Damir Odak, a member of the ECB’s audit board, warned attendees before his presentation that he was speaking only for himself, not on behalf of the ECB. According to his assessment, the world initially misunderstood what Trump aims to achieve by imposing tariffs on the rest of the globe.
– Starting from January 2025, new surprises will arrive from Washington every day. The behavior of the capital market is surprising. In America, nothing; in Canada, nothing; in Mexico, stocks slightly rose on the day he announced tariffs. They did not believe him; they misunderstood him. They thought it was about some tactical solutions, but it is about something else. Europe and the USA have been the slowest growing major economies for the last 20 years. In 20 years, the center of the global economy has shifted from the middle of the Atlantic to the middle of the Pacific. America is now trying to change that trend – said Odak.
As he assessed, the USA has a problem of slow growth and deficit, and Trump is not trying to reduce the debt but to slow it down and not burden the economy with additional taxes. The reason for the lack of credibility of his initial announcement is Canada.
– Canada is a third world country compared to the USA. Exports from the USA to Canada account for 1 percent of GDP. Imports are energy, raw materials, and semi-finished products. We all know that tariffs are not imposed on such a country. As much as 70 percent of American refined oil is Canadian; this is technologically determined and cannot be replaced with shell oil – warned Odak.
The problem of the EU is dependence on the USA and China. Imports from China to the EU account for 23 percent of the total, and although it is only about 2.4 percent of Europe’s GDP, it involves a range of products that are necessary for the normal functioning of the economy, as they are not available from other sources at comparable prices. The EU’s strategic dependence on America is primarily in the area of defense. Odak presented data that EU exports to the USA in 2022 accounted for 22 percent of total exports and more than two percent of EU GDP.
– Maintaining the transatlantic relationship as the foundation of global economic hegemony no longer works. The relationship with the USA is important for the EU, but it takes two to maintain a relationship. If one does not want it, there is no help. The economic dynamics of the EU will be determined by competitiveness and complementarity with Asia. If the trends of the last quarter-century continue until 2050, the EU would be reduced to half of China’s GDP. To break that trend, it is necessary to find a balance in free trade with Asia. This is a far more challenging task than competing with tariff increases – he said.
The advantages of Asia, especially China, over the USA and the EU are increasing. Odak calculated that producing a 10-kilogram steel profile in the EU requires $222 for energy and labor, in China $69, and in India $28.
