By Gustavo de Arístegui, as published by La Razón.
August 03, 2025.
The EU, ostensibly the world’s foremost trading power, has thrown in the towel in the first round without landing a single blow
Since his return to the White House in January 2025, Trump’s protectionist agenda has resurfaced with unprecedented virulence. On April 2, in an event he dubbed “Liberation Day,” he declared a national emergency under the International Emergency Economic Powers Act (IEEPA) of 1977, imposing a general 10% tariff on all imports, with additional rates that, depending on the origin, could reach or exceed 25%. By June, tariffs on steel and aluminum had skyrocketed to 50%, extending to imported appliances and automobiles—a measure that, according to the Tax Foundation, could shave 0.9% off U.S. GDP. The climax came on August 1, with new tariffs ranging from 10% to 41% on imports from 68 countries, including allies like Canada, India, and Taiwan, though some were postponed until August 7 to facilitate negotiations.
Not everything has been confrontation and tension; the Trump Administration has negotiated bilateral agreements that have partially mitigated the impact. The European Commission, negotiating on behalf of the 27 member states, secured a highly controversial deal reducing tariffs to 15% in exchange for commitments to purchase U.S. liquefied natural gas (LNG) and the elimination of duties on certain European exports. Similarly, Japan, South Korea, and the United Kingdom signed “zero-for-zero” pacts with rates between 10% and 15%, tied to investments in the U.S. These buffering elements, as detailed in the report from the Office of the United States Trade Representative (USTR, effectively the country’s foreign trade minister), reduce the negative impact by 20-25%, though they do not dispel the uncertainty that, according to the IMF’s World Economic Outlook of April 2025, has trimmed global growth projections to 3%.
Repercussions on the U.S. Economy: Between Ephemeral Benefits and Latent Costs
The U.S. economy has experienced these tariffs in an ambivalent manner, though some prestigious economists highlight positive aspects, such as curbing unfair competition, fiscal dumping, and manipulations of competitiveness through artificially low exchange rates to favor exports. The paradigmatic example is the Chinese yuan. Tariffs will balance competition between U.S. producers and Chinese ones whose success is rooted in excessively low prices. Countries with higher production costs, focused on quality and strict corporate social responsibility standards, started from a significant disadvantage. This without mentioning industrial espionage or the systematic violation of intellectual property, which further reduces costs through illegal and often criminal methods. On one hand, they have generated fiscal revenues nearing $167.7 billion (0.55% of GDP, per the Tax Foundation), bolstering sectors like steel, where companies such as U.S. Steel report 20% gains. The latest economic indicators, updated through July 2025 by sources like the Bureau of Economic Analysis (BEA) and The Conference Board, show GDP growth of 2.4% in the fourth quarter of 2024 (with similar projections for 2025), while leading indicators (those that anticipate changes in economic activity) registered 1.4% growth over the last six months, reversing prior declines.
The controversial chief trade advisor to President Trump, Peter Navarro, has staunchly defended the tariff barriers he inspired. Trump decided to bring some order to the tariff auction by entrusting coordination of the entire process to the effective and sensible Treasury Secretary, Scott Bessent, who has overseen trade agreement negotiations even above the USTR, the office formally responsible. In this vein, Navarro asserted in several interviews, with his characteristic vehemence, that “tariffs have been tax cuts instead of inflation, and it’s working,” labeling the policy a “global reset” worthy of a Nobel Prize in Economics for Trump. Some say Navarro skipped class the day they explained inflation.
He defended the 50% hike on steel as a “necessary shield for U.S. industry” (Fox Business, June 2025), insisting that indicators like GDP growth and the creation of 200,000 manufacturing jobs since January are unequivocal proof that tariffs drive prosperity without excessive costs. However, the balance is uneven: inflation expectations, per University of Michigan surveys, rose to 3.3% in January 2025, the highest since 2008, with year-over-year inflation at 2.8% in February, above the Federal Reserve’s 2% target. Economists at the Yale Budget Lab estimate that U.S. households face an additional $2,400 annually in spending on goods like electronics (many manufactured in China, though designed in the U.S.), with prices up 5-10%. Recall that the tariff war and the financial law (The Big Beautiful Bill) were the cause of Elon Musk’s rift with Trump. Musk called Navarro “dumber than a sack of bricks.”
In the labor realm, contrasts are evident: 200,000 jobs created in manufacturing, but 150,000 lost in trade and logistics, per official Department of Labor figures. As of this writing, the stock market has squandered trillions—not billions—in the three major U.S. indices: the Dow Jones, S&P 500, and Nasdaq, with closures and layoffs in industries dependent on international trade. It is crucial to emphasize that even if the tariffs last only a few months, their negative effects will persist for years, as reversing the impacts of a tariff war is slow and laborious. As Gordon Gray, director of fiscal policy at the American Action Forum, noted in a 2024 Brookings Institution analysis, “Tariffs impose a regressive tax on consumers, disproportionately affecting lower-income households and stifling long-term innovation in affected sectors.”
The Domino Effect on the Global Economy
On a global scale, the tariffs have injected volatility into an already fragile system. The IMF adjusted its 2025 forecast to 3% growth, a slight improvement in July, but with warnings about elevated risk premiums and supply chain tensions. European companies like Stellantis report losses of €1.5 billion, while Philips estimates €150-200 million. In Asia, China sees growth slowed to 4.5% (-0.7 points), with imported inflation in technology and agriculture.
Europe suffers a loss of export competitiveness, especially in automotive and heavy industry, with eurozone GDP projected at 1.1% (-0.3 points, per the European Central Bank). India and Brazil face drops of 0.4 and 0.5 points, respectively, with inflation rising to 5.1% and 4.8%. As the World Bank cites, these tariffs act as a “global tax,” reducing efficiency and raising costs by 3-5%, fragmenting trade and fostering “deglobalization.” In a poignant assessment, the Council on Foreign Relations’ 2024 report on U.S. trade policy warns that “such measures risk unraveling decades of economic integration, potentially costing the global economy trillions in lost productivity,” echoing concerns raised by former IMF Chief Economist Gita Gopinath in her 2023 Foreign Affairs essay on the perils of protectionism.
European Criticisms: Capitulation or Pragmatism?
Within the EU, the agreement with the U.S. has sparked heated criticisms. French Prime Minister François Bayrou called it a “capitulation” and “a black day for Europe.” France, along with the Benelux countries and Germany. German Chancellor Friedrich Merz labeled it “harmful to both sides,” per the World Economic Forum (July 30, 2025), though somewhat half-heartedly, as Commission President Ursula von der Leyen is from his party, the CDU, albeit from the Merkel wing, not particularly friendly to Merz. The Benelux denounces the imbalance: the EU accepts 15% tariffs while the U.S. eliminates nearly all of theirs, in exchange for significant commitments to buy U.S. energy products and massive European industrial investments in the U.S.
Free Trade in Peril and the Geopolitical Use of Tariffs
Tariffs erode free trade, multiplying barriers and weakening the World Trade Organization (WTO). Global trade volume declines by 2-3%, with rising logistical costs and geoeconomic fragmentation. Trump constantly changes the rules mid-game, exemplified by punitive secondary tariffs on those continuing to buy Russian oil and gas despite Western sanctions, following a U.S. ultimatum of ten days to Russia to accept an immediate ceasefire in Ukraine. A retired U.S. ambassador told me yesterday: “This is the perfect definition of mixed feelings—watching your worst enemy drive off a cliff in your new Ferrari.”
However, one cannot reproach Trump for trying to defend U.S. interests; he won’t do it for China or the EU. If his Administration genuinely believes this policy favors medium- and long-term U.S. geoeconomic and geostrategic interests, they are entitled to pursue it. If it harms others, we must defend ourselves or take palliative measures. What seems a true absurdity is that the EU, ostensibly the world’s foremost trading power, has thrown in the towel in the first round without landing a single blow. In fact, we hit the canvas before the fight even started.
Episodes like this undermine the credibility of partners in European institutions and provoke sarcastic jokes, like those from a brilliant but histrionic and somewhat overconfident Indian MP from the Congress Party, my friend Shashi Tharoor, who in a speech in superlative Oxford English before all EU ambassadors and the U.S. ambassador to India said: “The oxymorons of geopolitics: American diplomacy, military intelligence, friendly fire, civil war, and above all, European Union—there’s no greater oxymoron than that.” Let us take note.
As Adam Posen, president of the Peterson Institute for International Economics, argued in a 2024 Foreign Affairs article, “Protectionist policies like these not only distort markets but also invite retaliatory cycles that erode global trust, much as we’ve seen in historical trade wars.” This underscores the enigma at the heart of Trump’s strategy: a bold gamble that may yield short-term gains but risks long-term isolation in an interconnected world.
*Gustavo de Arístegui is a diplomat and former ambassador to India, Bhutan, Maldives, Nepal, and Sri Lanka. gustvodearistegui.substack.com