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Donald Trump’s address at the World Economic Forum showcased his familiar economic rhetoric. Yet, it could be argued that his speech was marked by economic misconceptions and exaggerations, Piero Cingari writes.
US President Donald Trump’s video address at the World Economic Forum on Thursday may well be a textbook example of a bluff strategy familiar to poker players.
From his fixation on the US trade deficit, which he portrays as an economic evil, to his claims of trillions of dollars in investments flowing into the United States and an inflation and interest rate narrative echoing Turkey’s unorthodox policies under Recep Tayyip Erdoğan, Trump’s economic rhetoric remains long on spectacle but short on substance.
Trump lambasted the US trade deficit, threatening tariffs on countries with which the US has significant imbalances.
However, a trade deficit is not inherently harmful, particularly for the United States.
Imports grant American businesses access to raw materials and intermediate goods, supporting domestic production and driving economic growth.
For consumers, imports enhance purchasing power and broaden choice—unless one envisions Americans happily swapping Parmigiano Reggiano and French champagne for lower-quality domestic substitutes.
More importantly, restricting imports through tariffs does not automatically boost US exports. On the contrary, tariffs risk weakening trade partners, reducing their purchasing power for American goods and services, and prompting retaliatory measures.
Unlike most economies, the US enjoys the extraordinary privilege of running both a wide trade deficit and a large fiscal deficit without triggering financial turmoil. This is largely due to the US dollar’s status as the world’s primary reserve currency.
In 2023, the US twin deficit — comprising a 3.3% current account deficit and a 6.2% budget deficit — totalled nearly 10% of GDP, or roughly $2.7 trillion (€2.5 trillion).
Yet, no investors rushed to sell their dollars or Treasury holdings—an outcome that would have been inevitable in most other countries.
Billions, trillions… But where is the money?
Trump’s focus on trade imbalances ignores economic reality: as long as the US dollar retains its dominant role in global finance, these deficits are not an imminent threat but a structural feature of the international economic system.
Perhaps someone should remind Trump that the most significant reduction in the US trade deficit occurred between 2008 and 2009 when the figure plunged from $740 billion to $419 billion amid the global financial crisis.
In 2009, Americans were hardly celebrating the narrower deficit. Simply put, beware of what you wish for.
Trump repeatedly boasted about “billions, billions, and billions” of foreign investments flowing into the US, somehow adding up to trillions through a seemingly magical calculation.
But one key question remains unanswered: where is all this money coming from? Trump’s speech at Davos offered little substance behind the grand financial pledges.
“Saudi Arabia will be investing at least $600 billion in America. But I’ll be asking the Crown Prince, who’s a fantastic guy, to round it out to around $1 trillion.”
Yet, Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, manages total assets worth approximately $925 billion.
With its vast diversification, including stakes in Saudi Aramco — the world’s sixth-largest company — liquidating enough to reach $1 trillion in fresh investments appears highly unlikely.
Inflation and interest rates: Here we go again
Trump reignited the debate on inflation and interest rate policy, making bold promises: “On day one, I signed an executive order directing every member of my cabinet to defeat inflation and reduce the cost of daily life.”
“I’ll demand that interest rates drop immediately, and likewise they should be dropping all over the world.”
These two pledges are fundamentally contradictory. If Trump is serious about tackling inflation, it is hardly achievable to do so while simultaneously lowering interest rates.
Reducing rates would act as a fresh economic stimulus—at a time when the US economy is already running hot, with GDP growth above 3% and unemployment at 4%, near full employment. The risk would be overheating rather than stabilisation.
Moreover, Trump’s statements suggest a direct intervention in monetary policy, undermining the Federal Reserve’s independence.
In the US, the central bank — not the government — is responsible for managing inflation and setting interest rates.
Trump’s tariff rhetoric may sound aggressive, but given the US economy’s structural advantages, particularly the dollar’s global dominance, his fixation on trade deficits lacks real substance.
Europe should avoid being drawn into unnecessary concessions and instead continue capitalising on its competitive strengths.
European companies, in particular, should resist the temptation to cut back on quality in response to tariff threats.
High-end European products—whether in fashion, automobiles, or fine food and beverages—are relatively inelastic to price changes and will likely remain a key choice for US consumers, regardless of trade policies.
Given the economic contradictions in Trump’s statements, his policies, if implemented, could just as easily backfire on the US economy.
Ultimately, Europe should view Trump’s words with caution but not fear.
Piero Cingari is a journalist with Euronews Business.
