Britain must not be caught up in Trump’s tariffs

US President Donald Trump
US President Donald Trump

In at least one area, the economic policy of US President Donald Trump’s second term is following the lines laid out by his first stint in office. A long-time critic of America’s trade deficits, Mr Trump appears to be attempting to tilt the field in favour of US manufacturers by levying tariffs of 25 per cent on goods from Mexico and Canada, and 10 per cent on goods from China.

The good news for policymakers in London is that, at present, we have avoided any tariffs deliberately targeted at our economic interests. This is not to say we will not be affected: a trade dispute between the United States and the European Union is regrettably likely to catch British firms in the fallout, while Mr Trump’s mooted tariffs on pharmaceutical imports would be bad news given the structure of our exports to the United States.

Importantly, however, there is no indication to date that Mr Trump and his administration view Britain as being among those countries which they believe have taken advantage of America’s generosity, and this means there may be room to cut a deal. If Sir Keir Starmer can capitalise on Mr Trump’s affection for this country, and use the freedom for manoeuvre provided by Brexit to strike a US trade deal we may even emerge ahead.

Despite this possibility, however, we should be in no doubt that these tariffs are an error. In weakening the trade links between the United States and its allies, Mr Trump is pursuing a course of action that will benefit only those countries which wish to see us fail. A bilateral trade deficit in a competitive international system marked by the relatively free flow of goods is not an indicator of weakness or of a competitor taking advantage of Washington’s goodwill, but instead of beneficial exchange that provides to the American people goods at a low price they could not otherwise obtain. Equally, America’s trade surpluses with other nations benefit American producers, who can sell into larger markets than would otherwise be the case.

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This system of free exchange is a major contributor to the wealth and prosperity of the West. It should not idly be cast aside or undermined with actions that run contrary to the agreed rules under which it functions.

This is not to say there are no circumstances under which tariffs are appropriate. If Mr Trump intends to use these measures to force partners to make concessions in parallel negotiations, that is an understandable motivation. He must then, however, be clear about the link between the two. If Washington wants Europe to foot more of the bill for its own defence, the benefits of doing so should be clearly laid out. Equally, if the aim of tariffs on China is to reduce reliance on a geopolitical foe this should be stated explicitly.