Britain’s response to US tariffs should be to scrap all of its own
An immediate round of tariffs on steel and aluminium imported into the United States. A batch of levies on a range of products sold into Canada. The threat of retaliatory action from the European Union targeted on goods made in politically sensitive states. Over the course of this week, Donald Trump’s blustering threats to rip up three decades of liberalising trade rules suddenly turned into reality, with a global economic war about to blow up. Amid that, what should Britain do?
It would be very easy to talk tough, get angry, and start slapping taxes on every product coming out of the US that we can think of. Easy, but a mistake. In fact, we should turn the other cheek, rise above this madness, and set an example to everyone else by dismantling our own tariffs. Free trade could use a global champion right now.
On the campaign trail, Trump talked tough about trade, promising to slap tariffs on a vast range of basic industrial products to protect the jobs of the blue-collar workers who are his most enthusiastic supporters. Once in office, most of us probably hoped he’d be too distracted by late night tweetstorms and fighting off lawsuits from porn stars to actually follow through on any of those pledges.
Unfortunately, that hasn’t happened. This week, he made good on the threat, slapping tariffs on steel and aluminium imported from Canada, Mexico, and the EU, including this country. If he gets away with it, more may well follow. Tariffs on China are a real possibility. So are levies on Japanese electronics. He has even talked about banning German cars from American roads, which, to put it mildly, would cause a few problems over at BMW and Mercedes.
The Canadians have hit back immediately, with tariffs not just on American steel, but on a rather odd assortment of other things, including sleeping bags, quiche and playing cards. Mexico has responded with levies on steel, obviously enough, but also on sausages, lamps, and what it slightly mysteriously describes as “various cheeses”. The EU has drawn up a list of iconic American products it plans to hit with taxes, including bourbon whiskey, jeans, and big, flashy motorbikes.
What should Britain do about that? Huff and puff about the special relationship? Introduce a special iphone tax? Close Mcdonalds and send Meghan Markle home? It would be very easy turn this into a full-blown trade war, as the Canadians and the EU appear intent on doing. But it would also be a big mistake – for two reasons.
First, it is just basic economics that tariffs hurt the country that imposes them more than anyone else. If Donald Tump puts a 25pc levy on imported steel, all that does is drive up the cost of the metal for American consumers and companies. They either have to pay more for the stuff they import, or else buy a domestically produced alternative that won’t be as good.
When you stop to think of all the products that use some steel as a raw material, that is going to have hugely damaging knock-on effects across the rest of the US economy. After all, if the local stuff was just as good, and just as cheap, no one would be importing any steel. If Trump is determined to damage the American economy, then that is his problem. There is no need for us to join in by damaging our own.
Next, retaliation only escalates the situation. Sure, you can make an argument that Trump will look at the Canadian tariffs on sleeping bags, the Mexican levies on sausages, and the European taxes on bourbon and decide to fold his hand, come to his senses, and abandon his brainless protectionism. The trouble is, it is hard to be convinced. Trump is a rash, impulsive bully, with the attention span of a Coke-swilling toddler. It is far more likely that he will simply ramp up the conflict with another round of import taxes. If the EU targets iconic American goods, it is easy for the US to target iconic European ones – it might not just be German cars that are banned, but French wine and Italian handbags as well.
Very quickly, three decades of steadily taking down trade barriers will start to unravel, and we could well find ourselves back in a pre-second World War world of rampant economic nationalism. That would be a catastrophe for the global economy.
There is a role for the UK here – and that is to set an example. Britain pioneered the concept of free trade in the 19th century and could do so again. Like how? First, if the EU pushes forward with retaliatory tariffs on American products, we could simply opt out. Sure, that’s against the rules of the customs union, as well as the EU. But what are they going to do – chuck us out?
Next, as we depart the EU over the next year, and take back control of our own trade policy, we should unilaterally abolish our own tariffs. Inside the EU, we imposed tariffs on a whole range of products from oranges to umbrellas to clothes. Outside, we can simply get rid of them all, and open our market completely to anyone who wants to sell stuff to us. That would benefit our own economy, as well as sending a powerful signal that at least one major economy still believed in free trade. That cause could use a champion right now and, in the absence of anyone else, it might as well be us.
‘It would be easy to talk tough and get angry, but free trade could use a global champion right now’