Make America kaput again

The Great Depression between 1929 and 1932, which saw hundreds of thousands of people become unemployed, mass bankruptcies, and social misery, happened just four generations ago. In the U.S., it resulted in a 30% contraction in GDP. Worldwide, the gross domestic product fell by roughly 15%.

The global economic downturn began with tariffs and protectionism. The political result was the end of democracies in many countries around the world – with Hitler, Mussolini, Franco and Stalin taking power.

President Donald Trump and his hard-core followers are well on their way to repeating history. Punishing the countries of the world with tariffs – notable exceptions are Russia, Belarus, and North Korea [sic!] – does not seem to be a very brilliant idea as leading business experts object.

Villains applaud
Why is Washington imposing a 46% tariff on products from Vietnam? Why 10% on Ukrainian goods – a country that has been resisting the Russian invaders for more than three years? Why tariffs of no less than 50% on exports from the small African state of Lesotho? Particularly bizarre: an island whose only inhabitants are penguins, is also being taxed. In his furor, the autocrat is waging a trade war against the entire world, save for the above-mentioned exceptions. No surprise then that his move is applauded by villains such as Putin, Kim Jong-un, Netanyahu, his tech billionaire buddies: Mark Zuckerberg, Jeff Bezos or Peter Andreas Thiel, as well as his devout Republican guard at home in the USA.

Trump’s step provokes retaliations
Globalization? That was once a source of prosperity for many. Now the world is falling apart like the pieces of a jigsaw puzzle. In the end, no one is likely to benefit from Trump’s tariff stampede, not the disruptive USA, nor any other nation. Because most will react with targeted punitive countermeasures, such as Canada, China, the EU and others have already announced. The producers of export goods based in Republican-governed states are likely to suffer most. For example, Caterpillar, Tesla or Dell from Texas, or the bourbon producers, Jack Daniel’s and George Dickel from Tennessee, to name but a few.

According to Denmark-based Scan Global Logistics, a leading expert in the freight forwarding industry, the U.S. tariff’s mid and long-term impact on global trade can include factors such as increased inflation levels, a broader U.S. economic recession slowing down consumer demand, and nearshoring of production gaining traction. It is already obvious that in the short term, the impact will be profound. Worsened by retaliatory duty tariffs imposed by China, Canada, Mexico, and the EU. Hence, there is a significant risk that the current situation spirals into a global trade war.

The rich will benefit, but the vast majority will not
This will, in turn, impact trading patterns and consumer demand, potentially pushing down rate levels further as carriers struggle to fill their transport capacities, estimates Scan Global Logistics.

The so-called Liberation Day will also have dire consequences for the U.S. aviation industry which Trump wants to protect from foreign competition through tariffs. This is because this industry is highly interconnected internationally and depends on functioning supply chains. For example, Boeing receives cockpit instruments, components for wings and fuselage sections from manufacturers based in Europe or in Mexico and Canada. The punitive tariffs will make these imports more expensive, which will drive up the price of Boeing aircraft and weaken their market position.

COMAC is likely to overtake Boeing – in the medium term
Industry leader, Airbus, will continue to consolidate its pole position to make up ground quickly, including in the cargo sector with its newbuilt A350F. Freighters have been Boeing’s domain for many years. However, this might soon end. In addition, the erratic tariff barriers are likely to increase demand for the aircraft manufactured in Shanghai by newcomer, COMAC, for which the Trump tariffs represent a veritable economic stimulus program. In addition to carriers serving the Chinese domestic market and Cathay Pacific from Hong Kong, other airlines, particularly from the East Asian region, will grow their fleets with COMAC’s C919, as Airbus’ order books are full. The C919 offers space for up to 168 passengers and, according to the manufacturer, can cover 4,075 km nonstop. COMAC management speaks of 820 orders from 28 customers received so far. This number is likely to increase quickly. In the medium term, there are signs of a changing of the guard, with third placed COMAC likely to take Boeing’s position as second largest manufacturer of civil aircraft.

It is highly doubtful as to whether workers’ unions were aware of the industrial implications caused by a Trump presidency. Now they will have to pay the bill once consumer goods climb to new heights, and entire industries will lose their competitiveness. As it stands, the U.S. aviation sector, in particular, is facing strong headwinds.