Donald Trump will be inaugurated as the 47th president of the United States on January 20. A star of the Notre-Dame inauguration, Trump has already made his diplomatic mark. Soon, he will set the tone for new global economic balances.

“Tariffs will only be a negotiating tool,” says Professor Nikolai Wenzel (*).

Donald Trump aims to raise tariffs on all imports to 10% or 20%, depending on the products, up to 60% on Chinese imports, and as high as 200% on vehicles imported from Mexico. Europe, including France, is in the crosshairs. The French government is concerned about the recessionary effects, as are others across Europe.

China, given the totalitarian and expansionist instincts of its Communist Party, is an exception. Trump understands this well. However, in general, trade is the foundation of prosperity, whether between two individuals, two cities, or two countries. This is such an obvious principle that it’s taught in the first sessions of introductory economics courses.

The tariffs proposed by Trump are essentially a tax on American consumers and foreign exporters. While the state would collect tax revenues and protect a few inefficient American industries, the overall impact could be detrimental.

Would such measures harm the American economy itself?

Yes, the U.S. economy as a whole would suffer, along with the economies of its trade partners and the global economy at large. However, it’s likely that such draconian tariffs are not Trump’s true policy but a negotiating tool to secure bilateral concessions.

Could the WTO condemn and impose sanctions if the U.S. implements these tariffs, leading to protectionism or even economic isolationism?

The WTO might issue condemnations or impose sanctions. However, the U.S. president has certain powers to bypass international trade agreements. For instance, the “Section 301” provision allows the president to impose tariffs on countries accused of unfair trade practices, a claim frequently made by Trump. Tariffs can also be justified under national defense concerns, as Trump demonstrated during his first term.

Didn’t the WTO already criticize Trump’s tariff policies a few years ago?

In 2021, the WTO ruled that Trump’s tariff policies violated U.S. obligations. However, the WTO lacks enforcement power and relies on the goodwill of its participants to facilitate international trade. Trump views globalization and multilateral systems like the WTO as detrimental to American interests, making it unlikely that he would heed its rulings.

This distrust reflects a deeper isolationist sentiment. Historically, the world saw a surge in international trade between the fall of Napoleon’s Continental System and World War I, followed by isolationist retreats during the interwar years. Since 1945, and especially since the 1990s, globalization and international trade have boomed, bringing significant, albeit uneven, economic growth. These shifts have caused socio-economic realignments, fueling skepticism about the system, with Trump leading the charge.

Trump has pledged to eliminate inflation. Democrats paid a heavy electoral price for rising prices under Biden. Trump has also promised to halve energy bills within his first year in office. Are these promises realistic?

Democrats indeed faced electoral backlash over rising prices under Biden. However, inflation is a monetary phenomenon, as Milton Friedman explained. During the COVID-19 crisis, the U.S. government spent $5 trillion. Unable to raise taxes significantly, the federal government turned to the Federal Reserve, which essentially printed $5 trillion. This monetary expansion caused inflation, reaching 20% between 2020 and 2024.

As for energy prices, oil was $70 per barrel in January 2017, during Trump’s first inauguration, dropped during COVID-19, and returned to $70 by April 2021. While geopolitical factors temporarily raised prices, they have since stabilized. Halving energy bills is an electoral promise rather than a feasible policy.

Will the new administration continue the Inflation Reduction Act, which subsidizes green energy to attract foreign companies?

The Inflation Reduction Act of 2022 is essentially a spending bill focused on renewable energy and carbon emissions, areas where Trump shows little enthusiasm. However, Trump is likely to continue Biden’s industrial policy supporting domestic production.

Could Trump lower corporate taxes to 15% during his second term? Doesn’t the federal government need tax revenue?

The OECD average corporate tax rate is 24%, so lowering the U.S. rate from 35% to 21% during Trump’s first term was not extraordinary. Corporate taxes account for only 5% of U.S. federal revenue. Lowering taxes stimulates economic growth, but reducing public spending is equally crucial. The federal debt exceeds 120% of GDP, with interest payments consuming 11% of the federal budget.

Can Elon Musk, as Trump’s proposed Minister of “Government Efficiency,” run the state like a business?

No, a state cannot be run like a business because it does not operate under market discipline. Effective governance involves advancing public welfare while minimizing waste. With federal spending at $6 trillion annually, inefficiencies abound. Nearly half of every dollar generated by the U.S. economy is controlled by politicians and bureaucrats rather than consumers or entrepreneurs.

Trump's promises, including lowering income taxes and government spending, contrast with his previous inaction on debt reduction. Whether Elon Musk and others in Trump’s administration will address deeper inefficiencies remains to be seen.