A Harley-Davidson will cost you a little more in France; Florida orange juice will be more expensive in Germany and American soybeans will go up in price everywhere across Europe. The European Union has decided to start taking the fight back to President Trump with a round of retaliatory tariffs. The trouble is, it is making a big mistake. Sure, we can all understand the desire to stand up to what it sees as bullying. But it is not going to win this battle.
In the wake of President Trump’s decision to impose a 20 per cent tariff on everything the EU sells in the United States, some form of retaliation was probably always inevitable. The bloc has just agreed on counter-measures worth €22 billion with the first round likely to be announced as early as next week. Motorbikes, fruit juice and soybeans are all likely to feature on the list, with higher tariffs imposed on American exports into Europe.
It is easy to understand why Europe is taking action. It wants to protect its own market. Tariffs on US exports may well give it some extra bargaining chips to put on the table when it comes to negotiating a deal with the White House. And perhaps most of all, it makes its leaders look tough and decisive, especially to their own voters. The bloc has always prided itself on being an ‘economic superpower’. It doesn’t look good to be pushed around.
Here’s the catch, however. The EU also runs a huge trade surplus with the US, worth close to €200 billion a year. In a trade war, it is going to suffer a lot more than its adversary. Even worse, it is only going to inflame what is already turning into a global economic crisis. One of the few things we know for sure about Donald Trump is that he does not like being threatened. He may well hit back with another 10, 20, or even 100 per cent round of tariffs, as he has against China when it tried the same tactic. The net outcome would be far, far worse than anything European companies face right now.
In reality, the smart move right now would be to try to dial down the conflict. The EU could simply ignore the tariffs Trump has imposed, and try to help its companies live with them as best they can. Even better, it could unilaterally remove some of the tariffs it has long imposed on American products such as the 10 per cent levy on US cars. That would give President Trump a victory to celebrate. It risks looking weak. But it may well be the only way out of the whole mess.
Is there method behind Trump’s madness? Freddy Gray and Matthew Lynn discuss on The Spectator’s latest Edition podcast:
Comments