Trump misfires again in his war on the world

On Friday, Donald Trump woke up and, before 8am, fired off trade missiles at Europe and Apple. On Sunday, he delayed their launch.

Trump announced, with no prior warning (on social media, as usual) that he was “recommending a straight 50 per cent tariff on the European Union, starting on June 1”, and that, if Apple refused to shift iPhone production to the United States, “a tariff of at least 25 per cent must be paid by Apple to the US”.

Donald Trump is making a habit of announcing big trade war threats before backing down.Credit: AP

Later on Friday, Trump said the Europeans were being very difficult to deal with, and trade talks were “going nowhere”.

He referred to the EU’s trade barriers, its value-added taxes, its penalties on the big US tech companies for breaches of its competition laws, and the $US236 billion ($363 billion) goods trade surplus the EU has with the United States. He didn’t refer to the more than $US70 billion services surplus the US has with the EU.

He also claimed, erroneously, that the EU was formed for the “primary purpose of taking advantage of the US on Trade”.

The EU and the “European Project” actually grew out of an attempt, after World War II, to facilitate Europe’s economic recovery and develop trade and economic ties between former foes to avert the threat of future conflicts. Trump is no history buff.

By Sunday, after a phone conversation with EU Commission President Ursula von der Leyen, things had cooled a little.

“We had a very nice call and I agreed to move it,” Trump said, after extending the deadline for the EU to do “a good deal” until July 9, the date on which the 90-day pause on his “reciprocal” tariffs on everyone is supposed to end.

The problem that the EU has is that, even after weeks of negotiations, it has no clear idea of what, in Trump’s mind, constitutes a good deal, or even just a deal.

Trump, as his post indicated, isn’t interested in deals, just a one-sided outcome where his will prevails, with the US making no meaningful concessions of its own. He’s a unilateralist.

EU Commission President Ursula von der Leyen.Credit: AP

The EU has made it clear that the US needs to offer up concessions of its own if it wants a deal – it is prepared to negotiate but doesn’t want Trump to dictate its trade and tax policies without offering anything in return.

It’s prepared to retaliate with €95 billion ($166 billion) of tariffs of its own if there is no reasonable deal, and could also, if forced into a corner, target the big US tech companies. It already has imposed tariffs of €21 billion on US imports in response to Trump’s 25 per cent tariffs on steel and aluminium imports to the US.

Trump’s walking-back of his threat, or at least putting a hold on it until July 9, is consistent with previous behaviour, particularly in the confrontation with China.

He gets impatient with his inability to announce a big deal – that other countries don’t just fold immediately in the face of his demands – and threatens massive tariffs (145 per cent in China’s case) and then, when cooler heads prevail or the markets respond badly, he blinks.

While the US sharemarket slipped only modestly on Friday, bond yields, which are closely watched by the White House, edged up again, with the yield on 30-year bonds remaining above the sensitive 5 per cent level. The dollar weakened again, depreciating 0.8 per cent against the basket of America’s major trading partners’ currencies. It is now down about 9.9 per cent since the start of the year.

The EU is America’s largest trading partner, with total two-way trade in goods of about $US975 billion last year. By comparison, the trade with China amounted to $US582 billion.

Disruption to the transatlantic trade – a tit-for-tat tariff war – would be very damaging to both economies and could help tip both into recession, but could be particularly damaging to the US if other major economies also responded to Trump’s trade wars with tariffs of their own.

Trump’s threat to impose a 25 per cent tariff on Apple products, and Samsung’s, unless they make their smartphones in America shows how little he understands about modern sophisticated manufacturing and the near-impossibility of Apple being able to deliver what he is demanding.

“I have long ago informed Tim Cook of Apple that I expect their iPhone’s (sic) that will be sold in the United States of America will be manufactured and built in the United States, not India, or anyplace else,” he wrote in the Truth Social post on Friday.

Apple, in an effort to tap into India’s vast market aided by significant Indian government incentives, built a manufacturing presence there over nearly a decade.

Roughly 20 per cent of its iPhones are manufactured in India and, after the trade tensions between the US and China exploded this year, the company had planned to use it (and the lower tariff rates the US applied to Indian exports) as the base for iPhones sold into the US.

Apple has a vast and complex supply chain. It sources the 2700-or-so components of its phones from more than 185 suppliers in more than 40 countries, with some components provided by countries with deep specialist skills – like Japan for cameras, or South Korea for screens.

In China, Taiwan’s Foxconn assembles iPhones in massive production facilities. “iPhone City” in Zhengzhou employs more than 300,000 people with a mixture of highly skilled engineers and low-skilled workers assembling the devices. Foxconn has expanded into India, alongside Apple.

It would be near-impossible for Apple to replicate the supply chain that it has spent two decades developing within America.

It could build a high-tech facility, with lots of robotics, to try to replace the low-skilled workers its suppliers employ in China and India, but it wouldn’t have the engineers and would still have to rely on imported components.

It would also take years, probably at least five, to build the facility and would cost tens of billions of dollars. Its phones would cost Americans two or three times, if not more, what they cost today.

All in order to make a product that Apple itself has conceded might be superseded by new types of devices within a decade. Last week’s Open AI’s purchase of artificial intelligence device start-up io, which was co-founded by Apple’s former design chief Jony Ive, may be a foretaste of what’s to come.

Trump, as his post indicated, isn’t interested in deals, just a one-sided outcome where his will prevails, with the US making no meaningful concessions of its own. He’s a unilateralist.

It would almost certainly be cheaper and less risky for Apple to pay Trump’s tariffs than to invest tens of billions of dollars to make second-rate, but very expensive, American-made iPhones sometime next decade.

Friday’s social media post, and even Sunday’s about-face, are consistent with the inconsistency with which Trump and his administration have waged their trade wars.

They don’t seem to have considered the implications of the tariffs for the US or its trade partners at anything but a superficial, “we win, you lose” level. So it’s not surprising the attempts to implement Trump’s tariffs have been chaotic or some of their demands have, as is the case with Apple, met with incredulity for their lack of any understanding of the complexities and interdependencies of global business supply chains.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.