Tariffs: good news for the European Union
The tariffs Trump approved last Wednesday are not good news for the average European citizen. Companies currently exporting to the United States will find their sales falling and will have to decide what to do with their surpluses. Perhaps as consumers, we will find very attractive offers on wines, oils, or even cars, but that effect will be a flash in the pan, because the companies that make them will be reducing purchases, supplies, and perhaps staff, and that effect will affect us all to one degree or another.
The European Union could react by raising tariffs on American products, which means these products will cost us more as consumers. European companies will have the opportunity to replace this now-more-expensive production, but it will take years for them to be able to take advantage of it, for the simple reason that what we sell to them doesn't match what they sell to us. Everything will eventually return to equilibrium, but it will take years to achieve it, and during this period, everyone—they and we—will be worse off.
Why, then, do I title this article optimistically? Because everything has its positive side, and Trump's tariffs are no exception. Specifically, the situation opens up two interesting possibilities for Europe. The first concerns technology; the second, within the Union as an institution. Let's examine them one by one.
In Europe, we have specialized in medium-technology industrial products—cars, for example—while the United States has specialized in advanced technology: electronics and weapons, for example. We Europeans experience our specialization with anguish, because we observe that our productivity improves much more slowly than that of Americans and Asians.
Trump has decided he doesn't want to import European cars because he prefers to manufacture them in the United States. The European Union's reasonable response should be a program to stop buying technology in the United States, including tariffs on these types of products. This will hurt us in the short term, because it will make them more expensive, but in the long run, we have more to gain than they do. It's perfectly possible that Americans will end up manufacturing all our cars, but it's also perfectly possible that we Europeans will end up producing our software, our cell phones, and our missiles, especially if Trump helps us by scaring away talent from American universities. Both are perfectly possible because tariffs are very effective as an industrial policy tool. In fact, if Trump equates them with the recovery of America's golden age, it's because, indeed, American industrialization and prosperity were built on extremely high tariff protection, which they maintained between the day after independence and the day after World War II, when European industry was devastated and Asian industry was unimaginable. The prize ended up being extraordinary, but many considered the price excessive. The southern states in particular—which neither had nor wanted to have any industrialized industries—described the tariffs as "abominable," and if they began to consider seceding, it was to get rid of them.
Trump's tariffs, therefore, give Europe a reason to pay the price required to build a technologically advanced industry. It's up to us to take advantage of it.
We now turn to the second reason for optimism, and American history also provides us with a good guide to telling it.
The first American tariffs were approved by a government—led by George Washington—sharply divided over its vision of what the new country would become. Secretary of the Treasury, Alexander Hamilton, dreamed of an industrialized, urban nation with a strong federal government; Secretary of State, Thomas Jefferson, dreamed of a rural, agricultural nation with a very weak federal government. With tariffs, Hamilton won two battles simultaneously: the country industrialized because English goods—the only industrializing country at the time—became more expensive, and the government was financially strengthened because its only source of income—tariffs—swelled. Thanks to the solidity of this income, the new state was able to find sufficient financing to purchase Louisiana from Napoleon and double the country's land area in one fell swoop.
We Europeans suffer from the same financial weakness as the European Union, which lacks the capacity to impose taxes. With the trade war, the Commission is gaining both institutional muscle (just look at the excitement with which we're currently listening to Von der Leyen) and financial muscle (it is responsible for 75% of tariffs). Both are very good for us.
