Tariffs are bad for you – in ways that are obvious, and in ways that are less obvious.
Most obviously, they’re bad if someone else does them to you, by applying them to your exports to their country. Your trade is disrupted, your commercial potential is blunted, and the smoothest, most effective route between supplier and customer (which, generally, in a free market you will have chosen to take) is obstructed by man-made obstacles.
But tariffs are also bad for you if you do them to yourself. For all that protectionists love to talk of slapping tariffs on someone else – dastardly Canada or those dreadful Mexican farmers, for example – they are paid by the companies and customers of the country that is putting the tariffs in place. Foreigners will no more pay Donald Trump’s tariffs than they paid for his wall.
What’s more, the cost of lower trade is lower prosperity at both ends of the transaction. Human beings thrive on the exchange of goods and services, and the resulting creation of added value. Cut that off, and you hurt your own economy as well as those of your partners, while making your own people pay the bill to do so. A protectionist is someone who takes up smoking to give the guy next door a cough.
To quote the 19th century American economic thinker Henry George: “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war. Can there be any greater misuse of language than to apply to commerce terms suggesting strife, and to talk of one nation invading, deluging, overwhelming or inundating another with goods?”
The damage extends to diplomatic relations and potential retaliation, too. In Afghanistan, 158 Canadian soldiers died after their country answered the United States’ call as an ally under Article 5 of the Nato treaty – yet now their neighbour speaks of punishing them as if they were an enemy, rather than a friend. The targets of Trump’s tariff raid are very likely to retaliate, as they have done before, with further economic consequences.
It’s worth noting that from the US President’s perspective, his threat to impose new tariffs on the EU is a retaliation against protectionism from Brussels which penalises American exports: “They don’t take our cars, they don’t take our farm products. They take almost nothing, and we take everything. Millions of cars, tremendous amounts of food and farm products”.
That quote illustrates the negative domestic impact of tariffs – “we take everything” means American consumers and businesses are buying things that they presumably find useful or attractive, which they will now either not be able to afford or for which they will be compelled to pay more to continue purchasing.
The remark also reveals the race to the bottom which tariffs create. I dislike Trump’s trade policy, yet he is also correct that the EU’s trade policy creates obstacles to US exports to EU markets.
Starmer's leadership is about to be tested by a trade tug of war
Read MoreReacting to that with tit-for-tat is counter-productive – the equivalent of two men fighting one another by setting fire to their own wallets – but America does have a reason to complain.
This is rather different to widespread British assumptions about the state of play, in which the Orange Man (bad) is imposing tariffs, whereas the EU (better, verging on good) is a bastion of free trade.
There’s a rich irony that some of those denouncing tariffs also urged Sir Keir Starmer to explore rejoining the customs union on his visit to Brussels on Monday – given that the single distinguishing feature of any customs union is that its members shelter their economies behind an external rampart of, er, tariffs. That’s why it’s a customs union, not just a free trade area.
Our national political psyche has a deeply rooted idea of an eternal dilemma between Europe and America, of which the debate over leaving the EU was only the most recent chapter. Such a push-me-pull-you controversy inevitably encourages people to assume that one is in the right and the other in the wrong.
The facts here are highly inconvenient for that mindset. If you dislike tariffs, which you absolutely should, then the answer cannot be either Trumpist protectionism or EU protectionism. For all their other differences, whether you wear a red cap and shout “Maga”, or a blue and yellow beret and yell “Rejoin”, on trade at least you will find yourself wearing a variation of the same costume.
The question for the Prime Minister is which of three outcomes this stand-off translates to.
First, it could mean being forced to choose one or the other. Second, it could provide the possibility of gaining the best of both worlds. Or third, and worst of all, it might result in falling between the two grinding hulls and being squashed.
Trump appears to have moved first with regard to the UK, saying: “I’m sure that one [the UK], I think that one, can be worked out”. He could mean a quid pro quo that would spare us the pain he plans for others, or he may intend to torture Starmer with a binary choice of being inside or outside the US’s European tariff regime, which would be a far harder decision. In either circumstance, his price remains to be seen.
In the best-case scenario, the US and the EU both come to feel that they would benefit from exempting the UK from the policies they fling at one another across the Atlantic. Growth, which we are told is the Prime Minister’s top priority, will depend heavily on getting it right. The cost of failure in a world of rising tariffs would be huge.
Mark Wallace is chief executive of Total Politics Group
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