The stock market is reeling. The White House has already witnessed the resignation of the President’s most senior economic adviser. The EU is preparing retaliation, and other countries are checking the rule books to see what sort of tariffs and quotas they might be allowed to impose. In the wake of Donald Trump’s decision to whack hefty tariffs on steel imports into the United States a full-blown transatlantic trade war is brewing – and if China and Japan wade in, that may quickly turn global.
That will, of course, be terrible for the global economy. But it might also be the perfect moment for a soon-to-be-out-of-the-EU Britain to reassert its historic role as a champion of free trade. In truth, the US and the EU are both being as bone-headed as each other. By simply stepping aside from the fight, we can come out ahead.
In the markets, most people thought Donald Trump had safely forgotten most of his campaign promises and gone back to his usual pastimes of eating cheeseburgers and fending off lawsuits from porn actresses. Unfortunately not so. In-between the late night tweets, he obviously suddenly remembered he’d pledged massive import restrictions to protect American industry. All of a sudden he decided to impose 25 per cent tariffs on imported steel, and 10 per cent on aluminium.
That was stupid in itself. It got worse, however, when the European Union, an institution which can generally be relied on to take a bad situation and make it a little bit worse, decided to hit straight back. It unveiled plans for 25 per cent tariffs on targeted American products, mainly manufactured in key Republican districts. Jeans, bourbon, and motor bikes were all on the list. At this rate, it won’t be long before they are clearing all the Mercs off the roads of New York and Los Angeles, and the French army is standing by to take full control of Disneyland Paris. The two sides are at loggerheads, and it is escalating rapidly.
As that plays out, the UK should seize the opportunity to make the case for free trade. Trump is not going to help anyone with his tariffs on steel, least of all the blue-collar workers who are his natural constituency. In fact, a tariff is just a form of tax that ends up being paid by the consumer. All he will do is make steel more expensive, and create an inefficient domestic industry behind a protective wall. Since steel ends up in lots of things, that will only weaken the entire US industry. Paying more for rubbish raw materials is no use to anyone.
And yet, retaliation is even dumber. If tariffs hurt the country that imposes them, then there is no point in hitting back. It makes your own consumers poorer, by forcing them to pay more for stuff, or else buy something else they didn’t want as much. And it simply stokes a tit-for-tat battle from which everyone emerges worse off.
If the EU puts tariffs on American products, the UK should simply refuse to comply. Heck, what are they going to do – kick us out? Someone has to make the argument that trade wars help no one, and that if Donald Trump wants to act like an idiot then it is up to American voters to deal with that in 2020. It might as well be us. As we leave the EU, one of our roles in the world should be as a forceful champion of the simple idea that free trade benefits everyone, and it still benefits them even if the other side refuses to reciprocate. In time, we will probably need to make that argument with the EU, with China, with Russia and many others. But we can make a good start by opting out of the EU-US trade war.