While Donald Trump has confirmed that Robert Lighthizer, fierce defender of tough protectionism, will be the Trade Representative of his future administration, Europe is in turmoil. This trade war is already dividing the 27: Germany is still seeking to save its industry and its exporters, and is reluctant to throw itself into battle. As for France, it is campaigning for a muscular response. For economist Emmanuel Combe, former vice-president of the Competition Authority, the outcome for Europe is not to embark on a generalized increase in customs duties. But to practice “tactical protectionism”, Chinese style.
L’Express: Since the re-election of Donald Trump, there has been a lot of talk about a trade war. In reality, this protectionist turn is not new. Can we already learn lessons from this for the American economy?
Emmanuel Combe: It is true that the protectionist turn of the United States predates Donald Trump. In reality, it started under Barack Obama, grew during the first term of Donald Trump and Joe Biden has not really gone back. It has been more than fifteen years since the United States took this turn.
We can draw an initial assessment of the protectionist wave implemented since 2018. Numerous empirical studies have been published on the subject and the results are eloquent: the first victims of American customs duties are first and foremost the 330 million American consumers! It may seem paradoxical, but a country that launches a trade war pays a heavy price. The example of the 12% customs duties on Korean washing machines, decided in 2018, is striking: not only have American producers also increased their selling price but the effect on employment in the United States United was very weak. A Federal Reserve study estimates that only 1,800 jobs were saved in this sector, for a drain on purchasing power equivalent to $1.5 billion per year. That’s a monthly cost of $60,000 per job saved. Overall, Donald Trump’s protectionism has resulted in a major drain on the purchasing power of American households.
Same causes, same effects: do you think that the new increase in customs duties promised by Donald Trump will have deleterious effects for the American economy?
Of course ! Even though Donald Trump was elected on a promise to fight inflation, his trade policy will have a negative effect on purchasing power and a recessive effect on economic activity. Protectionism is nothing other than a consumption tax, particularly on the poorest households. A recent simulation from CEPII, the Center for Prospective Studies and International Information, shows a negative impact of protectionism on American GDP of around 1.3%.
Furthermore, we should observe a profound restructuring of international trade. Flows between the United States and China are likely to decrease sharply, but circumvention of these measures is more than likely. China could invest massively in Mexico or Canada to then export, without additional customs duties, to the United States.
Faced with this new trade tightening by the United States, Europe is worried and many voices are demanding retaliatory measures. Should the EU enter this race?
Certainly not by using the weapon of customs duties in a generalized and lasting way. It would be a protectionist race which, in the end, would only produce losers. Especially since I am not sure that Europeans speak with one voice on this subject. In the short term, if Europe wants to react, it must adopt “tactical protectionism”, based on trade defense instruments – anti-dumping and anti-subsidy measures -, as China practices for example on French cognac in response to European customs duties on electric vehicles. That is to say, targeting certain very symbolic and high-profile American products to encourage the United States not to implement the announced rights.
At the risk of further undermining the competitiveness of European industry?
It already is, as the report submitted a few months ago by Mario Draghi on the “European disconnection” showed very well. In the medium term, the only way for Europe to respond to Donald Trump is to finally assert its economic power, by following the recommendations of the Draghi report. In short, strengthen its industrial policy of catching up and technological disruption, to regain competitiveness as quickly as possible.
For this, the most effective weapon is not customs duties but public subsidies, through major industrial and research programs such as the IPCEI, the Important Projects of Common European Interest. But also the union of capital markets and the harmonization of national regulations, to finally create a large product market. Responding to Trump by playing Trump will not move Europe forward!
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