A turbulent week: how Trump brings the world economy to shake

Donald Trump unleashes a trade war or not? Until the American president held a sign up in the rose garden on Wednesday with the import duties he wants to impose per country, he had kept the world in great tension. It was not easy, on this day that Trump had announced as a ‘liberation day’.

He finds more countries than expected, with much higher rates. « For years his hard-working American citizens placed on the sidelines while other countries became rich and powerful, often at the expense of us, » he said to his hearing from cabinet members and workers from the car and steel industry in the garden of the White House. « With what we do today, we will finally be able to make America big again – bigger than ever before. »

Economists and investors reacted with a shock and at all do not go along with that prognosis. The stock markets in the world went strong in the minus from Thursday morning, the dollar lost value, economic forecasts – certainly also for the US – were adjusted negatively. The fear of a world recession is increasing rapidly.

Certainly now that other countries are taking retaliation measures. Or in prospect, such as the EU. A trade war with devastating effects in the global economy could thus be full.

Back to old times

The US must return to the great depression of the last century for import duties with a height, such as the government of Donald Trump that established last Wednesday. On average, they amount to an effective rate of 22.5 percent.

With the Smoot-Hawley law, the US only greater the economic decline after the stock market crash of 1929, especially when other countries answered the import duties of the Americans with their own trade limitations. After the Second World War, a new international economic order was built under the leadership of the US, in which Vrijhandel had to be a major incentive for economic prosperity in the world and peace between countries.

Given his statements in election campaign and as president, Trump longs for the time of American isolationism. Against the opinion of many US economic historians, he announces that the protectionism of the US brought a lot of prosperity in the 19th century. Also in his speech in the Rozentuin last Wednesday, he did so, by proclaiming that the US should never have lowered trading rates since the SOOT HAWLEY law.

Every country has its own rate

Donald Trump hates trade shortages. He sees them as a sign that the US is being disadvantaged by another country. Based on that thinking, his government has established a levy per country that must solve imbalance. He thinks that he thinks production that has been moved to other countries on unfair grounds to the US. The factories that have become empty in recent decades must return to America.

In the thinking of Trump and his advisers, trade shortages can only arise as other countries through taxes or in other ways to raise trade barriers for American products. By introducing higher levies themselves, producers will decide to produce in the United States again to avoid those taxes. That is why every country with which there is a trade deficit must be imposed on taxes. The greater that trade deficit of the United States is relative, the higher the levy.

A weak dollar

The dollar also fell after the announcements of the taxes by Trump. This can be seen as a reflection of the great uncertainty about the US economy. It was also reflected in the decrease in American government bonds. Traders expect the US central bank to reduce interest rates faster and that also puts downward pressure on the dollar.

For economists, however, that decrease in the dollar is counter-intuitive. Normally the price of a country rises that imposes trade taxes on other countries. The intended consequence of taxes is that consumers and companies buy more from their own country and need fewer dollars to buy products from abroad. If the demand for dollars decreases, the price drops.

Incidentally, that decrease is also a goal that Trump strives for. The strength of the dollar is a thorn in the eye, because American companies are less competitive.

Trump’s formula

Beeful, economists around the world looked at the mathematical formula that the White House published this week as a declaration of the calculation of the amount of the rates. Previously, Trump had ordered a study into all trade barriers – with rates and in other ways – that other countries raise for American producers. That research was also published, but was not used to determine the amount of the taxes per country. For this, the Trump government uses a formula, which is based on the assumption that if there were no trade barriers, trade between countries would only be healthy if it is in balance.

The calculation is carried out by the size in dollars of the trade deficit in goods that the US has to share with a certain country by the total amount for which from that country has been imported. To be ‘friendly’, that outcome is halved to get to the percentage that a country has to pay on its products as a tax.

A lot of Greek letters must radiate exactly and expertise, for example by bringing price elasticity. But it comes to 1 through a complicated calculation, and is therefore only frills to hide that this formula is no more than counting at primary school level.

3,800 dollars loss per household

An average American household will deteriorate $ 3,800 a year as a result of the price increases they can look forward to, if all the import duties that Trump has set since he took office in January. Economists from the University of Yale have calculated this. For American families from the lowest income classes, the decline will be $ 1700. This will be the result of an average price increase of 2.3 percent in the short term.

That is something very different from what Trump has given the Americans of his election campaign to the prospect of his election campaign. He has promised the Americans price reductions, after the period of high inflation since the Coronapandemie.

0.5 percentage point decrease GDP

For the US economy, a negative effect of 0.5 percentage points on economic growth in 2025 is predicted by Yale. At first glance, the effects on the European economy also do not seem dramatic immediately. Economists from Deutsche Bank argued the negative effect on European GDP growth at 0.4 to 0.7 percentage point if the US really implementing the import duties of 20 percent on all European products. This means that the American and European economies do not immediately enter a recession.

Yet there is a fear for an economic recession within a year. Economists from the American bank JP Morgan increased the chance of recession on Friday to 60 percent. That fear is shared by many economists. In all forecasts, the retaliation measures that are expected from other countries are not included. The great uncertainty that will increase at companies and consumers is not yet included in prognoses. If companies are going to postpone their investments and as a precaution, consumers start to keep their hands on, the consequences can be much greater than now in the prognoses.

Fear on the stock exchanges

Stock markets fell worldwide in the last two days of the week. On Friday they got a new blow, after China announced a rate of 34 percent on all American products as a retribution. A further signal that can escalate the trade war and will result in a global economic decline. The S&P 500 was 15 percent lower on Friday afternoon than a record that was still set in February, Technology Fair Nasdaq 20 percent lower than the highlight in December. The Trumpbump also turns into a Trumpdump. The stock markets in Europe and Asia also fell sharply with percentages of 3 to 5 percent on both Thursday and Friday. For companies that are more dependent on export to the US, the prices sometimes went down by more than 10 percent.

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