administration— our strengths, which are indeed there (the Union has the credibility and strength necessary to launch a truly offensive multilateral approach to the regulation of global trade). But without rapidly acquiring autonomous deterrent capacity and positioning ourselves at the forefront of technological innovation, with research systems and " European champions" for the production of goods and services, we will not escape a fate of subordination. Even if, as is desirable, the Trump Administration were replaced by that of a Democratic President: after a shock like the one currently shaking the world, there is no going back to square one.

To quickly overcome the sources of our weakness, we cannot move within the timeframe and rules of the current Union: whether we are looking to build the European pillar of NATO, or whether we are working on the Union's effective fiscal capacity, or whether we intend to make Europe the main protagonist of a new system of trade regulation, based on multilateralism, we will need to act by forging agreements between "willing" countries. With the London agreements between Great Britain, France , and Germany, something very important has begun to move in the right direction: in the priority area—that of defense—the commitments undertaken go far beyond those required by common NATO membership: the alliance unites countries with 100 million more inhabitants than Russia, hold two seats on the Security Council, have nuclear deterrent capabilities, and significant operational capabilities. Around this core, the European pillar of NATO can take shape (and the Union can begin to heal the wound of Brexit ).

The limitation of this crucial initiative is Italy's absence. This time, Italy wasn't excluded because it was deemed useless. It became useless because it excluded itself ( Diotallevi , Il Foglio, July 26), pursuing Meloni 's aspiration to mediate between Trump and Europe , which is simply not possible (Trump is pursuing a political and geoeconomic objective. He isn't interested in the government of a member country of the Union building the conditions for an economic compromise). The same goes for building the Union's effective fiscal capacity. In a speech in Brussels, ECB Chief Economist Philip Lane expressed his support for expanding common debt instruments because they would make the capital market more attractive to investors (all investors, both those outside the Union and those within it: we mustn't forget the river of euros that flows from Europe to the US every year, financing American investments and consumption). Here too, there may be room for joint issuance by subgroups of member countries in the context of possible shared investment projects by a coalition of the “willing”.

Regarding tax policy, the so-called US-EU "agreement" would provide (according to Trump; the European version is less assertive) for the elimination (for European countries that have adopted it) and abandonment of the web tax . Given that the agreement may have political significance in this area, but cannot create legal constraints—the Commission has full jurisdiction to negotiate trade rules, not the taxes to be applied or not applied—this opportunity could be seized to move beyond small-time dealings and half-measures: a common corporate tax that would deprive all companies—European, American, or otherwise—of the ability to freely exploit the tax havens that the Union tolerates/cultivates within its borders. As Tria and Scandizzo recently observed, this choice would not be presented as a tool to fuel conflict with Trump's US, but as a choice—unquestionable by other states around the world—of European convergence. Trump would have no right to complain about this; on the contrary, he would be right to consider the indirect but significant benefits that this could bring to the US federal budget.

FROM

Enrico Morando