The latest Oeconomus Economic Club, held on 8 May, was titled “Tariff Wars? – Global Trade under Trump”. The participants’ evaluation and interpretation of Donald Trump’s tariffs were varied: some emphasised the fact that it was not only the European Union and the rest of the world that suffered in the tariff war, but the United States too, while others viewed the tariffs as a valid tool to remake America’s trade relationships. US tariff policy was also discussed from other standpoints, highlighting the complexity of its drivers and effects.
In his opening remarks, Péter Törcsi, Chairman of the Board of Trustees at the Oeconomus Economic Research Foundation pointed out that leaders in our region were prepared for Trump’s tariffs, whereas some Western European leaders and the Brussels elite were shocked by them. Since there is a common tariff policy in the EU, it would be good if Western European leaders took into account Central European perspectives about how to respond to tariffs. The EU should find common ground when it comes to common sense-based policies such as financial policy. Péter Törcsi was also pleased to announce that the format of the Oeconomus Economic Club, taken from Americans for Tax Reform and the Tholos Foundation in the US, is spreading in our region, as a short while later he was to leave for Warsaw to attend the first such meeting there, organised by Ordo Iuris – Institute for Legal Culture.
The keynote speech was given by Máté Lóga, State Secretary for Economic Development and Industry at Ministry of National Economy. He said that we expected a lot from the next four years under the Trump administration, especially since in the last 20 years, US-Hungary relations were at their peak during Donald Trump’s first term. We are looking forward to the outcome of the negotiations between the EU and the US. We expect more American foreign direct investment in Hungary in the coming years, but there is a big question mark over whether US policy will target the same locations and sectors as before, or the previous investments will have new targets. The cancellation of the double taxation treaty by the Biden administration was an unfriendly move and not a way to treat a partner. We look forward to deepening both economic and political relations with the US under President Trump.
Edward Corrigan, President and CEO of the Conservative Partnership Institute in the US joined the event via video link. He underlined that Trump has been outspoken about how he wants to improve America’s trade relationships, and therefore his tariffs should not have come as a surprise. Trump wants to open markets, and tariffs can contribute to that as well as to productive trade which has not existed in relation to certain countries. Edward Corrigan expressed his hope that since Hungary understands Trump well and Viktor Orbán and Trump have a deep relationship, Hungary will be able to advise Brussels on how to ensure a fruitful US-EU relationship going forward.
Christopher Butler, Executive Director of Americans for Tax Reform and Tholos Foundation also joined online. He approached the topic from a classical liberal, free market-supporting standpoint. He said that there were a large number of contradictory goals advocated by different parts of the Trump administration. The goal that is most accepted by classical liberals who support free trade is that the US should isolate China for geostrategic reasons and reshore manufacturing. However, a large number of countries besides China have been targeted by Trump’s tariffs, and this runs counter to this objective. At the same time, isolating China and reshoring production conflicts with the goals of some other members of the Trump administration; one such goal is revenue raising in order to lower taxes. There is also a cultural view, according to which reshoring is needed to rebuild the heartland, and working in services instead of factories is inferior to the human soul and leads to social degradation. This is the idea that enjoys the least support among classical liberals. Christopher Butler finished his speech by saying that if all of Trump’s tariffs remain in place, there will be massive price shocks and economic recession.
Robert Tyler, Senior Policy Advisor at New Direction – Foundation for European Reform said any kind of trade war is a race to the bottom; both the EU and the US lose in this war. He thinks tariffs are not only a negotiating strategy for Trump, because he also views them as a source of revenue for the budget. Robert Tyler noted it was ironic that Trump’s policies had managed to turn the EU, arguably the most inflexible and protectionist trade bloc in the world, into an organisation that was panicking towards free trade. He was hopeful that Trump’s tariffs would lead to the EU liberalising and lowering tariff barriers to the rest of the world, and that EU leaders like Viktor Orbán and Giorgia Meloni, who strike a friendly tone with the US, would be able to start a process in Brussels that would eventually lead to an EU-US deal.
The dangers of Trump’s tariff policy to Trump himself were also highlighted. John O’Sullivan, President of the Danube Institute said that while using tariffs as a tool to move towards freer trade was sensible, there were negative side effects too, such as increasing prices in the US. Unless Trump provides a very clear narrative and justification about why he does what he does, he is going to run into serious political trouble.
Szabolcs Pásztor, Director of Research at the Oeconomus Economic Research Foundation talked about tariffs providing a good opportunity for corporations to review their business and pricing strategies, location choices and other issues. Tariffs also offer an opportunity for corporations to change, become more competitive and experiment.
One participant said Trump wanted to come up with a solution to the end of globalisation. However, tariffs are not the solution, since China, the production centre of the world, and the US, the service centre of the world, cannot be detached abruptly, as this will harm every economy, especially the US. If America is currently pursuing a path with its tariff policy that turns out to be a dead end, its economy will suffer and the US dollar, the global reserve currency, may lose its significance. If these two things happen, the world will be in big trouble too.
Another participant asserted that the global trading system Trump is attacking was never sustainable, and the dollar as the reserve currency is already dead. It does not matter what happens with tariffs as Trump has already broken the system, but it was a long time coming. The world needs to readjust. In the long term, countries have to figure out how to deal with the new reality, and in the short term (over the next 12-24 months) they should turn to economic stimulus to get over the trade shocks.
Several participants stressed the importance of not relying on other countries economically, another important goal of the US president. The Covid pandemic clearly demonstrated that depending on another country for masks, sanitizers and countless other products is not good: if we are buying everything from a neighbour that could become our enemy if there is a war, that is dangerous. 33 per cent of all goods in the world are made by China; the US’s share is 15 per cent, less than half. Even for a 155 mm artillery shell, Chinese and Indian ingredients are needed. This is clearly not an acceptable strategic situation for the US.
75 per cent of the EU’s and the US economy is services, and only 25 per cent is production. However, services are not useful in any kind of crisis, such as a health crisis or a war. We must be able to produce steel and masks and other products. Trump is perhaps the first US president since Roosevelt who recognises that politics must rule the economy, since the latter should be subservient to the interest of the people who contribute to it. The interest of the people currently requires that production and manufacturing be reshored. At present we are in a period of painful transition, but we live in increasingly dangerous times and the political imperative has to overrule economic considerations.
From a geopolitical perspective, China is rising and the US is declining, or at least losing ground against China. This is a bad trajectory even in normal times, with no risk of war. Trump therefore does not really have any other choice but to try to achieve change. He is trying to rearrange global trade and the global economic order so that they serve US interests better. The EU’s interest is to make a deal, and eventually there will be one. The real question is whether there will be a deal between the US and China. If one cannot be made, meaning China does not agree to the rules changed by the US, there will be war between the two countries sooner or later.
Several representatives of companies were also present. One of them highlighted the importance of companies having the right technologies and the right people in place in order to be able to deal with the challenges posed by tariffs on an everyday basis. Another participant said corporations had to review their supply chains as the tariff war posed threats to them.
