The economist Pol Antràs (Barcelona, 1975) has been living in the United States for 25 years and believes that there are other factors, beyond the loss of purchasing power of Americans, that have boosted Donald Trump in his return to the White House, such as some positions of the Democratic Party in certain social debates that concern the US middle class.
What this international trade expert, who has taught at Harvard University since 2007, has no doubt about is the devastating effects that the economic policies announced by the North American magnate will have on the world economy. However, he also sees an opportunity for Europe to emerge stronger.
How do you interpret Trump’s clear victory? Has the “it’s the economy, stupid” thing won again or is he hiding something else?
The economy is a very important factor, without a doubt. Many people have suffered from inflation, but not only in the United States. If we see what is happening in Europe, the parties in power are losing the elections: when you suffer you try to vote against what you believe has led you to this situation. But this is just one factor, I see others. To win elections in the United States you have to get “sensible people” to vote for you. When Trump won for the first time in 2017 it was because many sensible people, although perhaps they did not agree with everything he said, voted for him.
Now, along with inflation, what has happened is that the Democratic Party, I won’t say it has radicalized, but it has not explicitly distanced itself from certain radical elements of the party, and in particular on certain social issues. For example, the movement to “defund” the police, because it is violent against black people, has led to cities like San Francisco having crime everywhere and making it unlivable. Or the wokie movement, for the protection of minorities. There are very liberal ideas that have been associated with Democrats and that a very important part of American society does not see clearly and associates them with the most radical wing of the party.
What do we have to expect from now on?
Normally there is always a gap between what is said in the campaign and what ends up being done, but Trump’s case is interesting because in his first term he did practically everything he said. If we base ourselves on this, a new round of protectionism awaits us, at the commercial level. He put the first tariffs, which Biden did not eliminate, basically focused on China, and now they will go up even more. There is talk of 10% for everyone and the consequences will be much more serious than then. The tariffs on China have not been very distorting, US imports from China in 2022 were at the same level as in 2018. In 2023 they fell, but for one effect: Chinese companies moved their activities to Southeast Asia, to Mexico , and the products entered through there. But if tariffs become widespread now, world trade could become fragmented and will have an effect on growth and inflation, because they will make products more expensive.
Protectionism to stop inflation is surprising when tariffs make internal prices more expensive: what could previously be bought for 100 will now cost 110.
There is a debate in the economic world about who ends up paying the tariff. There are those who think that it is a tax on the Chinese because they pay it when they want to sell to the United States. It is a very technical issue, of tax incidence, which has to do with the characteristics of the market and its elasticities. I share the idea that domestic prices in the United States should rise; empirical studies on the effects of the first tariff increase under Trump indicate that American citizens paid for it. The feeling that there was at that time in the US, when Trump set tariffs, was that he did so as part of a negotiation strategy for China to comply with intellectual property issues, etc., to square the Asian giant a little in certain aspects, looking for an agreement. But seven years have passed and the tariffs remain. Trump will not fight inflation through tariffs, the tariffs are intended to protect jobs and perhaps reduce the trade deficit.
The other major economic measure proposed to mitigate the loss of purchasing power is a generalized tax reduction.
Like any republican government, there is pressure to maintain, even lower than they already are, the income tax, the corporate tax…What I see as most dangerous is the idea of incorporating Elon Musk and others with the purpose of dismantling many public agencies, as Milei is doing in Argentina. It is true that many times the public sector is too bureaucratic, inefficient and that there are institutions that absorb many resources and do little. But there are many very important institutions, such as the Department of Education, or the public treasury, the IRS, that always receive fewer resources with the Republicans. And it’s annoying because, although taxes are low, there is a lot of tax evasion, especially by billionaires. And multinationals tend to file taxes in countries with lower tax rates.
To fight this fraud you need resources and now there will be more open bars. But it is not so obvious that it will not work, economists know that sometimes if you lower taxes a little, economic activity can be reactivated and you end up collecting more. In the studies that I have seen there is not such a clear relationship because taxes are no longer very high. And if you don’t raise a lot, in the end you end up reducing public spending, and it won’t be in Defense, or increasing the public deficit.
What else worries you economically about Trump’s victory?
Immigration policy. I am an immigrant and I see that the US could easily absorb 100 million more inhabitants, it is not a very dense country. Less qualified immigrants could come very well to a country that needs a lot of domestic help and workers for nursing homes, and there are none. But it is true that illegal immigration rates are at historic highs, and not having much control over who enters makes many people uncomfortable. I am concerned about the effects that the fight against illegal immigration may have on talent. In my classes I have Russian, Chinese, Iranian PhD students… coming to study is already difficult, but staying is very complicated. For Europeans it may be easier but it does not encourage them, I myself feel this animosity.
Do you think that greater immigration control will result in a loss of talent?
It’s not what they want, but that’s how it is. I fear that the country’s technology sector, which is the basis of the North American economy, could be affected. If Silicon Valley exists it is not because of its climate, but because talented people want to go to work there with other people.
How do you think Trump’s protectionist policy will affect Europe and how do you think the EU should react?
It will have negative effects, but I also see opportunities. Many European countries, such as Germany and Spain, depend heavily on exports to the US and do not have the economic weight that China has. A 10% tax on European exports, which cannot be ruled out, will be costly. And with the image that Trump has in Europe, it is most likely that there will be a lot of popular pressure for the EU to retaliate, to do the same, and that the tariffs will end up escalating to 20%, 25%, 30%. Many may think that it is the way to protect the local industry, as is the case with tariffs on electric vehicles made in China. Perhaps some additional jobs will be created, but in the end consumers end up paying for it with higher prices. But Europe has to be a guarantor of international institutions, which Trump discredits, such as the IMF and the WTO… and the way to do it is by retaliating, even if it is aware that there will be a cost.
Are we going towards a much more protectionist global economic model?
Yes, and I do not detect in popular sentiment a concern to avoid it. Partly because we are not yet seeing the costs involved.
Could this situation lead to a global recession?
Of course. The global value chains that have practically governed global trade in the last 20 years are very stable, they do not tend to change very quickly when the shocks that affect them are temporary. For example, if a company has a factory in Vietnam and there is a tsunami, it does not open factories in other places in the world. It happened with COVID, when the vaccines arrived and the world began to recover. But if we see that populism is beginning to win around the world, that animosity between countries is increasing, that is something else. The perspectives of the main investment banks see this scenario of fragmentation.
He was talking about opportunities for Europe.
I am not very optimistic because they are very difficult to achieve politically. First, before the US tariffs, Europe could do the opposite and sell Europe as a tariff-free zone to attract companies and investments from other parts of the world. Saying: ‘we don’t play that, we have an unrestricted framework’, but politicians will have a lot of popular pressure to respond with the same measures. Second, immigration is another great opportunity. I already know that there is a lot of migratory flow towards Europe that puts pressure on many areas and cities, like Barcelona, where the last thing people want is for it to become the new Silicon Valley with half a million more people. But Europe has an opportunity to reopen the doors to innovation. It is a continent with good fundamentals, life is good, it could attract a lot of talent if it coordinates well and applies a good subsidy policy. In two directions: many Europeans will not want to leave and, on the other hand, Russian, Iranian, and Chinese citizens will want to come here. They are countries with a lot of talent.
I understand that bringing millions of Chinese or Iranians may be very difficult for Europe to take on from a cultural point of view, but this is the future of Europe. Also for a demographic question: either Europe finds a way to be more receptive to immigration or it is condemned to irrelevance in 25 years. There are many things in economics that cannot be predicted, but the demographics are very clear, we know the birth rate. With 4% of the world’s population it is very difficult to lead the world. Either we have more children, which I don’t think people are for that work, or we open ourselves up to people coming from other places in the world. Immigration and innovation. If the US wants a more closed model, it could be a historic opportunity for Europe.
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