Opinion by ZEW President Achim Wambach
“Trump 2.0”: New Tariffs, Old Risks. In an interview with the Verband Deutscher Maschinen- und Anlagenbau (VDMA) from April 2025, ZEW President Achim Wambach explains why tariffs tend to harm the US economy, what could be the global consequences of a renewed trade conflict with China and what opportunities this may offer for Europe.
US President Donald Trump has placed the economy – alongside migration – at the centre of the political agenda in his second term of office. What is different about “Trump 2.0” compared to his first four years as president?
President Trump and his advisors are much better prepared this time than they were during his first term in office. This can be seen in the number of executive orders (presidential decrees) he has issued so far: In his first month in office in 2025, he has already signed 70 executive orders (as at 18 February) – 15 more than throughout 2017, his first year in office.
The main objective of Trump's economic policy is to encourage investment and the creation of new jobs in the USA. Does his aggressive approach have any chance of success?
It is worth looking back to his first term in office, when Trump also increased import tariffs on various goods. Studies show that this has actually harmed the American economy. The majority of the tariffs were probably passed on to American private and industrial consumers: It is estimated that they have suffered a loss of 51 billion dollars. According to these calculations, the total loss for the USA was 7.2 billion dollars, because the national budget and domestic producers have benefited from the tariffs. Similar effects can be expected from the announced tariffs – if they are implemented. The Kiel Institute for the World Economy is modelling the impact of the tariffs that Trump announced during his election campaign: a uniform 10 per cent tariff on all imports from countries with which the US does not have a free trade agreement and a 60 per cent tariff on Chinese imports. This would result in a 2.5 per cent decrease in global trade in the first year and an even greater decline in the long term. The Peterson Institute, too, has analysed the effects of Trump's tariff threats during his election campaign. According to their analysis, an average middle-income household would have 1700 dollars less income, which corresponds to a 2.7 per cent reduction in income. A tariff policy is not a good economic policy. Not even for the country imposing the duties. But it raises more money for the public purse and strengthens domestic companies that are in international competition. Everyone else suffers.
Trump sees global trade as a battleground and the main opponent is China. What kind of economic conflict is looming here and what does that mean for Europe?
A trade war between China and the USA will also affect Germany and Europe. The demand for European intermediate products, which are processed in China and sold in the USA, will decline. The trade dispute will also slow down the global economy, which in turn will be felt by European and especially German exporters. However, more protectionism from the USA can also be an opportunity for Europe: Former trading partners will increasingly look for new trading partners. Europe should seize the opportunity to conclude new regional agreements. This situation may also provide an opportunity to intensify cooperation with China with regard to climate action. The USA's withdrawal from the Paris Agreement leaves a gap that others can fill.
The US President believes he can steer his course with tariffs or by threating to introduce them without the USA itself suffering damage, for example through higher inflation. Is that possible?
I don't think so. At least the US Federal Reserve, the Fed, is concerned. The Federal Open Market Committee of the Fed points out that the customs policy could have a negative impact on inflation. The tariffs in Trump's last term were almost entirely passed on to American private household and industrial consumers. The tariffs would also cause at least a one-off price increase today, which is also reflected in inflation. Whether this will also lead to higher inflation in the medium term depends on the expectations of the economy. An appreciation of the dollar resulting from higher tariffs can cushion the price increase.
What are the future prospects for global trade based on multilateral agreements? Should we prepare ourselves for a future where there will only be trade deals between individual nations?
The rules of the World Trade Organisation (WTO) should not be written off too soon; more than 80 per cent of world trade is still governed by these rules, such as the Most-Favoured-Nation Clause. But the Americans are currently pursuing a different policy. This is also an opportunity for Europe, as many countries now have an interest in reducing their dependence on the USA. Europe should forge new partnerships and enter into further free trade agreements. On the one hand, this will help to cushion the economic impact of tariffs on imports to the USA; on the other hand, it can also increase supply security through the diversification of supply chains and thus make the European economy more resilient.
What is your advice to German and European industry in this environment?
For some, a stronger focus on production in the USA may make sense. However, we should not allow ourselves to be persuaded that globalisation is at an end. Global trade, measured in relation to global domestic product for example, is stable. International trade in services is growing. US protectionism will lead to new markets such as Mercosur opening up. The same advice therefore applies to businesses and politics alike: Reduce dependencies and seize new opportunities as they arise.
This interview was first published in the VDMA online magazine in April 2025.
