Economists on Trump's Tariffs: Such Policy Can Collapse the World Economy

(Patria) - US President Donald Trump announced the beginning of a new global trade war, which he called a "declaration of economic independence".

However, analysts and economists around the world view his measures as dangerous, harmful, and economically completely unfounded, writes Foreign Policy.

In his speech, Trump stated that America has been "robbed, raped, and exploited for over 50 years" by "friends and enemies" and that American companies "must not do business abroad" - which is in complete contradiction to reality, as US exports of goods and services exceeded 3 trillion dollars in 2024.

He announced high tariffs for almost all countries in the world, stating that this would lead to the return of factories and jobs to the US and the creation of a "new golden age".

"April 2, 2025, will be the day American industry is reborn," Trump asserted.

The day after the announcement of the measures, Wall Street suffered a severe blow - with technology stocks being the most affected.

It is feared that this trade war could destroy the global supply chains on which leading American manufacturers depend, and analysts warn of the possibility of a spiral collapse of the economy.

Economists are particularly critical of the simplistic and flawed model behind Trump's policy.

For example, he calculated for China that, because the US has a deficit of $295.4 billion on imports of $438.9 billion with that country, it means China is "charging" the US a 67% tariff - so, Trump says, the US should respond with a reciprocal 34%.

"This is not policy, this is pure stupidity. This approach completely ignores 250 years of economic theory," believes Nobel laureate in economics Joseph Stiglitz.

In his speech, Trump referred to President William McKinley from the 1890s, who also described himself as a "tariff man".

However, economists point out that those were completely different times - the US was then a developing industrial economy, and global trade was in its infancy.

Stiglitz emphasizes that the modern world functions completely differently: services (such as telecommunications, education, and finance) account for 20% of GDP, and manufacturing only 10%.

"Trump ignores the fact that today's manufacturing uses robots, not people, and that we don't have enough engineers to compete with China," said Stiglitz.

In his speech, Trump referred to US pressure on Japan in the 1980s, when tariffs and political pressure forced Japanese companies to invest in the US.

Japanese manufacturers in the US now produce more than 3 million vehicles annually - twice as many as are imported from Japan.

Although Japan still has a trade surplus with the US, the difference has decreased. However, Trump, despite these successes, accused Japan of "still producing 94% of cars in Japan" and imposed an additional 24% tariff.

Although many criticize Trump's strategy, some companies - fearing tariffs - have announced investments in the US.

Hyundai plans to open a $21 billion steel mill in Louisiana. TSMC from Taiwan and Japan's SoftBank also plan production in the US. Apple, Intel, and Micron have announced investments in domestic manufacturing facilities.

However, economists warn that Trump is eliminating key elements of industrial policy - such as subsidies, investments in science, and incentives from laws enacted by Biden.

"This gives a bad name to tariffs, which can be useful if combined with smart measures," said Adam Hersh of the Economic Policy Institute.

Following Trump's measures, governments around the world are already announcing countermeasures. French President Emmanuel Macron called the tariffs "brutal and unfounded" and proposed suspending investments in the US. The Japanese company Suntory is considering a complete withdrawal from the US market.

Economists agree that Trump's approach is confusing, inconsistent, and dangerous.

"This is not 1985, let alone 1890. Such a policy can collapse the world economy. Simply put, we no longer live in a world where such things go unpunished," believes Nathan Lane from Oxford University.