LIZ PEEK: Trump’s major trade wins could be rocket fuel to US economy

Hats off to President Donald Trump, who is singlehandedly reordering global trade, in the face of enormous opposition. The president took office pledging to make trade fair again for Americans, and he is well on his way to achieving exactly that. 

While the initial roll-out of his tariff program in April was clumsy, the subsequent negotiation of trade deals has been masterful. Much remains to be fully fleshed out for agreements concluded in weeks as opposed to the more customary years, but the essential ingredients are straightforward. The president and his team are working to lower the barriers to U.S. exports erected by countries around the world and, where our trading partners refuse to make concessions, charging them for access to our markets. 

Here’s why he can force their hands: The United States is the world’s biggest economy, at $29 trillion; China and the EU come next, at roughly $19 trillion. The U.S. leads in sheer size and also in the magnitude of our consumer market, at about 70% of GDP, or $20 trillion. By comparison, the Chinese consumer accounts for only some 40% of that country’s GDP, or less than $8 trillion. About 52% of the EU economy comes from consumer spending, or less than $10 trillion.

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Every country on Earth wants to export to the U.S. Consequently, our country has clout, and the president is determined to use it. He is removing tariffs that other countries have imposed on American-made goods coming into their countries and also fighting non-tariff barriers, such as illegal government subsidies, currency manipulation and arcane regulations set up by Europe and Japan, for instance, to exclude U.S. agricultural products and other goods. Our farmers are the most productive in the world – they can out-compete anyone, which has inspired tough protectionist measures from some of our trading partners. 

Historically, countries around the world have not dealt fairly with the U.S. Conservatives dislike Trump’s tariff program because they say it interferes with free trade, but the global exchange of goods and services is not free. When Europe charges U.S. carmakers a 10% duty on Chevys sent to Germany, and we only charge 2.5% on Volkswagens coming here, something is off.

Over the weekend, President Trump negotiated the grandaddy of all trade deals with the EU, imposing 15% tariffs on Europe’s imports and securing commitments that the EU will import sizeable amounts of energy. Success was not assured; the president himself, on the cusp of his talks with European Commission President Ursula von der Leyen, put the chances of concluding a deal at about 50-50. For our relentlessly optimistic president, he was cautious in the extreme, for good reason. 

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Actually, for several good reasons. First, the EU is a fractious group of 27 sovereign nations who, despite acting as a block, have very different economies and interests. Second, EU countries are for the most part run by condescending liberal elites who view Donald Trump as uncouth and annoying, as he persistently disrespects the globalism that bind them together. Third, they bitterly resent the United States, which is running rings around them on everything that matters, like technology and energy. 

President Trump’s caution was also warranted because EU leaders like to score political points back home by standing up to him; it was quite possible that the bloc’s leadership would torch a compromise in order to look strong. As it is, the deal was widely panned by European officials and economists, with the ever-obstreperous French leading the way. French Prime Minister François Bayrou furiously denounced the pact, describing it as “submission.” 

French Trade Minister Laurent Saint-Martin said he did not want Paris “to settle with what happened yesterday because that would be accepting that Europe is not an economic power.” 

Here’s a newsflash for French politicians nipping at von der Leyen’s ankles; Europe isn’t much of an economic power. The World Bank reports that from 2008 to 2023, EU GDP grew by 13.5% (from $16.37 trillion to $18.59 trillion) while U.S. GDP rose by 87% (from $14.77 to $27.72 trillion). In addition, EU GDP per capita as a percentage of U.S. GDP per capita fell from 76.5% in 2008 to 50% in 2023. That’s downright embarrassing. 

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Why is the EU such a laggard? First, because they have imposed stifling red tape on their domestic companies. Even the International Monetary Fund has chastised France, for instance, for their rigid work rules, which makes the hiring and firing of workers expensive.  

Second, because the EU has prostrated itself on the altar of climate change. Its dedication to renewables has led to high power costs, with German companies, for example, paying nearly three times what the U.S. does for industrial electricity. With new technologies like AI requiring vast amounts of energy, the EU is uncompetitive. 

Third, the EU is hampered by its cumbersome architecture; getting more than two dozen nations to sign off on major policies is difficult, which has meant the continent has fallen behind on technological innovation. That means low productivity and GDP growth.

EU officials are certainly not unique in expressing frustration over President Trump’s tariff battle. The conventional wisdom from economists and business leaders has been that tariffs will choke off trade and make the world poorer. Roger Altman, the successful founder of investment bank Evercore, appeared on CNBC on Monday saying, “Eventually, the tariffs will be passed on, dollar for dollar, to the consumer, and that will mean less consumption, less growth, less jobs and less profit.” 

Maybe, but it’s also possible that companies will bring more production to the United States, to avoid tariffs, and that the revenues pouring into the Treasury, over $100 billion to date, will boost our fiscal outlook. Coupled with lower tax rates and lighter regulation, the trade battle is already attracting increased investment. 

Trump has proved the conventional wisdom wrong more often than not; I wouldn’t bet against his tariff program.

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