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Tariffs are self defeating.

The President recently gave a clear description of his tariff based foreign policy on CNBC. “America has for too long been rolled over by the other economies of the world – we have been played for a sucker. That has changed. US tariff increases are now “decimating”  China, in Mexico “we got everything we wanted” and  a “host of other countries are changing their habits because they know what is next.”

The current administration has weaponised trade tariffs and threats as an instrument of power diplomacy.

This was the basis for what I have esewhere called “War Commerce” – the engine of the British Empire in the 19th century* –  and China has long used trade and trade threats as a means of flexing soft power over its neighbours, especially Japan. Our administration today certainly knows a”win” when it sees one and it is gong all in. We now have general tariff levels twice that of Canada, Britain, Italy, Germany, Russia or Turkey**

But there are several massive issues raised by the US reversion to Britain of the 1860’s.

1. The policy is founded on a misunderstanding of world trade today. Look at the E.U. Together we have been our own best customers, a total value of $1.2 trillion per annum, and the US suffering a slight deficit at the moment of a statistically insignificant $90 billion***. Of course at any moment one can pick an incongruity – say the costs , subsidies or tariffs on French wine – but overall decades of negotiations have till now created an amicable overall compromise – a win/win for most parties most of the time. This has been a compromise not a roll over.

2. Ultimately the cost of a tarfii war is one of losses all round. The consumer pays an increased bill, protectionism mens both a loss of choice and of competition and the supplying country suffers an immediate threat to its business. So the imported car costs more to buy, US manufactureres are shielded from advanced overseas quality, design and technology and the supplier nation reliant on its exports experiences a non market led diminution of its economy.

3. The unexpected knock on opportunity costs of such a lose/lose strategy are considerable. Already China and Russia have moved closer into partnership, several European nations are turning with greater ease towards China (Italy) or Russia (Eastern Europe) and manufacturing investment has slowed as companies mistrust their reading of international agreements. Where there are clear and present dangers of real economic malpractice (Chinese patent infringement) our former allies are no longer immediately “there” for us.

4. A move back to “war commerce” is a move back in time. The world has changed in the last 150 years – globalisation is here. Nationalism is today indeed a discredited refuge of the ignorant , a pandering to localised populism. “America First” is a self defeating protectionist catch phrase taken up by local despots in the most vulnerable economies. Above all it does nothing to help resolve the real challenges we face:

– Climate Change, Health Care,Education and Demographic Drift are all complex and interlocked intra national issues that America cannot deal with alone.

– The next generations of Communications, Infrastructure, and Medical Innovation will only be achieved through intra national collaboration – America cannot deal with them alone.

– The egregious challenges posed by Religion, Race and Despotism will only be met by intra national collaboration – America cannot deal with them alone.

America is at a tipping point, threatened by massive global change and by the emergence at the same time of trading and population blocs who can be partners in a new global society of collaboration or mutually mistrusted adversaries. The current adminstration is playing a dangerously short term nationalistic and exclusive hand in what has become a new , inevitably inclusive and intra national long term game.

 

We are playing the wrong game.

Have a good day. James

 

* See my podcast “the UK, US and the Industrial Revolution”
** Deutsche Bank Research
*** E.U. official statistics