Trump, Sánchez and Spanish rearmament

The first notable economic effect for Spaniards and Europeans of Donald Trump's arrival in the White House stems from the infamous tariffs on exports headed across the Atlantic. It will be neither the quickest nor the most significant. The consequences of Trump's new trade policy will depend on how the clash between the US president and his country's economic elite, allied with the international financial markets, turns out. Part of what will be seen at the end of the 90-day period will be more improvisation to avoid admitting defeat than real calculation, leading to the opening of negotiations with the affected countries. The most important, Xi Jinping's China, has already contradicted the president with the thinning straw-colored hair; there is no negotiation, and it will be the latter who will begin the tariff de-escalation that he himself initiated. Meanwhile, a 10% tariff is already in place, but it seems difficult to know how this trade war will end.

Forecasts have already been made regarding its impact. But they are only preliminary. Germany, for example, has lowered its estimate for this year to 0%, but in this case the problem has been going on for a long time; two years of recession are proof of that.

There is another consequence of Trump's arrival, although already in the making with Joe Biden, much more direct and already palpable: the demand for more investment in weapons and defense. Immediately after winning the election and before taking office, Trump announced to his European allies, NATO partners, that he would require them to achieve arms spending of 5% of GDP. An imperial tax intended to oil Washington's war machine; a toll for access to the world's largest consumer and investment market. The other side of tariffs.

European leaders, initially reluctant, have embraced the idea, whether to create a local industry or simply to inflate the profits of American (or Israeli) manufacturers. The ongoing controversy over the now-cancelled purchase of ammunition from Tel Aviv, led by Minister Fernando Grande-Marlaska, has led the Ministry of Defense, headed by Margarita Robles, to defend its continued purchase of weapons from a state that pursues genocidal policies because the products are made of irreplaceable technology. A good example. Precisely this criterion would justify the continued existence of the US as the main European defense suppliers. The EU economy reaches €17 trillion, and 5% represents more than €800 billion annually...

Sánchez relies on the economy holding up, Germany asking for help, and Trump being hurt.

In the case of Spain, Pedro Sánchez, probably the European leader most reluctant to join the dangerous arms race, has already planned an increase in defense spending by 10.5 billion this year, reaching 33 billion. Spain is at the bottom of the list of expenditures and is in no hurry either.

With his characteristic inveterate optimism—it's unclear whether fueled by simple resignation to the need to maintain the parliamentary majority that supports him or by a sincere conviction—Sánchez has been quick to assure us that this increase will not affect the government's social policies. Caught between the narrow path that runs between the rejection of Yolanda Díaz's and other left-wing partners' Sumar (Sumar) and pressure from Trump and his European allies, he has created his own version of the miracle of the loaves and the fishes.

Spain is one of the major EU countries with the highest likelihood of ending up spending its military spending increases in the bazaars of Washington, and to a lesser extent, Paris, Berlin, or Tel Aviv. It has few powerful companies in the sector; half a dozen account for more than 80% of sales. And the first, Airbus, the European consortium in which Spanish public ownership is 4%, less than half of Germany or France, is left with more than 50% of that share of the Spanish market. It is precisely now taking the first tentative steps toward Indra, through a merger with Escribano, increasing its size somewhat.

Furthermore, the presence of multinationals is significant, and planned programs to renew existing equipment, such as combat aircraft and missiles for anti-aircraft batteries, are heavily weighted toward US suppliers.

The increased military spending could end up being distributed among the bazaars of Washington, Paris, Berlin, or Tel Aviv.

But the bottom line is that the illusion that you can have both guns and butter seems very daring. Public resources are scarce, which is why the accounts close each year with a deficit, at best around 3%—and this with an economy growing at maximum speed and the public treasury benefiting from inflation-fueled revenues and haggling over every euro, as seen in the case of the recent increase in the minimum wage.

Sánchez is likely buying time, confident that the economy will hold up for a couple more years. Brussels will eventually extend its timeline for increasing the defense budget; Germany's laxity will ease the fiscal austerity rules of the stability pact; the ECB will continue to lower interest rates, which will ease the debt burden; China will agree to open its market to Europeans so as not to become an ally; meanwhile, Trump will approach the midterm elections, in which the Republican Party could receive a harsh blow, with its voters angered by a possible recession and the constant rise in prices (the true cause of the Democratic Party's recent defeat). This will leave his agenda severely derailed, first, only to suffer a definitive defeat in the new presidential elections in 2028. It's a journey back in time with many conditions, but not impossible, even with acceptable levels of probability. It seems to be the only way through which the miracle of the loaves and the fishes that Sánchez has explained these days could materialize.