Donald Trump's Sweeping Global Tariffs

The countdown is on to Donald Trump's so-called Liberation Day. At 4 p.m. Eastern Time, the president will announce sweeping global tariffs on products imported into the United States. The announcement could affect trillions of dollars in U.S. imports, and there are fears it could trigger a global trade war.

The head of the European Commission, Ursula von der Leyen, stated that the EU is ready to retaliate to protect its interests, while Keir Starmer has said that all options are on the table for the United Kingdom. The Trump administration insists the policy will improve American competitiveness despite hefty criticism and widespread economic uncertainty.

"Those days of America being ripped off are over. American workers and businesses will be put first under President Trump, just as he promised on the campaign trail. The president's historic action tomorrow will improve American competitiveness in every area of industry, reduce our massive trade deficits, and ultimately protect our economic and national security."

President Trump has already imposed a range of tariffs targeting key industries and major economies. The threat of new levies has heightened tensions with some of America's historically closest trading partners, namely Canada and Mexico. Here’s what the leaders of Canada and Mexico had to say about their countries' responses to the threat of fresh tariffs:

"As I made clear to President Trump in our call last week, I will reject all attempts to weaken Canada, all attempts to wear us down, to break us down so that America can own us. That will never, ever happen."

"We do not believe in an eye for an eye, a tooth for a tooth, because that always leads to a bad situation. Of course, measures are taken in Mexico because measures are taken on the other side, but the dialogue has to continue."

So let's talk to Yanis Varoufakis, former Greek Finance Minister and author. Sir, you were, of course, at the helm of Greece's negotiations during the economic crisis triggered by the 2008 financial crash. Is Liberation Day potentially going to trigger something as large as that 2008 financial crash?

A better analogy to 2008 is 1971 because this Trump shock, which we are all expecting with bated breath to hit us today, is not unprecedented. President Richard Nixon delivered the original shock in 1971 with very similar objectives. Nixon’s objective was to rein in the diminishing importance of America in the global economy following its transition from a trade surplus country to a trade deficit country. He essentially unleashed a major economic war against Europe and Asia—Japan, in that case—for the purpose of devaluing the American dollar, which he succeeded in doing. Everything we have been experiencing in the last 30, 40, 50 years as the status quo was a result of that Nixon shock.

Trump is trying to create his own version of the Nixon shock, and I think we need to draw lessons from that. Allow me to say, because I was listening to your program—when I hear Ursula von der Leyen or the Canadian Prime Minister trying to outcompete Trump in terms of bravado, my message to them is: Folks, when you are running a very large trade surplus—especially the European Union, with a $240 billion trade surplus with the United States—you cannot win a tariff war against Trump because you will run out of things to tariff before he does.

So, we need to look inside our own economies for ways to change our economic models, given that he is trying to emulate Nixon and disrupt the prevailing monetary and trade system."

That fighting talk from the EU is arguably not the right direction. We know that Keir Starmer, the leader of the UK, is talking about not issuing retaliatory measures. Is that the right approach?

*"It's one of the very rare occasions I agree with Keir Starmer on anything, but I think he's right on this: the best retaliation is no retaliation when you're in a weaker position because you're running a surplus with the United States.

What we should be doing in the United Kingdom, in the European Union, and what China should be doing, is looking at ways to rebalance our own economies so that we do not rely on the American trade deficit to sell our net exports. Why can’t we raise our own levels of investment and aggregate demand within Europe, the United Kingdom, and China, so we don’t need to rely on the U.S. trade deficit?"*

Is that realistic? Doing it in-house—is that even possible, given how much is exported to the U.S.? There's a reason for that—the markets adjust themselves.

*"There’s nothing else that’s realistic. Trump has declared it, and I believe this will become a bipartisan position in the years to come, regardless of who succeeds Donald Trump. We must learn to live in a world where we can no longer export deflationary forces to the United States.

I’m all for increasing trade and selling more, but we have to buy more—not just from the United States. The idea that, for instance, Germany can continue to piggyback on other nations' demand to maintain an industrial model that suppresses the living standards of its own middle and working classes in order to export massive quantities of goods without importing equivalent amounts from its trading partners—that is a sure way to become dependent on capricious leaders like Donald Trump."*

Yanis, let's focus on Greece. You're Greece's former Finance Minister, and Greece is within the EU bloc, meaning it will negotiate alongside the EU. You've historically said that the euro is like Hotel California—a place you can check out of, but never actually leave. Greece is now bound to whatever the EU decides. What does this Liberation Day mean for Greece?

*"It's not looking very good, I'm afraid. Greece will not be directly affected by Trump's tariffs because we don’t export much to the U.S., but Greece is utterly dependent on the German industrial model, which has shown very clear signs recently that it is failing.

The German industrial model is simply not able to compete with Chinese technologies, particularly in electric vehicles and green energy. The reality is that, in Germany and across Europe, we have not invested in the last 15 years. We’ve had zero actual productive net investment. Countries like Greece are essentially hoping for the best, while watching Ursula von der Leyen and the incoming German chancellor attempt to maintain business as usual—even though business can no longer continue as usual."*

And just as a final thought—how much do you think the Trump administration will stick to this? He has a history of saying one thing and doing another, which creates economic instability. Markets hate that. How likely is it that he will continue with what he declares later today?

*"I think we overestimate the unpredictability of Donald Trump. He floods the zone—this is a Steve Bannon strategy—to keep us guessing, but that’s part of his plan. It’s not that he’s changing his mind constantly; he wants us to think that.

My view is that these tariffs are here to stay. They are imposed on everyone—friend and foe—simultaneously. They are blanket tariffs, and they will effectively raise the average tariff rate in the U.S. from 2.5% to something closer to 20-25%. This is a massive increase.

Once they are in place, Trump will go to each country individually—Britain, France, Germany, Japan, Korea, China—keeping them separate, keeping them weak, and extracting different concessions from each.

From Japan, which holds $1.2 trillion in U.S. dollar savings, he will demand they trade those dollars for long-term American debt. From Germany, he will push for the relocation of entire production lines—from Volkswagen, BMW, BASF, and Siemens—to the United States.

This is his strategy. It’s a mistake to think that just because he is inarticulate, or for some politically unpalatable, that he doesn’t have a plan. He does have a plan. We don’t have a plan. It’s about time we got one.