The US Trade Deficit and Trump's Trade War (What role for Europe?)

On January 22, 2018, the Trump administration imposed safeguard tariffs on $8.5 billion of imports of solar panel and $1.8 billion for washing machines. This move marked the beginning of what is now considered a trade war the Usa is fighting against China and other traditional American trade partners such as Eu and Nafta members states. The “official” motivation for Trump’s trade war is that the persisting Us trade deficit depends on “unfair competition” by trade partners. Tariffs are therefore seen as a political tool for levelling the field of international trade. In this paper we present and discuss two main objections to this view: the first is that current and trade account disequilibria are ultimately due to differences between domestic savings and investments driven by macroeconomic fundamentals which in general do not depend only on the trade policies of foreign countries. The second objection consists in the fact that the role of the Us dollar as the “world’s money” in the current asymmetric international monetary system makes the Us trade deficit both inevitable and sustainable in the long run. Unless protectionist measures permanently affect the domestic savings-investment balance they alone cannot eliminate a structural trade deficit. The Trump’s trade war is actually causing economic costs for firms and consumers both in the Usa and other countries and has political costs because the “America first” policy is threatening the functioning of the rule based system of international trade embodied in the Wto agreements. Even if European countries could gain market shares in the American and Chinese markets because of the Us-China trade war, the costs of a generalized retreat from multilateral free trade agreements and the paralysis of the dispute settlement mechanism of the Wto would be greater. In order to avoid this, the Eu should take the leadership as defender of the multilateral approach to trade issues promoting Wto reforms. In this perspective, a renewed and stronger Eu is necessary for contrasting the negative spillover of the Us trade policy