A spiral of subsidies and tariffs has begun, one that will significantly impoverish ordinary people and broad economic sectors – the global neoliberal economic fantasy is now disappearing in real time
The new wave of tariffs that President Donald Trump is implementing this week – with the average tariff rate jumping from 2.3% to approximately 18% – represents the most radical return to protectionism since the 1930s. Although it sounds technical, the idea is simple: Washington is imposing additional taxes on goods entering the U.S. market. The end result is higher prices for these goods, meaning everything that was previously cheap becomes more expensive (and less accessible to American consumers – which is the goal, to push people to buy American). But the story isn’t black and white – are tariffs really a “punishment” for foreign countries, or primarily a cost that Americans themselves will pay?
A tariff is an import tax; a tax with a passport. In practice, it’s initially paid by the importer, but it is almost always passed on to distributors, retailers, and ultimately, consumers. According to Yale’s Budget Lab, the average American family will spend about $2,400 more this year for the same basket of goods. Inflation is quietly making a comeback, hitting low-income households hardest, as they spend a larger portion of their income on food, clothing, and electronics – exactly the categories most affected by tariffs. In other words, Trump’s protectionism is turning into an internal tax, but without the kind of political debate that an income tax increase would demand.
Tariff advocates in Washington claim the measures will strengthen domestic production and reduce the trade deficit. The theory is tempting, but American industry operates within global value chains. A typical “American” car contains steel from Canada, sensors from Taiwan, and chips from South Korea – if those components become more expensive, so does the final product, and competitiveness drops. Jobs in steel mills might be protected, but thousands of jobs in factories that use that steel are put at risk. Protectionism, then, is not a “defender of workers” but a redistribution of winners and losers within borders – often at the expense of the majority.
Global markets reacted instantly: the pan-European STOXX 600 fell nearly 2%, and the MSCI index of Asia-Pacific stocks lost 1.5% in a single day. The market is signaling collective uncertainty. When the world’s largest economy suddenly changes input prices, the entire system of linear, “just-in-time” supply chains begins to sputter. Companies pull back from multi-year plans, delay investments, and buyers wait to see where prices settle. That “pause” in decision-making often costs more than the tariffs themselves.
Some countries, like Switzerland and India, immediately called for new negotiations, but Washington has left little room for maneuver. Switzerland, despite having previously lifted tariffs on U.S. industrial goods and announcing billions in investments in the U.S., now faces a 39% tariff – one of the highest on the list. The message is clear: market size no longer guarantees privileged status; political loyalty and ideological alignment now matter more than economic arguments. Canada is a crystal-clear example: tariffs on Canadian goods are rising from 25% to 35% under the rhetorical banner of the “fight against fentanyl,” though the real reason is pressure on Ottawa to align its security agenda with Washington.
The European Union may have fared better than expected, but the victory is Pyrrhic. Brussels agreed to a base tariff rate of 15% for most products and, more significantly, promised to purchase $750 billion worth of U.S. liquefied natural gas and additional weapons for Ukraine. In doing so, the EU has effectively embraced more expensive energy and supported the American military-industrial complex – directly undermining its own competitiveness. The claim that the EU is a regulatory “superpower” shaping global rules through soft diplomacy now sounds hollow if it can’t even protect its own steel or pharmaceutical industries from U.S. tariffs.
In Asia, the picture is more varied. Taiwan’s 20% tariff is officially “temporary,” with hopes it will decrease. Southeast Asian countries, on the other hand, breathed a sigh of relief because the 19% rate is lower than the previously threatened 36%. Bangkok is already boasting of “increased competitiveness” in the U.S. market, but this only confirms that the global trade system has become a lottery in which winners and losers are no longer determined by comparative advantage but by political closeness to Washington.
Brazil is an example of political resistance. Tariffs of 50% on coffee and beef are interpreted as punishment for the legal proceedings against Jair Bolsonaro, Trump’s political ally. Brazil has announced subsidies for affected exporters, demonstrating that protectionism breeds countermeasures. If every country starts compensating its “losers,” we face what economists call a race to the bottom – a spiral of subsidies and tariffs that leaves everyone worse off.
In a broader geopolitical context, Trump’s tariffs may accelerate the shift toward a multipolar order. While the U.S. raises barriers, China and Russia are expanding networks of alternative trade channels – from BRICS to bilateral agreements using national currencies. For Croatia and the region, which conducts over half of its foreign trade with the EU, the key issue is that the European industrial chain – of which we are a peripheral but integrated part – is facing higher input costs for energy and raw materials. This means that our exporters in many sectors (especially manufacturing) will feel double pressure: more expensive components and falling demand across the Atlantic.
From a macroeconomic perspective, a world with higher tariffs risks a return to “stagflation”: slower growth with rising prices. The U.S. Federal Reserve and the European Central Bank are already in a difficult position – inflation is stubborn, and further interest rate hikes suppress credit activity. Tariffs simply shift inflationary pressure from services and housing to consumer goods. At the same time, the fiscal gap is widening – Washington may collect more revenue in the short term, but slower long-term growth will shrink the tax base. For a public debt that has surpassed $34 trillion, this is a risky experiment.
Still, is it all doom and gloom? Some analysts argue that this “big shock” could catalyze much-needed regionalization of production. Factories closer to consumers, shorter supply chains, and less dependence on the Suez Canal or the Strait of Malacca – all of these are potential positives, if managed wisely. The problem is that tariffs push companies into quick, defensive moves, while long-term strategic investments require stability and trust. Replacing past hyper-globalization with a confusing maze of tariffs creates a world of more expensive goods and lower wages.
For the average consumer – even here – the effects will be indirect yet tangible: rising prices for electronics, clothing, and certain food products. Our retailers rely on global distributors – any cost increase in California or Shenzhen eventually reaches the shelves in Zagreb. Exporters, meanwhile, need to think about diversification: if Europe is forced to spend more on American energy and arms, there will be less money left for imports from this region. It’s time to open new channels toward Asia, Africa, and Latin America, where – despite the tariff chaos – reliable suppliers without geopolitical baggage are in demand.
Trump’s “tariff weapon” isn’t just a move by an eccentric leader, but a symptom of a deeper transformation of the global economy. It reveals just how much the neoliberal narrative of free trade depended on American dominance – as soon as Washington turns to protectionism, the whole structure shakes (and likely collapses). For those advocating a multipolar world, this is confirmation that alternative alliances based on mutual benefit – not the threat of punitive tariffs – are the way forward. For the general public, it’s enough to remember one thing: any tariff one government imposes on another eventually ends up on all of our bills.
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