“The pinnacle of skill is to be able to defeat the enemy without weapons” - this was written 500 years before the new era by the Chinese strategist and philosopher Sun Tzu in his book “The Art of War”. If US President Donald Trump had read it, he would probably have saved a lot of things from modern global trade.
When Trump says that other countries live at his expense, he is referring to Europe and especially Germany. But his real “enemy” is China, on which he imposes the highest tariffs.
The enemy behind the great wall
Trump sees that the US trade balance with the world's second-largest economy does not meet his expectations at all. At the same time, it seems certain that, if the trend is not reversed, China will replace the US as the world's largest economy by the end of this decade.
It is true that the US has a much higher GDP per capita than China, but China has four times as many people. In terms of its share of the world economy, adjusted for purchasing power, China has long surpassed the US - 19.6 percent to 14.3 percent.
While the growth rates of the two countries are getting closer, China is considered the more innovative economic power. It is also displacing its rival as the dominant global trading power: for many more countries, Beijing is now the more important trading partner, whereas only a quarter of a century ago this position was invariably held by the United States.
Rapid reactions
The current US trade policy can be described very accurately in one word: unpredictable. Ruben Staffa of the Institute for the German Economy fears a “loss of confidence in the US as a reliable anchor of the global financial system”. This hides “significant potential for large-scale market changes”. The short-term postponement of many of the tariffs that Trump threatened is evidence of “incorrect assessment of how the markets will react”, Staffa told DW.
Michael Berlemann of the Institute for the World Economy in Hamburg also fails to find “any coherent strategy”. According to him, the global stock market turmoil shows "the unforeseen consequences of Donald Trump's chaotic economic policy."
According to Commerzbank economist Jörg Kremer, Trump seems confident in his tariff policy and is willing to accept that there will be short-term difficulties. However, he is unlikely to be indifferent to the collapsing stock market. "Obviously, Trump is still taking the financial markets into account," Kremer told DW.
Doubts of insider trading
But is he taking the financial markets into account or his own clientele? Trump's seemingly crazy economic policy may have a specific purpose: When Trump announced new, higher tariffs on almost the entire world, stock markets around the world collapsed and billions were lost overnight. Then he canceled or postponed some of the measures and the exchange rates quickly recovered. Some people made solid profits. Against this background, suspicions of insider trading by Trump and his associates arose.
However, exchange rate fluctuations affect not only the private transactions of the "Trumpists", but also the global economy as a whole. At their meeting in Washington this week, the World Bank and the International Monetary Fund significantly reduced their forecasts for the economy.
No wonder, says Jörg Kremer. “Ultimately, the tariffs will increase inflation in the US by one percentage point and reduce the purchasing power of Americans. In addition, many American companies will refrain from investing because of the uncertainty.”
For Michael Berlemann, there is no doubt that “world trade will suffer greatly from the tariffs”. However, both experts agree that the biggest victim of Trump's tariff shock will be the US.
Higher tariffs, lower taxes
Donald Trump promised his voters that he would cut taxes, which should be financed by increased tariff revenue. Ruben Stafa is skeptical about this, since the shift in demand to goods with lower tariffs and the income factor will reduce actual tariff revenue.
Jörg Kremer believes that higher tariff revenue will not be enough to finance the tax cuts. "Trump is wrong about that," he says.
Who will benefit from all this?
The answer to this question is not easy, Ruben Stafa told DW. The US acts from a position of strength, but due to its increasingly unpredictable foreign policy behavior, it is losing credibility. This unreliability weakens the US strategic position, Stafa points out.
According to him, China is also showing weaknesses - such as the ongoing real estate crisis and strained public finances. But Beijing is trying to stabilize the domestic economy, encourage foreign investment and stimulate private consumption. According to the expert, China “has been preparing for an escalation of the conflict for years”.
Michael Berlemann told DW that forecasts regarding China are difficult, because many key data are not really guaranteed. However, he would rather bet on China.
According to Jörg Kremer, in the short term the Americans will retain their advantage because they are not as dependent on exports as the Chinese. In the end, however, “the US will be very patient because it will not be easy to replace the huge imports from China with something else”.
Author: Dirk Kaufmann