Political discourse, economic reality

Since the beginning of the year, with the new US administration taking office, we have seen the US increase its tariffs on certain countries. This is not only an economic response to the balance of payments situation, but is also being used to exert pressure on other issues (immigration, drug control, etc.).

Obviously, due to the intensity and breadth of the tariffs, the affected countries will also be forced to respond proportionally. Therefore, we find situations of action and reaction of similar proportions that partially negate the intended effect of the first measure. Thus, there will not be an improvement in the level of trade between the two countries, but rather a worsening. We would also find the combined effect that these measures have on the countries involved, as well as on third parties: a country that has difficulty selling its products in the US due to the higher prices resulting from the tariff can place them in another market, such as Europe, with greater supply and lower prices.

The precedent of the Crash of 29

This is a classic example we saw in the 1930s, with countries seeking to transfer this loss of activity and increased protectionism of domestic industry abroad with a policy of impoverishing their neighbors. This is what was done with the competitive devaluations of the 1930s, after the 1929 Crash, when each country devalued its currency (or increased tariffs) to preserve the domestic market for domestic producers. However, it must be noted that the rest of the countries did not sit idly by. And so, the rest of the countries were dragged into a series of competitive devaluations or tariff increases that, as a final result, did not improve the economic situation of any particular country: there was a sharp decline in international trade and activity worldwide.

Blaming outsiders for what we have failed to do to improve our competitiveness and productivity is not a tool that resolves the issue; rather, it can be a strategy that triggers a boomerang effect. Ultimately, the economic reality ends up being a worsening of the whole. This is another example of an issue that already received significant media attention in the wake of Brexit. Five years later, it has become clear that the consequences are exactly the opposite of what isolationist positions predicted, and reality shows a worsening of the British economy.

Cooperative strategies

We know that cooperative strategies are the ones that work best, as the prisoner's dilemmaThis framework was implemented after the Second World War, with a new approach to international governance and economics that was the opposite of what had been seen before, with fixed exchange rates—movable only in circumstances of serious balance of payments problems—and a policy of liberalization and tariff reduction to promote international trade with the GATT and, later, with the WTO. This process led to the creation of the European Union, with an interesting and valuable economic integration process, although often slow to move. The idea was to avoid confrontation with certain populist positions that ultimately contribute nothing to economic reality, and to focus on cooperative and integrative actions that would allow for greater levels of progress.

Finally, we must also avoid radical political positions, such as advocating for an extremely demanding climate change policy that contrasts with others implemented around the world. Let us not forget that we could have a serious competitiveness problem, on the one hand, and a problem of worsening climate change, on the other, because if we require high regulations and taxes on European companies, they will consequently have difficulty competing with other countries with less demanding standards, which will reduce European economic activity and increase pollution factors. Once again, a political decision can lead to a reality much worse than the situation we sought to avoid.