Donald Trump’s Davos speech: Should Europe really fear tariffs?
Published on 25/01/2025
Donald Trump’s address at the World Economic Forum showcased his familiar economic rhetoric. Yet, it could be argued that his speech was marked by economic misconceptions and exaggerations, Piero Cingari writes.
US President Donald Trump’s video address at the World Economic Forum on Thursday may well be a textbook example of a bluff strategy familiar to poker players.
From his fixation on the US trade deficit, which he portrays as an economic evil, to his claims of trillions of dollars in investments flowing into the United States and an inflation and interest rate narrative echoing Turkey’s unorthodox policies under Recep Tayyip Erdoğan, Trump’s economic rhetoric remains long on spectacle but short on substance.
Trump lambasted the US trade deficit, threatening tariffs on countries with which the US has significant imbalances.
However, a trade deficit is not inherently harmful, particularly for the United States.
Imports grant American businesses access to raw materials and intermediate goods, supporting domestic production and driving economic growth.
For consumers, imports enhance purchasing power and broaden choice—unless one envisions Americans happily swapping Parmigiano Reggiano and French champagne for lower-quality domestic substitutes.
More importantly, restricting imports through tariffs does not automatically boost US exports. On the contrary, tariffs risk weakening trade partners, reducing their purchasing power for American goods and services, and prompting retaliatory measures.
Unlike most economies, the US enjoys the extraordinary privilege of running both a wide trade deficit and a large fiscal deficit without triggering financial turmoil. This is largely due to the US dollar’s status as the world’s primary reserve currency.
In 2023, the US twin deficit — comprising a 3.3% current account deficit and a 6.2% budget deficit — totalled nearly 10% of GDP, or roughly $2.7 trillion (€2.5 trillion).
Yet, no investors rushed to sell their dollars or Treasury holdings—an outcome that would have been inevitable in most other countries.
Billions, trillions… But where is the money?
Trump’s focus on trade imbalances ignores economic reality: as long as the US dollar retains its dominant role in global finance, these deficits are not an imminent threat but a structural feature of the international economic system.
Perhaps someone should remind Trump that the most significant reduction in the US trade deficit occurred between 2008 and 2009 when the figure plunged from $740 billion to $419 billion amid the global financial crisis.
In 2009, Americans were hardly celebrating the narrower deficit. Simply put, beware of what you wish for.