Changing scenarios: US policies redefine global markets

INTRODUCTION

Gregorio De Felice. The economic outlook for the coming months appears uncertain and complex. Let’s start with one thing we know for sure. The Trump presidency has introduced major discontinuities in economic policy. The United States is moving towards what looks like the possible end of multilateralism. Ongoing trade wars have intensified. US fiscal policy remains highly expansionary. Reshoring policies have been adopted to bring manufacturing production back to the United States, and finally, the Federal Reserve is under attack.

All of this has surprised many observers and created uncertainty among economic operators. Opposing the United States, we find powerful nations such as China, India, Brazil, Russia, and Turkey, seeking to extend their network of alliances and reduce the dominance of the dollar. The European Union, emblem of peace after the Second World War, struggles to project its influence to avoid or stop hostilities.

The protectionist measures adopted by the United States have pushed the average effective tariff on imports up to 18.6%, the highest level since the 1930s. In addition, the framework agreements concluded with various countries include provisions for increased direct investment or for purchases of American products, which could create tensions in the coming years. But the Trump agenda is not limited to trade policy: US fiscal policy remains expansionary and is not offset by cuts in healthcare spending or by the revenue that might come from tariffs.

The independence of the Fed is at risk, threatened by attempts to change the composition of the board through the appointment of members loyal to the President, as has already happened with other federal agencies. Among others, I’d like to recall the case of the Bureau of Labor Statistics.

The risk, therefore, is that monetary policy may become subject to the interests of the Treasury, leading to unanchored inflation expectations and a rise in risk premia on long-term interest rates.

Despite this, the global economy is still growing, and the risk of recession that loomed at the beginning of the year, particularly in the United States, seems to have subsided.

Monetary policy is moving towards a normalisation of interest rates, now close to their so-called natural levels. The eurozone economy has shown greater resilience than expected in the first half of 2025, thanks to both transitory and irreversible factors, such as the bringing forward of exports to the United States, but also to better-than-expected trends in corporate investment and household consumption.

One of the big questions, therefore, is what path Europe might take to avoid being squeezed between the United States and China. On this and other topics, we will be speaking today with our distinguished guest, Professor Carlo Altomonte, Professor of European Integration Economics at Bocconi University. Good morning, Professor.

INTERVIEW

Carlo Altomonte. Hallo. Good morning everyone.

Gregorio De Felice. Let’s start with the first question: the European Union and the United States have finally concluded a trade agreement after that notorious Liberation Day in the Rose Garden in Washington. What do you think of this US protectionist strategy?

Carlo Altomonte.  Contrary to what we often read, even from respected commentators, US protectionism is not the product of a superficial, or, if you want, mistaken reading of the global economy, nor of a demagogic disregard for the economic effects of tariffs. Rather, it follows a precise logic: namely, that the United States is compelled to alter the long-term equilibrium it has found itself in after thirty years of globalisation.

Today, the United States is, let’s say, the absorber of global demand. Chinese overproduction or the excesses of European exports ultimately flow into the United States, and over the years this has meant that US net financial position, which is the difference between assets owned by the United States in the rest of the world and US assets owned by the rest of the world, has increased dramatically.

Today, the United States has a negative net financial position of more than 24 trillion dollars, equal to about 95% of its GDP, a quarter of the global economy. Never before has a country had such a deeply unbalanced net financial position.

Of course, we are speaking about the United States: as the US is the issuer of the global reserve currency, this does not necessarily create a financial problem in the short-term for the US itself. But this position certainly entails costs for US industry, for US society, and for US own strategic ability to win the technological challenge with China. The US is dramatically behind in terms of scale of production, a scale that is inevitably constrained by persistent trade deficits and by a dollar that remains overvalued, for financial reasons and because of its strategic dominance.

So, precisely for these reasons, whoever the president is, Trump, Harris, or Vance, the US agenda in my opinion would not have changed much. Of course, one may decide how much protectionism to impose and how quickly to do so, but the US agenda today is in fact highly rational with respect to its own national interests.

Gregorio De Felice. Thank you. What will be the implications of this agreement with Europe for the Member States over the coming months?

Carlo Altomonte. Now, Europe clearly has to deal with this US protectionism and, in the short term, it will suffer from it, because the United States, rightly or wrongly, is the main market for European goods and in particular for some countries, notably Italy and Germany in the first place. That said, in practice, Europe as a whole, vis-à-vis the United States, has an almost neutral trade position if we combine exports of goods and services with imports of the same. We import many digital services from the United States, we export many goods, the overall balance is almost zero. But the point, as I was saying, is that the United States does not want to absorb our industrial production, for political and strategic reasons. So, the impact will certainly be negative in the short term, reducing economic growth by a few decimal points. What remains to be seen is to what extent the United States will settle for a negotiating stance that stops here, with a 15% tariff.

Washington is currently saying that, all in all, the Europeans came out of this negotiation well because, in exchange for no better access to the European market for US companies, they only imposed a 15% tariff. So we’ll have to understand whether, in the coming months, the US position will remain limited to tariffs or whether they will ask for something else.

Gregorio De Felice. There’s still the whole question of the commitments on investment and on purchases of American goods, which I believe will be very difficult to deliver. But leaving that aside, what could the effects be for Italy? Italy, it is said, may have a slightly better chance of softening the impact of higher tariffs. Is that really the case?

Carlo Altomonte. Italy is indeed highly exposed in terms of exports to the United States, but it has two characteristics that make it somewhat more, let’s say, flexible, as is always the case.

On the one hand, its main export sector is pharmaceuticals, which the United States has a strong need for, since the US pharmaceutical industry is not able to be self-sufficient and closed off from the rest of the world. And so, clearly, from this perspective, a whole series of exemptions already exist and have already been negotiated, effectively reducing the actual tariff Italy faces with respect to the United States.

The second characteristic is that Italian exports, which in fact have continued to grow successfully in recent years, outperforming those of France and Germany, have recently been doing so in markets beyond the traditional ones, such as China, Japan, and the United States. They have also been growing in middle-income markets, for example the whole Gulf region, Indonesia, Latin America. From this standpoint, it seems that Italy has found a sort of key to better diversify its exports trades. In a few months, if all goes well, the trade agreement with Mercosur will take effect, which alone is worth about a third of Italy’s exports to the United States. So, finally, there are good reasons to hope that the shock from US tariffs can be diversified over the coming months.

Gregorio De Felice. We’ve talked about Trump’s agenda, but what about Europe’s agenda? Are we moving in the right direction? The main focus seems to be on defence, but is that enough? What else is needed?

Carlo Altomonte. Scott Bessent, the US Treasury Secretary, speaking in Washington at the IMF meetings last April, explicitly called on Europeans and the Chinese to help address the adjustment of the US balance of payments I referred to earlier. He said directly to Europe: don’t base your growth model on exports, base it more on your domestic investment, on reducing the internal barriers within the market that Mario Draghi also recently spoke about, and on greater investment. Certainly starting with defence, which is a step in the right direction, but also in all the other sectors identified as critical and strategic for the European Union in the Letta and Draghi reports. In particular, this means digital telecommunications services and energy, sectors where the European market is still too poorly integrated, still too dependent on national bases, and which should instead be liberalised and, somehow, shared between different States.

With a joke one could say that, in fact, the best sponsor today for advancing the Draghi agenda in Europe is Donald Trump.

Gregorio De Felice. Good. With this we conclude our podcast. A warm thank you to Professor Carlo Altomonte, Professor of Economics of European Integration at Bocconi University in Milan.

Carlo Altomonte. Thank you. Goodbye.