Britain could learn from Trump’s tariff playbook
Border controls will be beefed up. There will be fresh cubs on fentanyl smuggling and other illegal drugs. And there will be coordinated efforts to fight organised crime and money laundering. Over the last forty-eight hours, President Trump has demonstrated something important. Despite all the protests about respecting international law and trade agreements, “tariff diplomacy”, as it should probably be called, works. Perhaps Britain should learn the lesson from that – and give it a try as well?
President Trump should certainly be pretty pleased with the way the first skirmishes in his trade war have played out. After dramatically slapping punishing 25 per cent tariffs on both Mexico and Canada over the weekend, both countries quickly made concessions to appease their larger neighbour, and managed to get the tariffs lifted. Likewise, when Columbia refused to accept illegal immigrants last week, the threat of levies quickly forced it to concede. True, there is not much sign of China’s President Xi making any concessions to lift the 10 per cent tariffs on his country yet. But given the importance of preserving “face” in Chinese culture, it may take a few more weeks before a deal is quietly agreed. Threatening tariffs may be bullying, undiplomatic and against the rules of international law. But here is the important point. It also works.
So why doesn’t Britain try it? Sure, it is easy to dismiss that as ridiculous. After all, the United States is the largest economy in the world, with the global reserve currency, and we are only sixth, with stagnant growth, and a currency that is constantly under attack in the markets. If you are 6ft 4 inches, and weigh 200 pounds, most of it pure muscle, it is easy to be a playground bully. But if you are 5’2’, and a bit flabby? It’s not easy. Indeed, you will probably just end up looking ridiculous.
And yet, just like the US, the UK runs a substantial trade deficit with some of its key partners. And that means that in a trade war, they have more to lose than we do. For example, the UK runs a £99 billion annual trade deficit with the EU. Instead of the Prime Minister Sir Keir Starmer travelling to Paris or Brussels, and being forced to grovel, apologise for Brexit and ask politely for a few concessions on trade, perhaps we should slap immediate 25 per cent tariffs on goods imported from the rest of Europe, and then sit back and wait for a few concessions to be offered before lifting them again. Or we could try it with individual countries. We have a trade deficit with France of £11 billion annually, and with its economy in such bad shape President Macron would surely be reluctant to put that at risk. Likewise, we have a deficit of £26 billion a year with Germany, and with stagnant growth, that could be a powerful bargaining chip as well. True, it is unlikely that China would care too much about losing some trade with the UK. And yet, given that we run a deficit of £20 billion a year with the country, levies of 25 per cent or more might well be a way of forcing open its market to British firms.
The important point is this. As President Trump has figured out, when you run large and persistent trade deficits you also have leverage. The other side cares more about losing access to your consumers than you need to care about losing access to theirs. A trade war costs them serious money. The UK should learn the lesson of the last few days. Robust “tariff diplomacy” works. We should give it a try – because it would certainly get results.