As Trump goes full Indian socialist, countries need to coordinate

Asia Times

07-04-2025

So, Italy, your secret has been revealed. For decades, you have been 'looting, pillaging … and plundering' your transatlantic ally, all for your own prosperity. Never mind that your economy has barely grown for 20 years, while America leads the world on virtually every measure except equality. In Donald Trump's fantasy economics, you deserve to be punished.
The challenge now for all Europeans is of how to respond to this declaration of economic war by our supposed ally and, just as important, to this very personal choice by the leader of the world's largest economy to adopt an economic strategy last used in a large country by India's post-colonial socialist government in the 1950s.
As in socialist India, the idea is to substitute domestic production for imports by erecting high barriers to trade. This idea kept India poor for four decades.
It will now raise the cost of producing as well as living in America, reducing the competitive pressures that previously made the US so dynamic, and will make Americans poorer.
The difference between America and 1950s India is that the US economy's size and trading significance mean that the rest of the world will also be seriously affected.
In the first interview she has granted to a foreign publication since entering Palazzo Chigi two and a half years ago, an interview notably lacking in any insight into her own agenda, Giorgia Meloni told the Financial Times on March 28th that it was 'childish' and 'superficial' to think that Italy might have to choose between the United States and Europe.
Now that Trump has behaved in a spectacularly childish and superficial manner by imposing his 20% tax on US imports of Italian and other European goods, she might have to think a bit harder about her own approach.
There was much that was absurd about Trump's tariff announcement: His list of countries needing punishment included some islands inhabited only by penguins; and he claimed to have consulted a leading businessman, Lee Iacocca, former CEO of Chrysler, the firm that is now part of Stellantis, about his plans, but as Iacocca died in 2019 that conversation must have been some time ago.
Yet we should not these absurdities distract us from the gravity of what he has done. As well as the direct economic impact, through this tariff plan Trump has confirmed that America can no longer be trusted as an ally or a partner.
This is shocking for long-time security allies such as Europe's NATO members and Japan. But it is especially painful for poorer countries like Vietnam and others in Asia who believed what previous American leaders had told them: that in America they had a strategic economic and security partner that would help them avoid becoming dependent on China.
The import taxes that he has imposed will raise America's barriers against trade to their highest level since the 1940s. The formula used to calculate the 20% tariff on goods from the EU, 24% on goods from Japan and 46% on goods from Vietnam is an unscientific invention based on the bilateral balance in goods trade between the US and each country. Italy had a goods trade surplus with the rest of the world of €55 billion in 2024: does this mean that Italy is prospering by plundering the world? If so, few Italians have noticed.
The formula is also, however, one that alleges that the EU's value added tax somehow represents an unfair trade barrier. Yet VAT applies to all goods and services sold, whether they are domestically produced or imported, and so cannot represent a barrier to trade, let alone an unfair one. In Trump's world, reality does not count.
[For Bloomberg subscribers, I recommend my former colleague Clive Crook's excellent riposte that if Trump and his advisers really think VAT brings unfair advantages in trade, they should be introducing one in the US and using the proceeds to lower income and corporate taxes, rather than tariffs.]
Moreover, this whole campaign entirely ignores trade in services, which makes up a quarter of all trade. Digital services have been the fastest growing element of world trade, one that America dominates.
Trump should ask Elon Musk, Amazon's Jeff Bezos or Meta's Mark Zuckerberg to explain to him how they have become the world's richest men. Perhaps they will also point out that one of the likeliest targets for a robust retaliatory response is digital services.
Many European leaders, not only Meloni, have reacted by criticizing Trump's economic strategy but warning against making things worse by retaliation. America's Treasury Secretary, the Wall Street billionaire Scott Bessent, who must know that imposing the biggest American tax rise since 1968 is an act of economic self-harm, has made the same point: Countries should consider these tariffs to be a 'high water mark,' he has said, and negotiate to get them reduced rather than risk forcing them even higher.
The difficulty with this approach is that if you do not retaliate, you enter the negotiations in a weak position. The art of the response will be to show strength and demonstrate your leverage without giving Trump an incentive to show his own power by escalating further, as he did last month when threatening 200% tariffs on European alcohol. As with any bully, he is at his strongest when he can divide his opponents and strike fear into the weakest.
Co-ordination between countries and trading blocs must be the most important approach, combined with unity within those blocs. To borrow Meloni's words, the really childish response would be for individual European leaders now to fly to Washington to seek concessions.
The mature way to serve national interests will be to take the time to agree with allies, first inside the European Union and then between the EU and other blocs, on a common strategy.
While we cannot expect the whole world to respond in harmony, whether through the United Nations, the World Trade Organization or any other institution that previous American presidents worked so hard to create, it should be possible for the EU to collaborate with Japan, for example, and for Japan to collaborate with the countries of Southeast Asia and Oceania, which it successfully assembled into the Trans-Pacific Partnership free trade bloc during Trump's first term.
Trump has been talking about his protectionist philosophy for four decades now, even if he will never have linked it with Jawaharlal Nehru, India's first post-colonial leader. No one should be surprised that now that he feels powerful, he is putting this foolish philosophy into practice.
Coordination, to hit back against US goods and services while maintaining open markets for each others' products, is the best way to prove that he is not in fact as powerful as he thinks he is.