Trump and the tariff strategy: three USI experts explain the tycoon's moves

The tariffs imposed by President Trump on goods imported into the US from abroad have prompted initial reactions and effects in international markets. Prof. Edoardo Beretta, Adjunct Professor at the Faculty of Economics, Prof. Giovanni Barone-Adesi, Professor Emeritus at the Faculty of Economics and Prof. Antonio Mele, Full Professor at the Faculty of Economics, commented on the tycoon's economic policy in a number of contributions that appeared in local media.

Swiss products imported into the US will face a significant price increase due to a 31% import surcharge (now temporarily reduced to 10%). "The formula pertains to the trade deficit the US has with Switzerland - Professor Edoardo Beretta explained - Switzerland exports more to the US than it imports from the US. The resulting figure of 0.61 is divided by half. The federal administration claims it will progressively apply half of the tariffs these countries impose on the USA as of 2 April. I agree with the Federal Council that this calculation is difficult to comprehend. First, it is not a question of tariffs: in 2024, Switzerland removed them on industrial products towards the USA. It is simply a mere mathematical relationship between the US trade deficit with Switzerland and its imports, which tells us nothing about the importance of the economic relationship between the two countries. Why did we end up on this list so rigorously? Probably because Switzerland is a good trading partner: it supplies a whole range of goods and services to the US, even though we know that the US tends to be a big exporter of services to European countries, including Switzerland."

The announcement, as Professor Edoardo Beretta explained, has generated some uncertainty in the area of exports to the US. "Swiss exports to the US are now facing a new level of uncertainty compared to the usual challenges associated with the Eurozone, primarily due to the well-known dynamics of the franc-euro exchange rate. However, there is hope that the negative impact will be less significant than anticipated since we are dealing with high-value products—such as pharmaceuticals, minerals, and high-end manufacturing sectors like mechanical engineering and watchmaking."

What measures can Switzerland adopt to safeguard itself and mitigate the impacts of tariffs imposed by Trump? "Creating a reputation for Swiss products as 'essential' and 'reputable' for foreign consumers and companies has always been a valid strategy to mitigate the negative impacts of global trade decisions," Professor Beretta explained. While the effects of trade tariffs may not be immediately apparent, they can have long-term repercussions. "After the decision of 2 April 2025, all of the United States of America's trading partners are now affected by an additional 10% 'ad valorem' tariff. As many as 83 (including the 27 EU member states) are subject to a higher rate. With 31%, Switzerland is undoubtedly in the mid-to-high range at the level of these new duties (ranging from 11% to 50%) and will therefore have to assess the impact on its economy particularly carefully," Professor Beretta commented.

Reactions to the tariffs announced by Trump have varied: while China has predicted counter-measures, Switzerland and the European Union have, for the time being, declared that they want to take the diplomatic route to avoid further damage to their economies. But is this really the most conservative choice? "These are calibrated strategies according to countries. The European Union represents a bloc of nations that has historically maintained strong financial and commercial relations with the United States. In contrast, China functions as the eastern counterpart to the US and is often positioned in opposition to the Western model. As a result, their reactions differ significantly. Additionally, China holds a strong position relative to the US for various reasons, which enables it to impose counter-demands," Professor Beretta explained. For its part, in the context of a negotiation, Switzerland can leverage the "strategic nature of its exports to the US, but also the importance of good trade relations with a European country with a solid economy and a high reputation," while avoiding considering itself and placing itself in a position of excessive weakness.

Considering the fact that Trump's mandate will be limited in duration, Professor Beretta highlights the necessity of not reacting impulsively but instead taking time to reflect and evaluate the situation's progression, as it may be short-lived. Among Europe's possible defensive strategies, there could be, as Mario Draghi suggested, the possibility of investing in the European internal market, a path that, as Professor Beretta recalled, does, however, present some criticalities: "Aiming at the internal market is always a good option, but the European market is relatively old, presenting fewer opportunities compared to younger markets that require specific goods to boost production. As a result, stimulating domestic demand is not straightforward and can take time."

However, the USI professor highlights a further aspect: the path taken by Trump could harm US companies and citizens first and foremost: "I believe that the US is 'over-simplifying' a much more complex issue. For one thing, US imports result from the free decisions of local businesses and domestic economies. Thus, tariffs will primarily harm these very American economic actors who will either be able to buy foreign goods and services at higher prices or will have to reduce the diversity of products they can access. Secondly, such 'localism' may perhaps reduce the US trade deficit, but are we sure that the domestic productive sector will be able to quickly produce enough of those goods and services that are no longer imported from the rest of the world?"

Professor Giovanni Barone-Adesi also underlined the possible consequences for the American people: "There is an inflationary component to consider. I think Trump is the first Republican in history to raise taxes on consumers and, therefore, on people in the lower class. This is significant because 95% of the clothing they wear is made overseas, mostly in China and nearby countries. However, the overall impact on inflation should remain limited. In the US, direct sales to the public are not allowed; instead, products are sold through local distributors. These distributors typically operate with large profit margins, which allows them to absorb some of the costs from tariffs. Clearly, it is good that a more reasonable decision to suspend the new tariffs for 90 days has been reached. There will be room to negotiate with the governments of the affected countries, and Trump says that many will be willing to make big concessions. Also because, some European governments tend to misuse their "golden share" when it comes to the protection of companies deemed strategic."

According to Professor Beretta, moreover, considering the origins of the US deficit - which originated after the Second World War - tariffs are not the appropriate corrective instrument: "Believing that the trade deficit, which the US has been accumulating since the early 1970s, can be partly resolved with tariffs is, in my opinion, unlikely. It is more probable that tariffs will be used as a 'bargaining tool' in international politics."

Professor Beretta also recalled the close link between international relations and economic relations: in a critical context such as the current one, the tariff policy implemented by Trump cannot be underestimated.

What is certain, as Professor Beretta emphasised, is the fact that the tycoon's economic policy choices have had a noticeable effect on the financial market: "Currently, the markets are highly agitated and volatile, leading to significant losses for all investors, both direct and indirect. Many funds are trying to withdraw from the stock market, which is contributing to these losses. The Asian markets opened particularly negatively because of the counter-duties applied. Certainly, this is not a good time to invest for those who do not have the knowledge or the inclination to risk, but it is important to keep calm." As Professor Beretta explained, the fact that there has been a collapse in the markets does not imply that it is a good time to invest: "It is highly risky; the disinvestment by key economic players indicates a significant distrust of the current situation, suggesting difficulties in understanding it."

Declines of this nature have not been observed since the COVID-19 pandemic. As Professor Giovanni Barone-Adesi explained, European stock exchanges may be nearing their "pain threshold". "Trump's tariff policy creates a divide within his administration between two factions. On one side are supporters of "perennial" tariffs, like his advisor Peter Navarro. On the other side are more moderate voices, such as ministers Howard Lutnick and Scott Bessent, who view tariffs as a negotiating tool. Market concerns typically arise when Trump aligns more closely with the first group."

The downturns were further influenced by margin calls: brokers' requests to investors to increase their deposited funds so they could cover any losses. "These have been influential, but more worrying is the EBA's (the European Banking Authority) call that a quarter of European banks do not have enough dollars to meet their commitments. During the subprime crisis, the Fed intervened with swaps, but now, with Trump in the White House, we do not know if this will happen again," Professor Baron-Adesi commented.

The collapse of the markets prompted the US president to announce a 90-day pause, probably listening to the demands coming from Wall Street: "Some of his advisors or close associates must have pointed out that you cannot reindustrialise the country by attempting to balance the trade deficit solely through the use of tariffs. However, this pause only applies to a specific set of tariffs, namely the reciprocal and additional tariffs announced in the White House Rose Garden a few days ago. I want to emphasise that the previously established 10% base tariffs are still in effect." Professor Baron-Adesi pointed out.

The stock market has bounced back; however, this does not mean, as Professor Antonio Mele explained in his interview on TeleTicino, that the crisis could be considered over: "The recovery of the stock market in the United States and certain European markets should not lead to unwarranted optimism. These small rebounds can occur due to various technical factors. However, I have not observed any signs from the President of the United States indicating a willingness to loosen the reckless economic policy capable of causing earthquakes globally. At this time, I do not foresee any indicators of improvement in the coming months, although it is important to acknowledge that change could happen. It is difficult to decipher US trade policy in the near future because it is unclear what the final message of Trump's actions will be." The USI professor emphasised that the period's uncertainty is also linked to the unpredictability of the tycoon, who could revise and readjust his economic policy several times over the coming months. "The issue is that this volatility could create uncomfortable situations for everyone, as markets tend to react negatively to the prospects of a contraction of future global demand. This situation can be a significant shock, resulting in the loss of financial players. When a large financial entity, such as a bank, experiences difficulties, it can severely affect the real economy."

Regarding the consequences on the real economy, Professor Mele mentioned how production costs will rise in the US, which could create a worst-case scenario: "Not only will prices rise, but economic activity will also contract." However, it is also the financial operators who invest in companies that suffer losses: "When financial operators incur losses, the overall financial system has less money to lend to the real sector of the economy. This creates a second effect: the feedback effect between financial markets and the real economy. Financial markets respond to changes in the general economic outlook, but they also produce feedback effects onto the real economy through various channels including a reduced volume of lending, which further depresses economic activity."