Donald Trump's trade tariffs to fund his 'Big Beautiful Bill' are intended to forge business deals that serve only his own interests. But Albrecht Rothacher warns that for ordinary Americans, the tariffs will cause price hikes on essential goods such as fuel and medicine, and the resulting inflationary surge may well damage Trump's prospects in next year's midterms
Every week, Donald Trump issues new, vicious tariff threats, boorish insults, tariff waivers, and selective delays. His ultimatums expired on 9 July. Then he planned to send 'letters' to America's 12–15 biggest trading partners, plus 100 smaller ones with little US trade. The world and its economy were waiting for the postman…
The US President's semi-informed motives, whether political, protectionist, mercantilist, or self-serving, vary depending on his mood. They are the negotiating tactics of a 79-year-old real estate developer: create chaos with short-term shock, intimidate the other party, and, eventually, triumph with a 'deal' that serves his own business interests. Long-term strategies, friend and foe, are of no interest. Only the deal matters.
In fact, Trump genuinely believes he can use increased tariff revenue from the foreseeably gigantic budget deficit to finance the tax breaks of his Big Beautiful Bill. He doesn’t want to hear from independent experts, only ultra-loyalists. In contrast with his first term, there is no longer resistance among cabinet ministers, top officials, or military officers.
Trump's erratic foreign trade policy has succeeded in devaluing the US dollar by more than 10% since he took office in January 2025
Trump's erratic foreign trade policy has unsettled global markets and their supply chains. It has devalued the US dollar – normally a haven in times of economic uncertainty – by more than 10% since he took office in January. After being virtually at parity with the euro, the dollar is now worth just 85 cents. This makes imports correspondingly more expensive – driving up US inflation. It also promotes cheaper US exports, which should make protective tariffs unnecessary.
Trump is interested only in trade in goods, where, according to Eurostat, in 2024 the EU achieved a surplus of €197 billion over the US, with a volume of €867 billion. At the same time, the US achieved a bilateral surplus of €148 billion in EU payments for services, from Wall Street to high-tech giants Apple, Amazon, Apple, Google, Meta, Microsoft, and patent payments to Hollywood films. This covers three-quarters of the trade deficit in goods. Moreover, according to a Kiel Institute for the World Economy study, transatlantic trade in services and the associated EU deficit are growing faster than trade in goods. In a few years, the balance of payments will likely be even, if not in the US' favour – irrespective of political intervention.
But Trump isn't interested in the services balance. The EU received its 'letter' over the weekend. All importers will face the 30% tariff from August, except companies that produce in the US. And if the EU retaliates with tariffs, Trump will hit back with an equal levy.
All EU importers will face the 30% tariff from 1 August 2025 – and if the EU retaliates with tariffs, Trump will hit back
For months, the consensus-oriented EU of 27 have been clucking like chickens in a coop, with buzzards circling above. For weeks, trade Commissioner Maroš Šefčovič negotiated, unsuccessfully, with US Trade Secretary Howard Lutnick. Charm offensives by Friedrich Merz, Giorgia Meloni and Emmanuel Macron were in vain. On one hand, Lutwick couldn't decide anything; Trump does that alone. On the other, the EU offered nothing. It couldn't reduce import tariffs on US cars (which few would buy anyway) to zero, nor modify the restrictions and obligations on online hosting providers contained in the Digital Services Act. Nor could it remove its import bans on US food, particularly chlorine- and hormone-treated meat. Offers to buy more US military equipment and liquefied natural gas failed. In any case, Trump appears disdainful of the EU – and Europeans generally.
And how Trump feels about countries seems to be a key factor. For example, Trump is threatening Brazil with 50% punitive tariffs (in addition to the 10% already imposed on everyone). His motive appears to be the prosecution of the former president (and Trump's personal friend) Jair Bolsonaro for alleged coup plots. Trump is also avenging the Supreme Court's ruling that Meta and Google would be liable for millions of dollars for insubordinate online messages. Canada, meanwhile, he is penalising with a 25% tariff, allegedly for failing to stop transit of the opioid fentanyl from China. In April, he threatened Japan with 24% tariffs (now rising to 30–35%) for not allowing rice imports and for an unbalanced car trade – as if American SUVs could fit on Japan's narrow suburban streets and in garages.
Yet, for Vietnam, Trump reduced the threatened import tariff from 46% to 20%. The Vietnamese had previously reduced tariffs on US goods to zero. Trump’s son, Eric, flew to Hanoi for an inauguration ceremony for a $1.5 billion project of three Trump golf courses plus luxury apartments. This was followed by a spades-in-the-ground ceremony for the newly approved 60-storey Trump Tower in Saigon.
Tariffs are driving huge firms like Nike and Apple to relocate production for the US from China to Vietnam, where Trump has reduced the import tariff to 20%
As a result, more and more US companies — like Nike and Apple — are relocating their production for the US from China, which continues to be subject to punitive tariffs of 50%, to Vietnam. Indeed, Vietnam is where Adidas and Puma also have their shoes manufactured, much to the dismay of the Chinese leadership.
And when Hyundai announced a $20 billion investment in the US, Trump celebrated it as a victory for his policy and announced that the Koreans would no longer have to pay tariffs.
The impact of all of this on the US economy will be considerable. Steel, aluminium and copper imports (50% tariffs) are crucial for electric cars, defence equipment, and the power grid. Trump's announcement caused a price hike on all three in the US, while prices fell on the global market. Trump's proposed draconian import taxes on imported medicines could have similar price increases for US patients. The inflationary surge will be significant. And that's why, despite pressure from Trump, the Fed will not lower interest rates.
The mid-term elections to Congress are not until November 2026. Hang on to your hats.
