Article edited by Ilaria Ferrari, editorialist of the Independent Ediborsa.
Paul KrugmanNobel Prize for the economy in 2008, defined the duties imposed by Donald Trump “The Biggest Trade Shock in History”.
Speaking as the first guest of the Turin International Festival of the Economy, Krugman immediately stressed that the actions of the former president are not the result of a rational economic strategy – perhaps questionable but logical – but of the “madness” of a president who until the recent judgment of the American court was considered omnipotent. This is the only explanation, according to Krugman, to the continuous changes of Trump route and makes it impossible to predict his future moves.
A return to the 1930s
Despite some steps back from Trump when the markets reacted negatively (for example with massive sales of American government bonds), the duties imposed remain among the highest of the last century. In the 1930s the US increased the duties, in an already high protectionism situation, but at that time the import weighed for 4% of the American GDP. Today, starting from a free trade situation, the average duties passed to 15-17%, a level comparable to that of the era of the great depression.
The ruling of the Federal Court – which suspended the duties imposed by the Trump Administration by removing the International Emergency Economic Powers Act (IEEPA) – does not change the substance: even in the event of downsizing, the duties would return to levels that have not been seen for sixty years, in a context in which imports represent about 13% of the GDP.
* Assumes 50% eu ‘mutual’ tariff rate
** Assumes Removal of all 2025 IEPA TARFFS. However, on May 29, to Federal Appeals Courts Temporaily Agreed to Preserve the Iepa Tariffs. On May 30, The Trump Administration AnnoMenanced That The Us Will Double Its Current Tariff Rate On Steel and Aluminum Impots From 25% to 50%.
Global side effects
Trump’s unpredictability and duties fluctuations generate uncertainty, which paralyzes international trade.
Concrete examples? The interruption of cargo shipments from China and Italian wine exports to the USA.
The affected countries could react in different ways:
- – retaliation: they can respond with their own duties.
- – diversification: looking for new markets and tightening new commercial agreements with other countries.
- – Deviation of trade: China, for example, could redirect its exports from the USA to other countries, which could react with import barriers against China, generating a protectionist domino effect.
Boomerang effect risk for the USA
Mexico and Canada show strong economic dependence on the United States: exports to the USA in 2023 represented 26.6% and 19.5% of their GDP respectively. On the contrary, US exports to these countries represented only 1.2% (Mexico) and 1.3% (Canada) of the US GDP. A asymmetry that makes them vulnerable to US commercial policies.
The dynamic between the United States, the European Union (EU) and China tells a different story.
Exports to the United States represented 3.1% of EU GDP and 2.4% of China GDP, while their contribution to the US economy was respectively 1.3% and 0.5% of the US GDP. It is the reflection of a more balanced economic interdependence.
China, in particular, is a lesser interconnection compared to the past and reflects a change started with the commercial war started by Trump in its first term: the duties imposed then pushed China to diversify its markets, preferring other less hostile, such as Russia, Vietnam and India.
How should Europe move?
Europe cannot make significant concessions to the USA, because the average European duties on American goods are less than 2%. In addition, any gesture, albeit symbolic, would risk feeding Trump’s arrogance. According to Krugman, the EU should neither give up nor react with counter-tooth.
The US does not enjoy a dominant position: as we have seen, European exports to the United States represent only 3% of European GDP.
Europe can compensate for any losses through tax stimuli and agreements with other countries such as the United Kingdom, Canada, Australia, China and Japan.
In a context of commercial war between China and the United States, Europe could even take advantage of it. China, with a strong commercial surplus, would look for new outlet markets, focusing on the EU. Furthermore, for Beijing it is crucial to prevent US access from strategic materials such as rare batteries and lands – resources that Europe must continue to benefit.
In conclusion, according to Krugman, global interdependence is often overestimated. If the rest of the world avoids the trap of the counter-dati, the negative effects would mainly fall on the United States.
This is why Europe should keep out of the commercial war.
Marco Butiformer General Manager for Economic and Financial Affairs of the European Commission, during the Festival proposed Three strategic action lines (listed in order of growing difficulty):
- 1) The EU should not wait for July 9, if the negotiations with Trump should fail, to communicate any countermeasures. Must clarify what the announced consists of Anti-Coetwork tool.
- 2) The USAs represent 15% of global trade: Europe should move and be the leader in organizing the remaining 85%.
- 3) Reform the European economic modeltoo dependent on net exports, and relaunch the single market.
Giorgio Barba Navarettiprofessor at the University of Milan, instead highlighted three critical issues:
- 1) Define the red lines of the negotiation: the EU is dependent on the USA for technology, defense and payment system.
- 2) Commercial policy is negotiated by the Commission, but it is needed political consent ample. Trump could take advantage of European internal divisions.
- 3) is essential Reduce internal barriers and harmonize the national rules for a more cohesive action.
References
The Budget Lab at Yale. (2025, May 23). State of US Tariffs: May 23, 2025. Taken from https://budgetlab.yale.edu/research/state-us-tariffs-may-23-2025
The Budget Lab at Yale. (2025, May 29). State of US Tariffs: May 29, 2025. Taken from https://budgetlab.yale.edu/research/state-us-Tariffs-may-29-2025
Article edited by Ilaria Ferrari, editorialist of the Independent Ediborsa