Trump’s recent tweet that “trade wars are easy to win” has brought widespread criticism.
As Nobel Prize Winning economist Paul Krugman noted, “Trade wars, what are they good for? Absolutely nothing” paraphrasing Frankie Goes to Hollywood (or Edwin Starr).
The EU’s trade chief Cecilia Malmström has already asked Trump to look at the history books. She was referring specifically to the 2002 decision by the US administration to impose ‘economic safeguards’ on steel imports, which cost “thousands of American jobs.”
That’s the right response: back in 2002 a range of countries complained about the US move to the WTO and the latter eventually ruled in their favour. The US had to remove the tariffs or face retaliatory measures.
She is also right in noting that the steel tariffs impacted negatively on steel using industries in the US. Indeed some US based car manufacturers shifted production to Canada as assembly costs increased in the US.
So reminding Trump of how the multilateral system works – via the WTO – is absolutely right. A multilateral response is the way to deal with this.
But if the EU is trying to look for exemptions from Trump, it might try two tacks.
Firstly, the EU might stress that it is a security partner of the US and ask for an exemption from tariffs, which are the US justifies on national security grounds. Malmström has already said “we cannot see how the European Union, friends and allies in NATO, can be a threat to national security in the U.S,” she said.
Secondly, if Trump’s beef is really with a rapid growth in Chinese steel imports which he might allege to breach WTO rules on a number of fronts, then the EU may offer to work with the US and allies like Canada, South Korea and Japan to bring an action at the WTO against China.
The question then is whether Trump can be encourage to use the multilateral system to address the concerns he has raised about US steel and manufacturing.
So far Trump has shown no inclination to do this, however.
All this doesn’t bode well for life after Brexit. The sunny uplands fantasy of post-Brexit life preached by the likes of Cabinet ministers Gove, Johnson and Fox involving a new trading relationship with the US looks seriously dented.
Rather we face a protectionist US President. The EU swiftly hit back at the US move by identifying a list of US imports that could be affected by tariffs in return - including orange juice, bourbon, denim, cranberries, peanut butter and motorbikes (leaving it open whether the EU would do this in a tit-for-tat response or whether it would work via a WTO complaint and then remedial action if allowed).
Trump in return threatened tariffs on car imports. If enacted, that would impact on firms like Jaguar Land Rover which exported 130,000 cars to the US last year. The US is JLR's second biggest country market after China. US tariffs on JLR imports to the US would impact on production here in the Midlands, and on jobs and the supply chain.
Remember that the UK is about to increase trade barriers with the EU in the hope of lowering trade barriers elsewhere – including with the US. Not only will that involve a net economic cost to the UK but the prospects of lower trade barriers with the US anyway don’t look that promising.
Professor David Bailey works at the Aston Business School in Birmingham