Neither friends nor partners. Not as before. The President of the United States, Donald Trump, has announced this Thursday, with great joy and satisfaction, the imposition of tariffs on the European Union and any country that imposes barriers of any kind on American products, whether regulatory, purely commercial, or, as in the European case, simply tax-related due to VAT. Just 24 hours after praising Russia and Vladimir Putin, scheduling mutual visits, and emphasizing the desire for both powers to work together, Trump has decided to burn bridges, punish his allies, the same ones he asks for increased defense spending and more commitment on the ground in Ukraine. Without prior negotiation, only through coercion and force.
Not the final blow, but a new blow to transatlantic relations, to the ties that have kept a block strong against various threats for eight years. Also to an international liberal system regulated by the WTO, whose rules today's decision clearly violates, on the principle of minimum charges. Nothing could please Putin more and benefit his interests and his tactic of division.
Trump is not the first president to use tariffs or trade policy, but until now it had been done on a case-by-case basis, for very specific sectors, particular cases, or at specific times. Not a war against all accusing them of squeezing "the goose that lays the golden eggs," of "cheating Americans." Not a war on all products due to any kind of national regulation.
Trump wants the rest of the world to manufacture in the United States. Joe Biden also does, and that is why he implemented measures like the IRA, which offered significant tax breaks and facilities to foreign companies, trying to attract capital and investments. But Trump does it through threats. "If you manufacture your product in the United States, there are no tariffs," he stated. "They have accused us, and we have not accused them. And it is time to be reciprocal. You will hear that word many times. Reciprocal. If they charge us, we charge them," he told reporters earlier this week. "If they are at 25%, we are at 25. If they are at 10, we will be at 10. If they are much higher than 25, that's where we will also go."
In the memorandum he signed this noon, the president instructs his advisors to make a precise, personalized calculation for a new round of tariffs, a decision with immediate consequences for global trade and the international order. And it comes in the same week when inflation has already issued a warning, both to the government and the Federal Reserve. The amount and when they would start to be applied are not yet determined, allowing for an intense negotiating strategy, case by case, in the coming weeks. "This should have been done years ago," the president said as he prepared to sign the executive order. One of his advisors suggested that the numbers could be ready by early April, but without going into details.
Today's decision adds to the tariffs imposed and halted on Mexico and Canada, the 10% that has come into effect on almost all Chinese exports, and the additional 25% on all steel and aluminum that wants to enter the country. And to the promises to soon go after oil, pharmaceutical products, and other metals.
The 14 countries with which the United States has free trade agreements (such as Australia, Israel, and Jordan) should be the least affected by the new agreement, but Washington also signed them with Mexico and Canada and it did not matter. The EU does not have a free trade agreement with the US. It was on the verge of signing it with Barack Obama, the TTIP, but in the end, it did not materialize, and neither Trump nor Biden revived it.
In his statement, Trump not only demands an eye for an eye from those who already impose tariffs but also seeks to penalize the taxes and levies they charge on foreign products, the subsidies they give to their industries, their exchange rates, and other behaviors that the president deems unfair. One more step, an escalation, in the trade war and the protectionist drift of the leading global power.
"It has been three great weeks, perhaps the best in history, but today is the great one. Reciprocal tariffs! Let's make America great again," he celebrated a few hours before signing the executive order and receiving Indian Prime Minister Narendra Modi in the Oval Office.
In a call with journalists, the White House's chief trade advisor, Peter Navarro, hinted at who the main targets of the measure are: Japan, the European Union, and India, precisely. Navarro, the president's top advisor, pointed out that the EU's VAT was the "example" of unfair trade towards American companies, and said that "President Trump is no longer willing to tolerate it."
As explained by Trump, his candidate to lead the Department of Commerce, Howard Lutnick, and the US Trade Representative, Jamieson Greer, will be responsible for setting the specific tariffs, which products, and with what exceptions. Navarro could not provide an exact timeline but said they would work "quickly" and that other countries would be given the opportunity to negotiate the final thresholds.
Trump argues that the US trade deficit (over $230 billion with the EU) is not the responsibility of the strength of the US economy, the strong domestic demand thanks to growth or recovery after Covid. Nor is it the fault of the strength of the dollar, which has made products manufactured in euros more competitive, or the country's large debt, but a kind of global conspiracy and the result of unfair practices by the rest of the nations on the planet, which he believes take advantage of the US. Europeans not only with VAT but also as military freeloaders. The Chinese or Indians selling but not buying.
"They don't take our cars, they don't take our agricultural products, they take almost nothing, and we take everything from them. Millions of cars, huge amounts of food and agricultural products," he said a few days ago about European countries. He and members of his administration have repeatedly denounced the "non-tariff barriers" faced by American exporters. Trump frequently mentions that the EU imposes a 10% import tax on American vehicles, while the US only applies a 2.5% tariff on European cars entering the country. "While it is true that examples of higher trade barriers abroad can be found, the overall tariff gap between the US and its trading partners is relatively minor, and any increase in US tariffs will ultimately be paid by US companies and consumers," points out an analysis by the Tax Foundation published yesterday.
Behind the crusade against VAT is Stephen Miller, one of the most powerful men in the White House and responsible for immigration decisions. "Did you know that when you send a car from the US to Europe, if they allow it to enter because they have many non-tariff barriers, between VAT and tariffs, that car is taxed at 30%? The German car, or a European car sent to the US, pays a tax of 2.5%, or basically 0%," Miller has said on several occasions.
VAT is a consumption tax that affects all products, whether domestic or not, but goods sent from the European Union are exempt, although they are subject to other indirect taxes, which are lower in the US. As the foundation points out, VAT is adjusted at the border, which means that taxes are refunded on exports and imposed on imports. "However, despite the appearance of subsidizing exports and punishing imports, a border-adjusted VAT is trade-neutral. A border-adjusted tax leads to an appreciation of the currency of the country imposing it, which would make importing goods cheaper and exporting them more expensive, thus nullifying the apparent benefits of the import tax and the refund for exports."