Now they’ve got themselves into a mess. Donald Trump has announced tariffs for Europe that will really hurt. Add to that the devaluation of the US dollar, and a first-rate economic restriction program is spilling over the Atlantic to Europe.

And, how could it be otherwise, the political amateurs in Brussels, Paris, and Berlin are at a loss. Should they not impose tariffs themselves and risk an open trade war with the US? After all, Trump has announced that any European tariffs will be immediately matched in full by the US.

First of all, it must be understood that the region with the trade surpluses will definitely lose a tariff war against the region with the deficits. As is well known, Europe has surpluses. If trade drops to zero, the surplus region will experience a slump in growth and the deficit region will receive a growth stimulus.

I wonder how many highly paid “experts” there are in Brussels, Berlin, and Paris. Thousands or tens of thousands? None of them can apparently count to three and tell European politicians to forget any attempt at a trade war from the outset and think about completely different approaches.

But as we all know, the fish stinks from the head down. Perhaps there were and still are sensible proposals that are not being taken up by the political leadership because, from the outset, our opinion-forming media created a political climate toward Trump’s trade policy that was geared toward confrontation rather than cooperation.

What hasn’t been said about Trump and repeated tens of thousands of times in the main stream media? At first, the mood was not to take Trump seriously at all and simply sit out the four years. Then Trump was portrayed as a fool who simply knew nothing about the beneficial effects of international trade. Then venerable economists denied that the US had any problem with foreign trade at all (as discussed here). Then they pretended that there were no surpluses anywhere. Europe was driven by Germany, which was awakened by Trump from its dream that one country could have any size of current account surplus for any length of time without harming other countries.

A sensible position would have looked different. From the outset, the problem should have been clearly analysed and it should have been recognized that Donald Trump has a serious point, because the US current account deficit vis-à-vis the rest of the world is indeed unbearably high. The WTO, the IMF, the G7, or the G20 would have been the places to discuss this problem and its multilateral dimension and to identify possible solutions. It would then also have been clear that a global solution had to be found. Trump could probably have been dissuaded from his bilateral course, which is indeed nonsensical, if he had been promised that everything would be done in the surplus countries to reduce the American deficit within a reasonable period of time.

The deal with Trump would have been that the surplus countries would stimulate their economies to such an extent that American exporters would have plenty of opportunities even without tariffs and with only a moderate devaluation of the dollar. The results would have been assessed after a year. I am sure that even halving the American deficit in a year would have been enough for Trump to sell to his supporters as a great victory.

With this deal, everyone would have won. The Europeans, because they would have had much higher growth, and the US, because it could have achieved at least the same growth with lower public deficits (as shown here). But to do that, Europe would have had to understand what government debt is all about. But that would really be asking too much; that much intelligence would really get Europe into trouble, because then the entire leadership and probably quite a few “experts” would have to be sent packing.