David Beckham Vs Goliath

By Michael Every of Rabobank

The world’s eyes remain fixed on the Goliath in Washington D.C.

President Trump now wants to urgently renegotiate the USMCA trade agreement with Canada and Mexico, which looming 25% tariffs are now also focused on: towards a further ring-fencing against transhipment from China, as seen with NAFTA > USMCA; or more US local content provision; or some kind of North American Union? In the economic statecraft toolkit ‘trade’ category that ticks the FTAs, tariffs, and non-tariff barriers boxes - and it may be getting results already: Korea Economic Daily reports Samsung and LG may move some home-appliance manufacturing from Mexico to the US.

Also on trade, Trump threatened additional 10% tariffs against China over fentanyl, as a warm-up for what will almost certainly be higher threatened tariffs over other issues. China is promising to buy more from the US to smooth relations. Again. Those who want to spend time fantasizing a ‘Farce Two Trade Deal’ are welcome to do so.

Within the economic statecraft ‘other’ category, fiscal policy opened a ‘tax war’. Trump ordered officials to investigate “whether any foreign countries are not in compliance with any tax treaty with the US or have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies”, and within 60 days to draw up retaliatory measures, including doubling the tax rate for foreign individuals and entities. This places the US in direct opposition to the OECD.

Trump also announced a $500bn ‘Stargate’ investment to maintain US AI supremacy, including in defence, and that he would like Elon Musk or Larry Ellison to buy TikTok and give 50% to the US government.  Where the Biden administration tried to break Big Tech up, Trump is taking the Chinese route in ensuring it works for US grand strategy.  

Moreover, newly sworn-in Secretary of State Rubio just communicated to all US diplomatic outposts that: “Every dollar we spend, every program we fund, and every policy we pursue must be justified with the answer to three simple questions" - Does the action make America safer, stronger, and more prosperous? Certain priorities will be replaced, certain issues deemphasized, and some practices we will cease altogether.” I had stressed that the key market question is now not “What is GDP?” but “What is GDP *for*?” Now we see what that ‘for’ is.

There are very few eyes on Davos, with empty seats, and awards being given to the footballer David Beckham and fashion designer Diane von Furstenberg, whose dresses retail for around $500.

Those who can ‘bend it’, real power, and real money are all in D.C., but we also heard from:

• German Economy Minister Habeck, who warned Europe shouldn’t rely on US energy in case it blackmails it like Russia. Besides ensuring a trade war, the EU can then turn to Qatar, friendly with Iran and backing the Muslim Brotherhood, or to China’s green energy, and upstream-to-downstream supply chains that leave no upside for Europe. Habeck also stressed, “In a world in which we have to expect energy supply chains to be exploited for power politics, energy dependency is always a problem.” Which is why Germany turned off its nuclear plants. (And see our new report showing the green transition means higher EU inflation out to 2030.)

• EU President Von der Leyen, who argued, “I believe that we must engage constructively with China – to find solutions in our mutual interest. 2025 marks 50 years of our union’s diplomatic relations with China. I see it as an opportunity to engage and deepen our relationship with China, and where possible, even to expand our trade and investment ties. It is time to pursue a more balanced relationship with China, in a spirit of fairness and reciprocity.” Is this the EU attempting to show the US it has options? It does – but bad and worse. If Europe thinks it can resist ‘America First’ by moving closer to China, it has a realpolitik lesson looming. Trump is merely mirroring Chinese policy. Moreover, reports of US “economic warfare” are desperately naïve about history: all Trump is doing so far is to act for the US in a zero-sum sense; if he wanted to actively move against Europe using economic statecraft, it would be devastating.

• Ukrainian President Zelenskyy, who also had strong words for Europe: “Europe needs to learn how to fully take care of itself, so that the world can’t afford to ignore it… We need a united European security and defence policy, and all European countries must be willing to spend as much on security as is truly needed, not just as much as they’ve gotten used to during years of neglect. If it takes 5% of GDP to cover defence, then so be it, 5% it is." Or there is always the “slow agony” that Draghi promised, which could now be a lot faster, especially as “European competitiveness has one foot in the morgue,” as Nokia’s CEO warns.

Of course, in the Bible, little David slays mighty Goliath. That’s a long (sling) shot in 2025, requiring the deep, blind faith that only neoclassical economists retain. I would be strongly backing Goliath.