Trump’s new economic war
A televised image of Donald Trump towered over delegates at a summit at the ski resort of Davos on Thursday, underscoring the new president’s influence just days into his second term in the Oval Office.
Prime ministers, business leaders and the president of the European Central Bank lined up to address the World Economic Forum, their first address to an international audience since returning to the White House. One attendee joked about bringing some popcorn to the event.
Trump has not held back in stoking fear as he issued a series of questions and ultimatums to allies and rivals.
Saudi Arabia and other producers must cut oil prices, global central banks must “immediately” cut interest rates, and foreign companies must increase investment in American factories or face tariffs. In particular, the opprobrium has come from the fact that the EU should stop hitting big US tech companies with anti-competitive penalties.
“We demand respect from other nations,” the president said. His predecessor “allowed other nations to take advantage of the US.” We cannot allow this to happen again.
Trump’s questions came during his first week in office in which the president has issued executive orders and announcements intended not only to shape the state, but also to assert America’s economic and trade supremacy. Trump himself could go ahead with the trade deals he made in his first term and impose tariffs of up to 25 percent on Canada and Mexico.
China could face tariffs of up to 100 percent if Beijing does not agree to sell at least 50 percent of the TikTok app to a US company, while the European Union has been told to buy more US oil to avoid tariffs. . Emphasizing the new American unity, Trump expelled the US from the World Health Organization and withdrew from the Paris climate agreement for the second time.
In a dramatic move, Trump invoked an obscure 90-year-old provision in the US tax code to threaten to double tax rates on foreigners and companies if their home countries were deemed to have imposed “discriminatory” taxes on US multinationals.
The proposal would throw a “hand grenade” into international tax policymaking, said Niels Johansson, director of business taxation at the Saeed Business School at the University of Oxford. The move shows a commitment to “shaping other countries’ tax policies through coercion rather than cooperation,” he added.
The plans unveiled this week by the new president heighten a multi-front economic war as Trump uses the power of America’s resurgent economy to shape the global order in his favor.
The key question, investors and policymakers say, is whether this will reflect the transactional, conciliatory approach seen in Trump’s first term or a shift toward unbridled unilateralism, with the White House unbound by the constraints of international law. It threatens foreign governments and businesses.
“He is arming everything, trade, taxes and labor. The world’s largest sovereign wealth fund chief fears that finance will also become a weapon. “Most people are betting that he thinks about the stock market – that’s the only check.” That and I want to be a peacemaker.
In Davos, leading American executives They were eager to please Trump’s agenda – suggesting that there is little anxiety in the corporate sector that the US international rules-based system could crumble.
Tariffs are “an economic tool. That’s it,” JPMorgan Chase CEO Jamie Dimon said in a CNBC interview this week in Davos. “If there is a small inflation, it will be good for the security of the country. Leave it.”
U.S. stock markets rallied this week as investors cheered hopes of easing regulations on banks and high-tech companies, as well as the announcement of a massive $100 billion artificial intelligence infrastructure project launched by OpenAI and SoftBank. Over the weekend (Friday afternoon in New York), the S&P 500 index was up 1.8 percent.
Mahmood Pradhan, head of global macro at Amundi Investment Institute, said: “People talk to CEOs and they all say they feel very good.
“If I ask myself what justifies animal spirits, the bank control stuff is real and the prospect of low corporate taxes is real.”
However, outside the US, the threat of trade barriers and tax policy clashes is weighing on the economic outlook. EU Economic Commissioner Valdis Dombrovskis says the collapse of global trade will be of particular concern to economies such as Europe.
A sharp geo-economic divide in trade could wipe out 7 percent of global GDP in the medium run, citing IMF estimates. If this global economic divide is corrected – and there is a risk of it – it will have huge negative economic consequences.
Some European policymakers say they can improve, though, amid efforts to crack down on tariffs.
“This is a new environment that is not very favorable for Europe, but offers many opportunities,” said Belgian Prime Minister Alexandre De Croo. “Europe can show that we have stability there and that you are in an environment where investment can take place.”
European officials also say they could benefit from deeper trade ties with other countries that could squeeze out the US market. “Countries are coming to us because they want to get away from America,” said a senior EU official.
“We must continue to be transparent but not naive,” said Spain’s Economy Minister Carlos Cuerpo. “We need to ensure that our companies are level, level, and have a level playing field with others. That was the case in China. It should be the same in the US.”
While the US and Europe have long railed against China’s trade practices, Beijing was quick this week to cast itself as a supporter of a global rules-based system rather than a hater.
Speaking the day after Trump’s inauguration, Chinese Vice Premier Ding Zhuxiang insisted that economic globalization was not a “win, win,” zero-sum game. He praised international bodies, including the World Trade Organization and the United Nations, saying that the world’s biggest countries should “lead by example”.
The irony of China presenting itself as a free-trader while Trump seeks to brutally extract economic power deals from its closest allies was not lost on Davos attendees watching Ding’s performance.
Despite the number of steps And from statements released this week by the White House, most international policymakers are waiting and waiting for Trump’s aggressive trade approach rather than coming to a conclusion about the long-term problems for the global economic system.
“Why put my cards on the table before he comes?” says a senior EU official.
UK Business Secretary Jonathan Reynolds admitted there were many “questions” about the president’s approach. “Is it leveraged around negotiations? Is it a revenue-raising issue in terms of tariffs? The UK will continue to advocate for a “more open, global trading economy,” he said.
But there’s little question that Trump is making a big improvement in how he uses trade as a weapon compared to his first term in office.
“The people around Trump have had time to build a strategic, methodical approach to defense trade policy and it shows,” said Ali Rennison, a former UK trade department official who is now at SEC consultancy Newgate. The approach, she says, would be to build an “evidence” file on countries and then use it to make concessions on economic and foreign policies.
The question is how far Trump is willing to go. Jeromin Zettelmeier, head of the Bruegel think tank, said the danger of trampling on the rule-based system is a complete breakdown along diplomatic and legal lines for resolving international disputes.
He warned that if Trump were to withdraw from broader international frameworks such as the WTO or the IMF, the arrangements that help regulate the global economy would be “drastically destroyed”.
In the extreme case, they “really do Putin”—that is, by violating the sanctity of international borders. As Trump has threatened, taking control of Greenland or the Panama Canal by force would be “reinstating the law of the jungle.”
Michael Strain, director of economic policy research at the American Enterprise Institute think tank, questions whether Trump will change the “fundamental forces” driving global economic integration — and whether the president wants to do so. But regardless, he said, uncertainty about its true intentions “makes business planning difficult, has a chilling effect on investment, and creates friction with our partners.”
Some warn not to be alarmed by Trump’s threats or his love of capitalism because his agenda is so inconsistent.
“What we’re seeing is an enormous amount of American hubris,” said Arancha Gonzalez, dean of the Paris School of International Affairs at Sciences Po. “We are blindsided by the strength of all the issues on the table and Trump’s conviction. But we are not looking at the contradictions. It seems we are all on orange medicine.
Additional reporting by Harriet Agnew in Davos and Peter Foster in London
Data visualization by Keith Fr