Useless tariffs

We are living in times of global uncertainty due to the unpredictability of the US government's economic policy decisions. The stated objective of US tariff policy is to recover manufacturing production in the country. Unfortunately, it is very difficult to achieve that goal. For two reasons.

The first is caused by the complexity of 21st-century technology, which the American government seems to underestimate. A company that currently produces its products outside the US and is willing to move them within the country must consider multiple factors: plant location, land availability, machinery acquisition, installation, production and distribution logistics, and, especially, the availability of engineers and skilled labor. The aggravating factor is that the unemployment rate in the US in March was 4.2%, extremely low, and the US government's policy is very anti-immigration. No company makes a decision of that magnitude at the speed with which the US government changes its tariff policy. And, if it is ultimately adopted, developing a business project of that level requires not months but years.

And that brings us to the second reason. This hypothetical business project must include a careful economic analysis, analyzing short-term profitability and long-term amortization of the investment. It must be kept in mind that the only certain benefit of this change in the location of a factory is the cost differential due to tariffs, which will have to be sufficient to offset at least the differential costs of labor and amortization. If, in addition, these tariffs are different for imports from different countries, uncertainty about the profitability of the investment increases, something no company will assume in a scenario of regulatory instability. Only under the hypothesis that tariffs are permanent and predictable could they influence business investment decisions.

At the end of World War II, the US accounted for 60% of industrial production, and its GDP was 50% of the world's. Today, it's 25%; it's still formidable, but its composition has changed: it's based on services, mainly those with high added value, since US industrial production represents only 20% of the world's. And this is part of what Trump neither explains nor seems to understand. The US has a trade deficit in the goods market with many countries, which is more than offset by the capital balance surplus. Capital, by definition, is fearful, and if US debt or the dollar were traditionally safe haven assets, the Trump administration's economic policy could change this scenario. This would not only fail to resolve the trade balance deficit, but also lose the advantage of foreign capital inflows and weaken access to money for its own industries, both in goods and services. In contrast, China, with 15% of global GDP, has around 60% of global industrial production. All countries must find their place on the global economic stage, and also on the industrial stage, because these percentages change very slowly. Industrial production today is highly specialized, and no country can aspire to complete technological sovereignty. Each country must support its most competitive industry, which must compete in a global market. And this applies equally to Catalonia, Europe, and the United States. To give a very obvious example: the two largest aircraft manufacturers, Boeing and Airbus, share many suppliers, highly specialized companies that offer very specific components that all aircraft require. For now, it seems that President Trump, with his tariff policy, has already done the first favor in Europe by making these components more expensive for Boeing and, therefore, making Airbus more competitive.

Last but not least, the production of specialized services in the United States has been forged for decades on the import of knowledge capital, attracting a large portion of the world's best researchers to its universities, research centers, and companies. The latest news about the intention to control the thought of these universities not only encourages the repatriation of this knowledge but also can begin to shake the stability of institutions who have been building solid support structures for so many years.

Trump's economic vision is rooted in the 1950s: more manufacturing and fewer research and development centers. Europe would do well to pay attention to these movements and seize this opportunity to make up for lost ground in the race for technological innovation.