Trade tariffs as power plays - A deeper analysis of the USA's economic strategy
A analyze to provide some perspective in the debate about why Trump uses trade tariffs.
Note: I have no intention of taking any political position regarding Donald Trump and USA, the background to this article is to try to understand why Donald Trump does what he does, instead of focusing on what he says and how he expresses himself.
Introduction
Have you ever wondered why Donald Trump is pushing for trade tariffs? After all, he is a person who has built up enormous companies; can he really be so out in the woods? That would be a bit strange, but if you really think about it, I suspect there is a deeper explanation behind it, which I will share here.
Why are tariffs really important?
Imagine that you have put in a lot of time and energy into building your own business. You have invested in quality products, a safe working environment for your employees, environmental protection, and you follow specific standards. But at the same time, you see that similar, or even copies of your goods are produced in countries where working conditions are far from the high standards that exist in Sweden. In these countries, very low wages are paid, working conditions are often poor and dangerous, and safety is perhaps not prioritized at all. This is something we would never accept in Sweden, right?
Consider also that environmental thinking and environmental protection are minimal, or do not exist at all in these countries, leading to environmental destruction that also affects us globally, as it spreads through poor packaging, food products, water, and the earth's winds. In Sweden, this is often illegal, and Swedish companies need to invest in eco-friendly operations, which in itself leads to increased costs and prices, meaning "uneven competition." (Note: This is probably behind Trump's actions regarding environmental issues.)
The problem is that when we have allowed production to move to these countries over decades, we have lost many jobs and revenues. This is especially evident from all the old empty and abandoned factory buildings that I have passed over the years, where manufacturing has moved to low-wage countries. This means that our consumption is building up the economies of other countries, but at the expense of our own jobs and so on. Just look at the low-price platforms TEMU, SHEIN, Alibaba, and others.
This means that the USA, like the EU and us in Sweden, have essentially financed the establishment of strong economies, countries that have begun to take over the global market. It is an imbalance that can feel unfair, especially when we compare to Sweden's history – where large companies like Ericsson, ABB, LKAB, and Alfa Laval, among others, laid the foundation for our prosperity in the early 1900s by focusing on quality, which created good working conditions and welfare. This relationship is certainly one of the reasons for today's high unemployment and all the budget cuts we see in public services.
Here it’s about assessing the advantages and disadvantages of free trade agreements between countries since, from the perspective that countries with lower wages, worse working conditions and environments, and that cause significant environmental damage, should really be able to compete with domestic production that has higher requirements, conditions, and costs?
So why does Trump do what he does?
When you think about it, it's unlikely that someone who has built an empire would just act totally irrationally. In fact, he seems fully aware of this imbalance. By imposing trade tariffs, he is signaling that he wants to make it more expensive for companies to produce in countries that do not follow the same rules as they do in the USA. This is a signal that he wants to see jobs and capital return to the USA, that he wants to counteract the trend where, for example, cheap goods pull jobs and capital out of the USA, i.e., make America great again.
Brief facts:
According to an analysis of the trade balance in 2024 between the USA and China, the USA imports goods worth 536 billion dollars, while China imports goods worth 154 billion dollars. The trade deficit is 382 billion dollars. If we add the value of dollars invested in China, meaning that 1 dollar has a higher value (in the USA the average salary is 65,470 dollars/year, in China it is 16,233 dollars/year, or about 4 times lower), it means that the actual value of China's profits of 382 billion dollars can be roughly valued at 4 times more, i.e., about 1,528 billion dollars.
China's trade surplus is used to develop China, provide state subsidies and support to Chinese companies that export (which increases exports even more), and to buy up companies and land abroad.
Note: This example only refers to China; there are many other countries where the USA and others have trade deficits.
Imagine you own a local factory and see your competitors moving production to countries with lower costs – it's painful, right? Trump's measures can be seen as an attempt to reverse the above trade deficit, to bring back the jobs and investments that have moved abroad. It’s a strategy that, if it works, could strengthen domestic production in the USA and ensure that companies invest in the country’s future instead of losing competitiveness. It could also lead to the opposite, where the USA is the one losing out due to all the raised tariffs!?
Here at home, the situation is similar in many ways, and we cannot lower our wages or worsen our working conditions to compete with other countries. In Sweden and Europe, we have chosen to invest in a model where the work environment and wages are kept at a high level, which in turn has created high quality, safety, and a sound welfare system. However, our model makes it harder to compete with cheaper production abroad. While we have invested in sustainability, other countries have used the money we have basically paid for our higher wages to build up strong economies, which have now become global players. Of course, these countries do not want higher tariffs.
This is where we, in Sweden and the EU, need to think differently. It is not enough to hold on to our previous values; we need to find new ways to be competitive.
Brief facts:
- Sweden's trade deficit with China is about 55 billion SEK/year.
- The EU's trade deficit with China is about 330 billion euros/year.
Note: At the same time, EU, including Sweden, will invest 800 billion euros (approximately 9 trillion kronor) in increased defense spending; to achieve this, capital is needed so that we are not affected by cutbacks in other areas.
But how should we handle high wages and manufacturing costs in the EU and Sweden?
Bringing manufacturing and production back home would undoubtedly be optimal for creating employment and welfare, but how can we do it in a more competitive way? Otherwise, there is a risk that especially goods will increase in price, which creates higher manufacturing costs and reduced consumption!?
A future with innovation, automation, robotics, and AI
I believe that, if we look at the USA, we are starting to see a clear trend. Trump and other decision-makers are investing heavily, for example, to integrate AI, automation, and robotics in both private companies and public services. The purpose is that they want to compensate for the higher costs of domestic production in the USA, but at the same time also drive development and innovation. If we in Sweden and the EU want to compete with these strategies, we also need to rethink and take initiatives to lead the development; we have the conditions for it.
We can no longer simply rely on having good working conditions and high quality. We must also ensure that we are fast, flexible, and smart in our way of working. Companies and organizations in all sizes need to invest in innovation, AI, automation, robots, and digital transformation. It is a chance to take control of the future – to ensure that we continue to be leading, not only for our well-known Swedish quality but also for efficiency.
What can you do?
As an individual:
As a private person, you can contribute to developing yourself and Sweden by:
- Learn to use AI: Learn more about AI and new technology to remain attractive in the job market.
- Make conscious choices: When you consume goods and services, try to support companies that prioritize good working conditions and high quality. In this way, you indirectly help create a more sustainable and fair job market.
- Get engaged: Participate in networks and discussions within your industry to stay at the forefront.
- Promote innovation: Be open to using AI and new technology in your daily work. By actively seeking out and implementing AI and digital systems, you can help increase productivity and stimulate development in your organization. Work problem-oriented and solve problems that are valuable to others as an innovation.
Together, we are strong and build both your and Sweden's future.
Companies and organizations:
What can you do as an entrepreneur, leader, or decision-maker within an organization? Here are some thoughts to consider:
- Start by reviewing your business: Consider which parts of the operation are the most time-consuming and how they can be streamlined with the help of AI and new technology.
- Invest in R&D, innovation, and technology: Invest in research and innovation of new products, services, methods, and systems. With more automation, robotics, and AI, productivity can be increased while reducing manual costs. Remember that when you automate repetitive and time-consuming tasks, you not only achieve faster production but also higher precision in manufacturing. This can allow you to offer products with higher quality and added value despite higher production costs.
- Invest in skills development: New times and new technology require new skills and knowledge among employees; therefore, invest in cost-effective training that delivers sustainable results.
- Think long-term: Investments in AI and automation are not just a short-term fix. It is an investment in future-proofing your organization so you can compete on equal terms in the global market, ideally leading it.
- Be open to change: It can feel daunting to change established methods, but the global economy is now changing rapidly. If you are willing to embrace new technology, you can create a work environment that is not only efficient but also inspiring and developmental.
- Learn from others: Look at how other countries, companies, and organizations have managed to adapt to our new technological reality. There is much to learn from those who have already invested in AI and automation. Collaborating with others often brings many advantages; for example, by partnering in clusters or networks, you can share investments in common technology and research.
Politicians:
At a political level, an understanding and clarity about the situation and its causes, as outlined above, is needed, followed by swift and precise decisions within Sweden and the EU that benefit our future.
Summary
By making it less attractive to move production to countries with low wages and poor working conditions, Donald Trump is trying to bring back jobs, capital, and investments to the USA. That part is a strategy that we, in both Sweden and the EU, should listen to – not by compromising our values, but by investing in AI, innovation, and new technology.
We can be proud of our high standards and good working conditions, where high wages can actually be an advantage if they are transformed into investments in knowledge and technology. However, to remain competitive, we also need to ensure that we are quick and smart. If we combine our traditional strengths with new innovative solutions, we have all the prerequisites to successfully meet the challenges of the future.
When we think deeper about the situation with Trump's trade tariffs, there are both risks and opportunities. My hope with this post is that instead of drowning in all the negativity that circulates in the news and social media, we see the warning bells, learn, and invest in the opportunities. - For we are talking about your and Sweden's future!
With developing regards,
Claes-Göran Hammar
Change Management | Business Development | Management Support | AI Lead | Coach & Mentor
PS: What do you think of the article? Feel free to discuss it in social channels, but do so factually and healthily so that we can be better than Donald Trump!
Please feel free to spread this post; everyone needs to be on the same change train!
About the author:
Claes-Göran Hammar has worked for over 35 years with assignments in areas such as leadership, change, innovation, security, and coaching within the private sector and municipalities.
PS: My best tip is to learn AI!
