How to Counter Trump’s Tariffs Productively

Trump’s tariffs have created a trade war, with far-reaching implications for the global economy. While retaliatory tariffs are unlikely to deter Trump, a more productive approach would be to minimize the economic fallout. Here’s how to do it:

### Minimizing the Economic Fallout

Recognize that both trade and financial channels could trigger a global economic downturn. Trump’s tariffs on metals and China, as well as his proposed tariffs on all imported goods, could lead to a perfect storm of economic pain.

### Understanding the Tariff Impact

While tariffs will hurt US households and businesses, they will not reduce the US trade deficit. Instead, they will likely lead to higher prices for imported goods and domestically produced goods that compete with them or rely on imported inputs. The Federal Reserve (Fed) will likely delay its planned interest-rate cuts or raise rates to offset the inflationary impact of Trump’s tariffs.

### Retaliatory Tariffs: Unproductive and Unlikely to Succeed

Most countries run trade surpluses with the US and have fewer US goods to target. Higher tariffs on US imports would hurt their own citizens and firms, limiting their ability to counter Trump’s tariffs. A more productive approach is to focus on minimizing the economic fallout.

### Alternative Strategies

Governments can explore other options, such as:

* Suspending intellectual-property protections for US software and streaming services, as the EU has done
* Restricting US banks and financial-service providers from operating within their markets
* Imposing mineral-export restrictions, as China has done
* Pursuing collective action through regional economic integration and new trade agreements

### Conclusion

Trump’s trade war is like a Category 5 hurricane – destructive, but its impact can be mitigated. By avoiding panic and fostering strategic partnerships, the world economy can better weather the storm.

### FAQs

* How will Trump’s tariffs affect the global economy?
+ Trump’s tariffs will lead to higher prices for imported goods, reduced international trade, and potentially a global economic downturn.
* Will retaliatory tariffs work?
+ No, most countries run trade surpluses with the US, and higher tariffs on US imports would hurt their own citizens and firms, limiting their ability to counter Trump’s tariffs.
* What is the best way to counter Trump’s tariffs?
+ Minimize the economic fallout by recognizing the trade and financial channels that could trigger a global economic downturn. Explore alternative strategies, such as regional economic integration and new trade agreements, to counter Trump’s tariffs.

Shang-Jin Wei, a former chief economist at the Asian Development Bank, is professor of finance and economics at Columbia Business School and Columbia University’s School of International and Public Affairs. The views expressed are those of the writer and do not necessarily reflect those of FMT.