The economist Pol Antràs (Barcelona, 1975) has lived in the United States for 25 years and believes that there are other factors, beyond the loss of purchasing power of Americans, which stimulated Donald Trump in his return to the White House. , like certain positions of the Democratic Party in certain social debates which concern the American middle class.
This expert in international trade, who has taught at Harvard University since 2007, has no doubt about the devastating effects that the economic policies announced by the North American tycoon will have on the world economy. However, he also sees an opportunity for Europe to emerge stronger.
How do you interpret Trump’s clear victory? Has “it’s the economy, idiot” won again or is he hiding something else?
The economy is undoubtedly a very important factor. Many people have suffered from inflation, but not just in the United States. If we see what is happening in Europe, the ruling parties lose elections: when you suffer, you try to vote against what you think led you to this situation. But that’s just one factor, I see others. To win elections in the United States, you must convince “sensible people” to vote for you. When Trump first won in 2017, it was because many sensible people, even though they might not agree with everything he said, voted for him.
Now, with inflation, what happened is that the Democratic Party, I won’t say that it became radicalized, but it did not explicitly distance itself from certain radical elements of the party, and in particular on certain social questions. For example, the movement to “defund” the police because they are violent against black people has led to cities like San Francisco having crime everywhere and making it unlivable. Or the wokie movement, for the protection of minorities. There are very liberal ideas that have been associated with Democrats that a very significant part of American society does not see clearly and associates with the more radical wing of the party.
What should we expect from now on?
Normally there is always a gap between what is said during the campaign and what is ultimately done, but Trump’s case is interesting because during his first term he did virtually everything he said. Based on this, a new wave of protectionism awaits us, at the trade level. He imposed the first tariffs, which Biden did not remove, mainly focused on China, and they will now increase even more. We are talking about 10% for everyone and the consequences will be much more serious than then. Tariffs on China did not have many distortions, US imports from China in 2022 were at the same level as in 2018. In 2023, they fell, but for only one effect: Chinese companies moved their operations to Southeast Asia, to Mexico, and the products came in through there. But if tariffs become widespread now, global trade could fragment and impact growth and inflation because they make products more expensive.
Protectionism aimed at stopping inflation is surprising when customs tariffs make domestic prices more expensive: what could previously be bought for 100 will now cost 110.
There is a debate in the economic world about who will end up paying the customs duties. There are those who think it’s a tax on the Chinese because they pay it when they want to sell to the United States. This is a very technical question, of tax incidence, linked to the characteristics of the market and its elasticities. I agree that domestic prices in the United States should rise; Empirical studies of the effects of the first tariff increase under Trump indicate that American citizens paid the price. The feeling in the United States at the time, when Trump set the tariffs, was that he did so as part of a negotiating strategy aimed at getting China to comply with the tariffs. intellectual property issues, etc., to bring the Asian giant into line on certain aspects. , looking for an agreement. But seven years have passed and the tariffs remain. Trump won’t fight inflation with tariffs; these tariffs are intended to protect jobs and perhaps reduce the trade deficit.
The other major economic measure proposed to mitigate the loss of purchasing power is a general tax reduction.
Like any republican government, there is pressure to maintain, even lower than they already are, income tax, corporate tax… What I consider to be the most dangerous, is t is the idea of incorporating Elon Musk and others with the aim of dismantling many public agencies, as Milei is doing in Argentina. It is true that the public sector is often too bureaucratic, inefficient and that there are institutions that absorb a lot of resources and do little. But there are many very important institutions, like the Department of Education, or the public treasury, the IRS, which still receive fewer resources among the Republicans. And it’s annoying because, even though taxes are low, there is a lot of tax evasion, especially from billionaires. And multinationals tend to file their taxes in countries with lower tax rates.
To combat this fraud, resources are needed and there will now be more bars open. But it is not obvious that it will not work, economists know that sometimes, if you lower taxes a little, economic activity can be reactivated and you end up collecting more. In the studies I have seen, there is not as clear a relationship because taxes are not very high anymore. And if you don’t invest a lot, you will end up reducing public spending, and it will not be in Defense, nor in the increase in the public deficit.
What else worries you economically about Trump’s victory?
Immigration policy. I am an immigrant and I see that the United States could easily absorb 100 million additional inhabitants, it is not a very dense country. Less-skilled immigrants could well come to a country that needs a lot of domestic help and nursing home workers, and there aren’t any. But it’s true that illegal immigration rates are at historic highs, and not having much control over entry makes many people uncomfortable. I worry about the effects that the fight against illegal immigration may have on talent. In my classes I have Russian, Chinese, Iranian doctoral students… coming to study is already difficult, but staying is very complicated. For Europeans, it is perhaps easier but that does not encourage them, I feel this animosity myself.
Do you think greater immigration control will lead to a loss of talent?
It’s not what they want, but it is what it is. I fear that the country’s technology sector, which forms the basis of the North American economy, will be affected. If Silicon Valley exists, it is not because of its climate, but because talented people want to go there and work with other people.
How do you think Trump’s protectionist policies will affect Europe and how do you think the EU should respond?
This will have negative effects, but I also see opportunities. Many European countries, such as Germany and Spain, rely heavily on exports to the United States and do not have the economic clout of China. A 10% tax on European exports, which cannot be ruled out, would be expensive. And with the image that Trump has in Europe, it is very likely that there will be strong popular pressure for the EU to retaliate, to do the same, and that tariffs will eventually climb to 20%, 25%, 30%. %. Many might think this is a way to protect local industry, as is the case with tariffs on Chinese-made electric vehicles. Perhaps additional jobs will be created, but ultimately consumers will end up paying with higher prices. But Europe must be the guarantor of the international institutions that Trump discredits, like the IMF and the WTO… and the way to achieve this is to fight back, even if it is aware that this will have a cost.
Are we moving towards a much more protectionist global economic model?
Yes, and I do not detect in popular sentiment a desire to avoid it. Partly because we don’t yet see the costs involved.
Could this situation lead to a global recession?
Of course. The global value chains that have virtually ruled world trade over the past 20 years are very stable, they do not tend to change very quickly when the shocks affecting them are temporary. For example, if a company has a factory in Vietnam and there is a tsunami, they will not open factories elsewhere in the world. This is what happened with COVID, when vaccines arrived and the world began to recover. But if we see that populism is starting to win everywhere in the world, that animosity between countries is increasing, that’s something else. The outlook for major investment banks envisions this fragmentation scenario.
He spoke of the opportunities for Europe.
I am not very optimistic because they are very difficult to achieve politically. First, before US tariffs, Europe could do the opposite and sell Europe as a free zone to attract business and investment from other parts of the world. By saying: “we are not playing this, we have an unrestricted framework”, but politicians will be under strong popular pressure to respond with the same measures. Second, immigration is another big opportunity. I already know that there is a large migratory flow towards Europe which is putting pressure on many regions and cities, like Barcelona, where the last thing people want is for it to become the new Silicon Valley with half a million additional inhabitants. But Europe has the opportunity to reopen the doors to innovation. It is a continent with good fundamentals, it is good to live there, it could attract a lot of talent if it coordinates well and applies a good subsidy policy. In two directions: many Europeans will not want to leave and, on the other hand, Russian, Iranian and Chinese citizens will want to come here. These are countries with a lot of talent.
I understand that it can be very difficult for Europe from a cultural point of view to welcome millions of Chinese or Iranians, but this is the future of Europe. There is also a demographic question: either Europe finds a way to be more receptive to immigration, or it is condemned to uselessness in 25 years. There are many things in economics that cannot be predicted, but the demographics are very clear, we know the birth rate. With 4% of the world’s population, it is very difficult to rule the world. Either we have more children, which I don’t think is good for this job, or we open up to people from other places in the world. Immigration and innovation. If the United States wants a more closed model, this could represent a historic opportunity for Europe.
