His 90-day deadline has passed – but Donald Trump continues to throw around threats of tariffs. Is this a clever strategy? No, says Ralph Ossa, former chief economist at the World Trade Organization.

This interview by Simon Schmid was originally published in Tages-Anzeiger on 10.7.2025 in German. Translated and edited for layout purposes by the UBS Center.

The tariffs that Donald Trump is imposing on one country after another these days – from Japan to South Africa to Myanmar – are helping him finance the expensive “Big Beautiful Bill.” And there is hardly any resistance to this. Things are also going well for the US president in other respects: the stock market is rising, companies are creating jobs, inflation is stable, and even the dollar is moving in the direction Trump wants – downwards.

So is Trump's plan to disrupt global trade and get the best deal for the US working? One person who can assess this is Ralph Ossa. Until recently, he was chief economist at the World Trade Organization (WTO) in Geneva. He has now returned to the University of Zurich as a professor of economics.

Mr. Ossa, has Donald Trump already won?

No, I don't think so. The revenue generated by his tariffs will not be enough to offset the additional deficit that the “One Big Beautiful Bill” will create in the US budget. As a result, the US trade deficit is also likely to increase, which runs counter to one of the US president's key goals.

At least Trump has proven all those who predicted high inflation wrong.

The effects of his tariffs are likely to be felt more strongly in the second half of the year. So far, consumers have noticed little because many companies wisely stocked up on imports before the tariffs were announced. Once these goods are used up, prices will rise.

Does that mean Christmas presents will be expensive?

Unless the US president backtracks again – as he did shortly after “Liberation Day,” when it was rumored that an iPhone would suddenly cost $2,000 instead of $1,000, and Trump promptly decided to exempt electronic goods.

Trump also announced new tariffs on products this week. Will he implement them?

I consider a 200 percent tariff on pharmaceutical products to be unrealistic in the long term. High drug prices are already a significant problem in the US. However, I consider a long-term tariff on copper – similar to steel – to be more plausible, as security aspects play a greater role here. However, a 50 percent tariff will be difficult to enforce in this case.

Trump has always said that other countries will pay the tariffs. Economists say no, the Americans will pay. So who is right?

Some of the tariffs are indeed paid by foreign countries, for example when exporters from China lower their prices for deliveries to the US. But intermediaries and end consumers in America also bear part of the burden – with poor households being disproportionately harder hit than rich ones. This reinforces the redistribution from the bottom to the top that is already contained in Trump's “Big Beautiful Bill.”

Do the tariffs also cause a redistribution from the rest of the world to the US?

Yes. In economics, this effect is described by the optimal tariff theory. It states that a large economy can certainly benefit from imposing unilateral import tariffs. Although the tariffs reduce consumer welfare, they also generate tax revenue. These revenues can be greater than the losses if the tariffs are set at the “optimal” level.

But that only applies if other countries do not impose counter-tariffs.

Exactly. Trading partners such as China and the EU have, in principle, the same incentive as the US to impose tariffs and reap the benefits. But if everyone ends up trying to gain welfare at the expense of others, then of course everyone loses in the end. That is precisely why trade agreements exist and why organizations such as the WTO were founded: to ensure that countries lower their tariffs on each other, thereby increasing overall welfare.

Why are the US's trading partners hardly imposing any counter-tariffs?

On the one hand, they hope that Trump will withdraw the tariffs of his own accord as soon as the harmful effects on the US economy become apparent. On the other hand, they have security policy considerations. The EU countries could counter this with trade policy measures, but because of their military dependence on the US, they will probably end up accepting certain tariffs that Trump insists on. Perhaps not at the level of 50 percent that he has threatened, but at the level of 10 percent that seems to be the current outcome.

During your academic career, did you ever think that theories such as optimal tariffs would one day become relevant in practice?

A good ten years ago, I published a paper simulating trade wars. It came up with tariffs of between 30 and 60 percent. At the time, most of my colleagues said: That's impossible – after all, humanity learned in the 1930s that everyone loses in a trade war. And even if there were a trade war, tariffs would never rise that high!

An obvious mistake.

What was unimaginable in international relations just a short time ago has now become the norm. Today, we are even pleased that tariffs are “only” 10 percent and not 20 or 30 percent, as they were after “Liberation Day.” This is unprecedented in modern trade policy.

Trump is shifting from a rules-based to a power-based trade policy. How will this affect the US's international relations in the long term?

The damage to its reputation is enormous. Other countries will look for alternatives – not only in terms of security, but also in the financial sector, for example to reduce their dependence on the dollar and US banks. The US will lose influence worldwide.

Does Trump's tariffs at least benefit US industry?

Hardly. If more steel is produced in the US thanks to the tariffs, this will strengthen the steel industry, but it will also require workers who will then no longer be available to other export-oriented companies. If these companies also have to pay tariffs on intermediate products that they need in their factories, this will weaken their competitiveness on the global market twice over.

Does protectionism make the economy sluggish?

Yes. American pickup trucks have always been produced behind high tariff barriers. But no one outside North America wants to buy them because they are too big and consume too much fuel. If many more products are now protected by tariffs, there will be no incentive for US manufacturers to improve their productivity. For their competitors abroad, however, the tariffs have the opposite effect.

Are they a kind of fitness program?

Export-oriented companies from countries such as Switzerland will now do everything they can to maintain their market share and margins in the US. Governments are also already working to conclude additional free trade agreements, such as the recent agreement between the EFTA states and the South American Mercosur. Meanwhile, there are intensified efforts in the EU to improve the single market, for example with the so-called capital markets union. All of this will benefit competitiveness.

What role does the World Trade Organization play at this moment?

Despite all the difficulties that exist at present, the WTO remains the cornerstone of the global trade architecture. And the most-favored-nation tariff regime remains the standard. At the beginning of the year, 83 percent of global trade in goods was conducted on the premise that countries do not differentiate between products coming from Ghana, Uruguay, or Australia when it comes to customs duties. Since the introduction of the Trump tariffs, 74 percent of trade still operates according to this principle.

Can the WTO function without the US?

At present, this is still inconceivable. And the United States remains a member, even if it is not pushing the agenda forward and is breaking with the most-favored-nation principle. If progress is made, it is more likely to be achieved at the plurilateral rather than the multilateral level, i.e., not among all member states, but in subgroups. The WTO may also evolve in such a way that not everything always has to be decided by consensus among all 166 member states.

How well positioned is Switzerland in terms of trade policy?

Switzerland has done a lot right. On the one hand, it is a strong supporter of the WTO, but on the other hand, it has also concluded numerous free trade agreements. It was a smart move for federal councilors to travel to both the US and China in recent months, and it was a success to bring these parties together for talks in Geneva.