Trump tariffs, global crisis, and ways forward

The global trading system has been significantly shaken to the core. In recent weeks, we have seen the largest US tariff increases since the Smoot-Hawley tariffs of 1930.

Director General Anders Ahnlid

President Trump has introduced tariffs that directly affect trade flows, create uncertainty, and risk causing a wider economic downturn. Today, the US maintains higher tariffs than any comparable country, averaging 15 percent.

Uncertainty about rules changing daily has led businesses to delay investment decisions and orders. Trade policy has become a tool for power politics, undermining the global rule-based framework.

The global trading system, set up after World War II with the US as a key player, now faces its greatest challenge. WTO rules that have supported decades of growth, prosperity, and poverty reduction are being undermined—not only by US actions but also by China's state-driven economy sidestepping established rules.

We can no longer take rule-based trade for granted.

We do not yet know how far US policy changes will move away from previous trade conditions. However, Trump's tariffs mark a turning point. We can no longer take rule-based trade for granted. The US has announced a 90-day pause in tariffs for certain countries, including the EU, during which negotiations are ongoing. Hopefully, these talks will produce better outcomes than Trump's threatened tariffs. However, the outcome remains uncertain. In the worst case, tariffs could become permanent, with all the associated consequences. This risk cannot be ignored.

The EU has chosen a responsible approach. By temporarily halting countermeasures, the EU shows goodwill. The European Commission has proposed removing tariffs on all industrial goods, including vehicles. However, it remains unclear what Washington demands in the negotiations. Requests to open EU markets to agricultural trade will always be politically challenging in Brussels.

If Chinese exports shift from the US to the EU, trade tensions could intensify further.

Meanwhile, the US-China conflict has escalated significantly. Tariff levels are now extremely high—the US has imposed 145 percent tariffs on imports from China, and China has retaliated with 125 percent tariffs on US imports—leading to a major reduction in trade between these two economies. Exceptions are made for components vital to US tech companies, further emphasising perceptions of arbitrary and unpredictable US policies.

China's management of this crisis will significantly shape future developments. If Chinese exports shift from the US to the EU, trade tensions could intensify further. Another issue is whether the US and EU negotiations can agree on measures addressing how China's state-driven economy undermines WTO rules.

Given these circumstances, the EU should pursue three strategies:

1. Complete negotiations with the US—and support businesses.
   The EU must continue responding responsibly to Trump's tariffs, aiming for an acceptable outcome. Ideally, Trump's tariffs should be removed or significantly reduced. Businesses also need support to navigate an increasingly complicated tariff environment. The National Board of Trade Sweden’s "customs hotline" plays a key role in advising Swedish companies.
2. Defend the rule-based trading system. The EU should increase efforts to protect the WTO and the rules underpinning about 90 percent of global trade not involving the US. The EU can—and should—lead a coalition of countries committed to predictable, regulated trade. The WTO remains highly relevant. Although it has struggled to negotiate extensive new trade agreements recently, its rules still form the backbone of international trade, especially for developing countries relying on these rules to access global markets.The EU should also expand its bilateral free trade agreements. Agreements with Mexico, Chile, and Switzerland have been modernised. The focus should now be on implementing the Mercosur agreement, concluding negotiations with Australia, and progressing substantially in negotiating with India, Indonesia, Thailand, and the UAE. Speed, focus, and political will are vital.
3. Use the crisis as a springboard for EU internal market reform. The current crisis should drive vital reforms in the EU internal market. It remains incomplete and underperforming. Reports by Letta and Draghi highlight necessary improvements: capital market coordination, energy market reforms, and stronger digital infrastructure.

Enforcing existing regulations in a better way would also yield significant productivity gains. Improved compliance with rules on the free movement of goods and services, such as through the National Board of Trade Sweden’s proposal for decentralised enforcement, could reduce the burden on the European Commission.

A better-functioning internal market is also crucial to generating resources needed for strengthening EU defence, addressing climate change, and sustaining prosperity.

Lastly, the EU should use the challenging geopolitical climate to accelerate integration for Ukraine, Moldova, and several Western Balkan countries. The National Board of Trade Sweden supports this objective. Providing these countries, a clear path toward EU membership sends a strong geopolitical message and strengthens Europe's shared future.

The Smoot-Hawley tariffs deepened the Great Depression in the 1930s and indirectly contributed to World War II. History does not repeat itself—but it provides important lessons. We must apply these lessons wisely. Tariffs must not be treated lightly. Trade policy requires thoughtful, responsible, and strategic handling.

Anders Ahnlid
Director General

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