“Suppose they declared a war and nobody came” was an often-used slogan among the peaceniks of the sixties, when I lived in the US as an exchange student. A significant number of young men decided to go to Canada to avoid the draft. They did not have the necessary means to find a podiatrist who would claim they had bone spurs, as Donald Trump did.
For a draft dodger who obtained five deferments during the Vietnam war, corporal bone spurs Donald Trump sure behaves in a rather bellicose way. He feels justified bombing Iran, blowing up Venezuelan boats in the Caribbean and ordering the army into US cities governed by Democrats. His crowning achievement, however, is the trade war he declared against virtually any and all countries in the World.
At the outset, there was some talk that the countries affected might retaliate, in fact agree to also engage in Donald Trump’s trade war. But this has not happened. No country seriously responded to the US declared trade war by also implementing import duties. Howard Luntick, Donald Trump’s business buddy and now the US secretary of commerce, is “cheerleader in chief” among the many sycophants is Donald Trumps cabinet. He claims that this is a victory for the US. All other countries on which Donald Trump slapped import duties are too cowed and intimidated by trumps greatness to respond in kind. They all have capitulated by not engaging in the trade war the US has initiated. Donald Trump declared a war, and nobody came.
Lutnick and all the other trade warriors around Donald Trump are declaring victory. They gloat over the half trillion USD the tariffs are expected to flow into the US Treasury in the form of tariff receipts. They fail to mention that every penny of these receipts comes from the US importer, not from a foreign source. Neither China, nor the EU, nor any other country is writing a check to the US treasury. It is American money, coming from American companies, who may or may not be able to pass some of that cost on to the foreign supplier or, more likely, the US consumer.
Anyone who ever attended a high school level course on economics knows that. The governments of most countries, other than the US, know that. Thus, they view the US import tariffs as an essentially internal problem for the US. Money being taken from US companies and put into the US treasury.
The best response to the US declaration of “trade war” is not to engage. There is a declaration of war, but you don’t need to come.
Trump greatly overestimates the dependence of foreign suppliers on the US market. Instead of selling to the US, Chinese companies can sell to other countries as they in fact are doing. As the table below shows, Chinese exported to the US have declined, but that decline was more than offset by gains to other export destinations.
And China has another “Trump” card: Rare Earth Minerals. The US really needs those, and it is essentially China’ decision of how much of these rare resources they want to sell to the US. And China is not alone. Many other countries export specialty items to the US, that cannot be easily replaced by US-made goods. Hence the foreign exporter has quite a bit of bargaining power vis-a-vis the US importer and will probably not be willing to accept price reductions large enough to offset the import duties.
That is true even for a small country like Switzerland. Swiss exporters to the US export mostly high-quality products that demand a premium price. For example, Thermoplan AG, based in Weggis on Lake Lucerne has been Starbucks’ exclusive global supplier of espresso machines since 1999. Thermo-plan explicitly touts “Coffee machines in Swiss quality”. It is present in over 90 countries world-wide, especially in the Middle East, Asia and South-East Asia, where coffee consumption is booming. I cannot see Thermoplan, with this marketing power, absorbing a 39% tariff on the coffee machines it exports to Starbucks in the US which means that a significant portion of the tariff on these coffee machines will have to be born by Starbuck’s customers in the US.
Howard Lutnick is wrong. Foreign countries have failed to “come” to Donald Trumps’s trade war and impose tariffs countervailing tariff, not because they are intimidated, but simply because they are smart. US tariffs primarily hurt the US importers and their customers. So why should they engage in the same idiocy towards their own importers and consumers? When Donald Trump calls for a trade war the best response is: stay home. It would be great if the Swiss government absorbed this lesson as well.
Ninety five percent of the world’s consumers live outside of the US. There are plenty of opportunities to find other markets and to develop other trading relationships, as the Chinese example above has shown. The adjustment will not be easy and will take time. But in the long run, if the US does not reverse course and does not abandon the trade war, it will become increasingly irrelevant in international trade.