TO see how markets have reacted to Donald Trump’s declaration of trade war you would have thought no government had ever thought of imposing tariffs before.
There seems to be a growing idea that the world is heading back to the 1930s when protectionist governments tried to defend their economies but ended up making the Great Depression deeper than it would otherwise have been.
But as US President F D Roosevelt said back then, the only thing we have to fear is fear itself. When people panic, dump their investments and stop spending money, becomes a self-fulfilling prophecy.
To be sure,Trump’s tariffs are a gut punch to many exporters around the world who will now find themselves struggling to sell their wares in the world’s richest market.
They will also prove to be a hefty blow for US consumers and manufacturers.
The former will see themselves having to pay more for the chance to buy the goods they crave, and the latter will see production costs raised thanks to tariffs on parts and raw materials sourced from abroad.
TRADE WAR THREAT
The US faces a sharp revival of , although the effects on households might be mitigated to some extent if Trump uses revenue from his tariffs to lower other taxes.
The first reaction of many governments has been to threaten retaliation. European Commission President lost no time in telling us a package of retaliatory tariffs was being finalised — although it later emerged that the EU will wait for several weeks before deciding how to respond.
So far, our own Prime Minister has kept an admirably cool head. While erecting our own tariff barriers against US goods might seem tempting, it would merely serve to harm our own consumers and industries.
Nearly a third of the goods, by value, that we imported from the US in 2023 were fossil fuels — £18.7billion of them. Since the war, we have become especially dependent on shale gas imported in liquified form by refrigerated ship.
Would we really want the ||Government to trigger another price crisis by slapping a universal tariff on US imports?
We also import a lot of machinery from the US. Do we want the Government to push up the price of food by increasing the cost of tractors and combine harvesters, and to make life even more difficult for our remaining manufacturers?
A far better strategy for Britain is to avoid ruffling the Trump administration’s feathers and to benefit from the fact we have been hit with the lowest rate of tariffs on Trump’s list.
With our US exports being subjected to ten per cent — half the level imposed on the EU — Britain has suddenly become a relatively good place for European manufacturers to locate their plants.
It is not quite the post-Brexit “trade deal”; we hoped for, but it gives us an advantage, nonetheless.
Starmer is not being naive to hold out the possibility that it might still be possible to do a deal with the Trump administration and cut the ten per cent tariffs.
No one really knows what Trump’s end game is regarding tariffs, possibly not even himself. But those with longer memories may recall how the President threatened trade war during his first term, and did impose 25 per cent tariffs on steel imports.
Yet a few months later, he was asking leaders at a G7 summit: Why not go to zero tariffs?
His threat of trade war was a shock negotiating tactic by which he hoped to free up trade rather than close it down.
Is that what he plans this time around? No one really knows, but it shouldn’t be ruled out that countries will sit down with the Trump administration and agree to lower some of their trade barriers in exchange for Trump dismantling some of his. As Trump said on Wednesday, tariffs are not the only obstacle to free trade.
Worse, in many ways, are “non-tariff barriers”; — which ban the import of certain goods on the false pretext of public safety.
One mentioned by the US President this week is the EU’s infamous ban on chlorine-washed chicken from the US — which is quite bizarre given that the EU is happy for salad producers to wash their goods in chlorinated water.
One of the remarkable things this week is the sudden conversion to free trade of many anti-Brexiteers who, a couple of years ago, were dead against a trade deal with the US, which they said would damage our industries.
recently squashed an EU trade deal with South America on the grounds that it did not want extra competition for its farmers.
And yet now Macron’s government protests bitterly about Trump’s tariffs.
If we want to enjoy the benefits of free trade, which almost always makes countries richer when it is allowed, there has to be give and take on both sides.
Trump may have hurt the US and global economy with his punitive tariffs, but his shock tactics have at least awakened the world to the protectionist policies followed by most governments, including our own.
If this week’s events lead to a realisation that Trump is not the only offender on trade barriers, some good may yet come of them.
