The Economy Brief – How would Ice Man counter Trump’s Maverick-onomics?

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Two terrible things happened this week. Val Kilmer, who famously played “Ice Man” alongside Tom Cruise's "Maverick" in Top Gun, died on Tuesday. The next day, Donald Trump, another purported "maverick", set fire to the global economy.

There is, of course, a critical difference between Cruise’s “Maverick” pilot in the 80s classic – a counterpoint to Kilmer's “ice cold” character – and his contemporary, orange-tinted aspirant who just threw decades of economic orthodoxy out the window by imposing a 10% minimum tax on US imports.

Cruise’s character, for all his arrogance and eccentricities, was a caring friend and an outstanding fighter pilot. (He was in a 4G, inverted dive with a MiG-28!) Trump, on the other hand, is far from being an outstanding president (or, for that matter, a decent human being).

Such ineptitude was on full display this week, as Trump’s team proudly brandished a formula for calculating the so-called “reciprocal tariffs” that has absolutely no economic justification.

The calculation involves dividing a country’s trade surplus in goods by its total exports of goods to the US, and then multiplying by a hundred. Cutting this number (more or less) in half gives you the “discounted” reciprocal levy.

For instance, the EU’s 20% duty results from its goods trade surplus with the US of $235.6 billion. Dividing by its total goods exports of $605.8 billion gives 39% – hence the final tariff of 20%.

Aside from having no fundamental basis, the formula generates a host of mathematical puzzles. What about, for instance, places like Singapore, that run a deficit with the US? (Should they be charged a negative duty?) And what about countries or territories that don’t export anything at all to America? (Should they pay an infinitely high rate?)

Donald Trump slaps 20% duties on EU exports and ignites global trade war. The “reciprocal tariffs”, which aim to mitigate the "unfair" trade barriers other countries impose on US goods, came as the self-proclaimed “Tariff Man” imposed sweeping duties of at least 10% on dozens of other countries, including China, India, and the UK. Trump also specifically accused the EU of imposing an effective tax rate of 39% on US goods and singled out the bloc’s VAT and automobile tariff rates, as well as its “non-tariff barriers” on US poultry. "European Union, they’re very tough… very friendly. They rip us off. It's so sad to see. It's so pathetic," he said. Read more.

EU leaders denounce Trump tariffs but urge dialogue with US. European leaders were quick to condemn the duties on Thursday but reiterated their plea to reach a negotiated deal with Washington. “President Trump's announcement of universal tariffs on the whole world, including the EU, is a major blow to the world economy,” Ursula von der Leyen said on Thursday. The European Commission president added that Brussels is “ready to negotiate” with the US but stressed that the EU is also “prepared to respond” if Trump’s new duties come into effect. “Let's move from confrontation to negotiation,” she said. Read more.

Services will be part of the EU's tariff response, says France. French government spokesperson Sophie Primas said on Thursday that Paris is "ready for this trade war" and that, after reacting to aluminium and steel tariffs, a second EU response to Wednesday’s reciprocal tariffs will "probably" be ready at the end of April. "The second response will cover all products, and I want to stress this—services will be included," Primas said, before listing "digital services, including those provided by the GAFAM," as examples. GAFAM refers to Google, Amazon, Facebook, Apple, Microsoft. Read more.

Do Trump’s tariffs herald ‘the end of the American century’? Trump’s protectionist policies and general volatility could prompt radical changes in the global economy that might transform the nature of the EU-US relationship, accelerate multipolarisation, and end the hegemony of the US dollar, analysts said. Thursday’s announcement represents a “massive regime shift” that potentially “spells the end of the American century”, said Sony Kapoor, a professor of geoeconomics at the European University Institute. Read more.

EU plan to shift €392 billion regional development funds towards the defence sector and larger firms criticised by experts, left-wing MEPs and SME lobby groups. “The commissioner and right-wing nationalist politician [and EU cohesion commissioner Raffaele Fitto] … uses a dangerous narrative that amounts to a misappropriation of cohesion funds,” said centre-left S&D politician Sabrina Repp. Fitto justified the changes on Tuesday by arguing that “the world has changed significantly” since the funding guidelines were decided. He added that the EU faces “new and intensified challenges” ranging from water scarcity to defence and competitiveness. Read more.