Anglo-American University in Prague 起点传媒Faculty Member Publishes Article on the Global Impacts of U.S. Tariff Policy
Petr Barto艌, a lecturer in economics at Anglo-American University and chief economist at Natland Investment Group, recently published an article in the Czech newspaper Echo Weekly analyzing the global effects of tariff policies introduced during the administration of U.S. President Donald Trump. The article outlines how tariffs can influence consumer prices, production costs, and trade flows beyond national borders. Drawing on economic principles and recent developments, Barto艌 examines how these measures may affect markets in regions such as the European Union, with attention to both direct and indirect consequences. The full translation is provided below.
Key Takeaways:
- Tariffs can shift who benefits in global markets. While tariffs increase costs of production, prices of traded goods in some parts of the world can fall.
- Retaliatory tariffs can punish domestic consumers at least as much as they target foreign producers.
- Inflation and imperfect markets mean that downward pressure on prices may manifest itself 鈥渙nly鈥� in reduced inflation rather than reduced prices.
- Existing trade deficits are not the result of tariff 鈥渦nfairness鈥� but because each country is good at something else. Trying to equalize trade flows (rather than tariffs at 0%) would result in a poorer world.
Let鈥檚 set the stage right from the start: A tariff? Think of it as a 鈥渢err-iff鈥�. While some now argue they are terrific, in reality they are terrifying. Among economists, there鈥檚 not a single one who can truly defend tariffs; on the contrary, they can have some terrifying effects on the economy. The widespread reduction of tariffs since World War II has largely contributed to an unprecedented rise in global prosperity throughout human history. Even today鈥檚 seemingly unrelated tech boom would not have come this far under high tariffs. Anyone trying to defend tariffs might claim to be an economist, but if they do so (perhaps for political reasons or personal interests), it doesn鈥檛 make it true.
However, saying 鈥渢ariffs are bad鈥� doesn鈥檛 mean that once a tariff has been put in place, it can鈥檛 ever have a positive effect for someone. Economics is rarely black and white鈥攁lmost nothing has exclusively negative or exclusively positive effects for everyone. (For example, if a currency strengthens, importers benefit but exporters take a hit.) Admitting that there can be some local 鈥渟ilver lining鈥� in an otherwise harmful tariff is not a defense of tariffs; it鈥檚 simply applying economic principles to a given situation. Next year marks the 250th anniversary of economics as a formal discipline (dating from the first publication of Adam Smith鈥檚 The Wealth of Nations, a kind of 鈥渂ible鈥� for economists). What follows is an economist鈥檚 perspective on Donald Trump鈥檚 tariffs and the consequences they might have.
For many non-economists, this is probably the biggest surprise. They assume that since economists say tariffs are bad, it automatically means higher prices everywhere. But that鈥檚 not quite how it works. If global goods face new barriers on their way into the U.S., some of those goods won鈥檛 make it there (it becomes unprofitable), so producers will look for other markets鈥攍ike the European Union. The EU is somewhat comparable to the U.S. market in size and purchasing power. Yes, the EU has its own certification hurdles for imports, but those can be overcome. And once a product is certified for the EU market, the importer can ship greater volume more freely鈥攖hus potentially pushing down prices on that item in Europe.
This price-lowering effect isn鈥檛 purely theoretical. We have real-world data. When Trump imposed tariffs on Chinese steel during his first term, steel got cheaper in the EU. Now, with new tariffs on not only Chinese steel but also on Canadian and Mexican steel鈥攚here U.S. demand had been far higher than for Chinese products鈥攖his effect may be even stronger. This comes at a time when Europe could actually use more steel than usual, so cheaper steel is a welcome relief. The EU is still undecided whether it鈥檒l prioritize the 鈥淕reen Deal鈥� or boost defense spending (as though doing both without worrying about where the money comes from were easy). Whichever path the EU takes, it will need steel鈥攚hether for new green technologies or defense. It鈥檚 a detail that鈥檚 sometimes overlooked: going green still requires a lot of steel.
Falling prices for global goods that no longer go to the U.S. will mainly benefit importers. Not all of us are importers, right? Sure, many of us order small consumer items from places like China鈥攕o we do import in a small way. But we also buy global brands on the local market from importers, so the key question is how competitive those importers are in passing cost savings along to us. On top of that, most major central banks operate under an assumption of permanent, necessary inflation: they have a near-phobic fear of prices dropping鈥攚hat they call the 鈥渄eflationary spiral鈥濃�攁nd they do everything to avoid it, aiming for a steady inflation rate of about 2% a year. So sometimes, instead of actual price cuts, we might just see slower price increases, or what economists call 鈥渄isinflation.鈥�
The flip side of cheaper goods potentially appearing in the EU is that goods in the U.S. will become more expensive. Here鈥檚 what a tariff actually is: it鈥檚 primarily a tax on the importing businesses in the country that imposes it. The importer pays that tax at the port. Thus, they bear higher costs, which they typically pass on to their customers, depending on the level of competition in the sector. This isn鈥檛 just theory, either. Vehicle prices in the U.S. started climbing as soon as the White House announced tariffs on foreign cars, even before the tariffs took effect. Folks who wanted an imported car tried to buy quickly to avoid the extra cost, driving up prices. Those who didn鈥檛 care about the car鈥檚 origin still saw imported models going up in price, so they shifted to American-made cars, also pushing up their prices. American production can鈥檛 expand that quickly鈥攏o matter what dreams are circulating in Washington. And even homegrown manufacturing costs will go up, since about 60% of U.S. imports are raw materials or parts for further production.
When you hear about Donald Trump鈥檚 鈥渃ounter-tariffs,鈥� they鈥檙e a response to what he sees as higher EU tariffs on American goods. (The President鈥檚 formula for determining unfair tariffs is questionable, but that鈥檚 another story.) If we do see prices go up in the EU, it won鈥檛 be because of Trump鈥檚 tariffs鈥攊t鈥檒l be if the EU decides to retaliate with its own tariffs. Nothing in economic theory says that fighting tariffs with more tariffs is a good idea. If anything, economics suggests it could make the situation worse: it effectively punishes consumers in the EU with higher prices. The EU often complains that the U.S. 鈥渄oesn鈥檛 want to talk,鈥� but the Union could unilaterally lower its tariffs to match the American level if it really wanted to. That鈥檚 basically what happened with Canada and Mexico, where an agreement was reached only after tariffs were imposed.
No economist can definitively say the EU wants to jack up tariffs; we lack insider info. We can only note that the EU perpetually grapples with budget shortfalls. Right now, it鈥檚 even preparing to go into debt for ambitious spending plans, since it鈥檚 basically the only 鈥済overnmental鈥� entity in Europe without existing debt. Meanwhile, three-quarters of customs revenue goes directly to the EU budget, currently about 14% of total EU funding. Because EU tariffs are relatively low on average (even though tariffs on certain dairy products can exceed 40%), the overall intake isn鈥檛 high. But if the EU threatened tariffs on U.S. goods, it could mean a nice budget windfall for the EU. Sure, consumers would be hurt by higher prices鈥攂ut the Union鈥檚 budget might get a big boost.
Tariffs aren鈥檛 the only kind of import barrier. With tariffs, at least the government coffers collect some revenue (which is also what Trump hopes to do in the U.S.). But there are also 鈥渋mport quotas.鈥� Under quotas, there鈥檚 a hard limit on how much of a certain product can enter the EU each year. Once you hit that limit鈥攕ay, in September鈥攏o more can come in until next year. This restriction on quantity pushes up prices, just like tariffs do, but the EU doesn鈥檛 collect a dime from it. And yes, we鈥檝e seen examples of this, too. When Trump鈥檚 first steel tariffs made steel cheaper in Europe, the EU responded by imposing its own barriers to keep prices higher.
From all these potential outcomes, it鈥檚 clear that when European Commission President Ursula von der Leyen said the EU stands ready to protect 鈥渋ts markets, manufacturers, and consumers,鈥� it wasn鈥檛 entirely accurate. Consumers can actually benefit from cheaper imports triggered by U.S. tariffs. The ones who stand to lose are: 1) exporters who sell to the U.S. (in countries like the Czech Republic, that might be specialized machinery or measuring instruments), 2) component suppliers for industries like German car manufacturing, and 3) producers who now face cheaper international competition. According to many simulations, the third group is the hardest hit in countries like the Czech Republic. The direct drop in production because of U.S. tariffs on the EU is estimated at a few tenths of a percent of GDP, meaning that if the economy was expected to grow at 2% this year, it might be more like 1.7%. That鈥檚 still growth. Only a couple of years back, growth was at zero.
Some doomsday forecasts suggest that if tariffs last three years, the cumulative drop for countries like the Czech Republic could even reach 2% of GDP. But ironically, the bigger effect might come from U.S. tariffs on China, because cheaper Chinese goods might get diverted to Europe, intensifying competition for local producers. The Czech Republic might produce less but see significantly lower prices in shops. Sometimes we forget about that upside when the conversation focuses solely on GDP. And as for worrying about unemployment鈥攊t鈥檚 at an all-time low anyway, and companies are clamoring for workers they can鈥檛 find. The gradual shift away from traditional auto manufacturing to simpler electric vehicles is likely to pose a bigger shock to Central European factories than tariffs on cars sold to the U.S.
There鈥檚 another way costs could go up for EU producers, even without any new EU tariffs or quotas: If enough global manufacturers believe these tariffs will last at least a year (which is not guaranteed), they may scale back production. In the short term, they might just stockpile goods in hope tariffs might soon be lifted and demand surges again. But if they truly cut back, the total manufacturing volume shrinks, so the capital and overhead of those factories is spread over fewer units鈥攍eading to higher per-unit costs. Think of it like a postal service that used to deliver thousands of letters a day, now delivering just a few dozen, so postage prices shoot up. Global efficiency declines, and so do economies of scale, pushing up prices across the board.
Tariffs can end in three main ways: 1) a collapse of the U.S. economy (though market dips alone don鈥檛 equal economic ruin鈥攅conomies can be surprisingly resilient), 2) action by the World Trade Organization (though the WTO has been hamstrung for years, partially due to U.S. policies), or 3) the U.S. court system. Tariffs are technically set by Congress, not the President, but the current administration invoked emergency powers at the start of its term, citing things like illegal fentanyl imports, to bypass Congress. Sometimes those claims are a stretch. For instance, tariffs on steel from Canada were rationalized on national security grounds. The Senate has already pushed back on the logic behind some of these tariff expansions. Since the White House used such sweeping measures in questionable ways, the courts might strike them down. But these legal battles take time, and tariffs remain in effect until then.
In his 鈥渇ormula鈥� for determining which country to hit with tariffs, Trump didn鈥檛 actually measure tariff rates. Instead, he primarily looked at bilateral trade deficits. He鈥檚 basically punishing countries for the 鈥渁udacity鈥� of selling more to the U.S. than they buy, even though the U.S. itself sometimes runs a surplus with other countries. I personally run a 鈥渄eficit鈥� with my local grocery store but enjoy a 鈥渟urplus鈥� with my own clients鈥攖hat鈥檚 just how trade works. Across the global economy, one nation鈥檚 deficit is another鈥檚 surplus. It鈥檚 even more bizarre that Trump鈥檚 plan focuses on goods trade while ignoring services, where the U.S. is quite strong and nearly balances its trade with Europe.
Trump wants to use tariffs to do two things: bring in revenue for the federal budget (which, like many countries鈥�, is chronically in deficit) and shift more manufacturing to the U.S. But these goals are contradictory. If production does relocate to the U.S., the government won鈥檛 collect tariffs (because there鈥檚 no more import). If the government keeps collecting tariff revenue, then manufacturers haven鈥檛 actually moved back onshore.
Not literally. The 鈥渢ariffs on penguins鈥� story emerged because some uninhabited islands (Heard Island and McDonald Islands in the southern Indian Ocean) show up in U.S. trade statistics for exporting roughly $1.4 million a year in goods to America. Since they appear in the stats, they got included in the spreadsheet, and thus faced tariffs as well. In this sense, the U.S. is an equal-opportunity customs officer鈥攁pparently, even penguins can do business with the U.S鈥nd get smacked with an import tax.
That鈥檚 terr-iffs for you: definitely not a good idea, but they do produce some side effects that can ripple through global markets in unexpected ways. And in some comedic twist, it looks like not even arctic birds are safe from them.
The foregoing piece was originally published by Echo Weekly and is reposted here with the author’s permission.