Donald Trump vowed during his campaign that if he won back the White House, he would impose taxes on all goods imported into the United States. After his win, businesses and economists around the world scrambled to figure out how serious he was.
In the past, Trump has targeted individual countries, such as China, or specific industries, such as steel, with tariffs.
But his campaign promise to impose a 10% to 20% tax on all foreign goods could affect prices around the world.
Last month, he seemed to single out Europe.
“The European Union sounds wonderful and lovely, right? All the wonderful little European countries coming together… They don’t take away our cars. They don’t take away our agricultural products,” he said.
“They sell millions of cars in the United States. No, no, no, they’re going to have to pay a high price.”
BMW, Mercedes and Volkswagen After Trump’s victory was confirmed, stock prices fell between 5% and 7%. The United States is the largest single export market for German automakers.
Trump said during the campaign that tariffs were the answer to countless problems, including containing China and preventing illegal immigration.
“Tariffs are the most beautiful thing in the world,” he said. This was clearly the weapon he intended to use.
While much of this rhetoric and action has been directed at China, it doesn’t stop there.
Some jurisdictions, such as the European Union, are already drawing up lists of preemptive retaliatory actions against the United States after ministers did not take Trump’s previous tariff threats seriously enough and Trump later imposed tariffs.
G7 finance ministers told me last week that they would try to remind Trump’s United States that it needs allies in the world economy because “the idea is not to start a trade war.”
However, Europe will soon consider its response if “very strong and widespread force is used”.
In the past, the EU has imposed tariffs on iconic American products such as Harley-Davidson motorcycles, bourbon whiskey and Levi’s jeans in response to U.S. tariffs on steel and aluminum.
A senior euro zone central banker told me that U.S. tariffs alone “will not cause inflation in Europe, but it depends on Europe’s response.”
last month The International Monetary Fund told me A major trade war could cost the world economy 7%, equivalent to the size of the French and German economies combined.
The British government faces a very big question: How should a post-Brexit UK position itself in a plausible, if uncertain, transatlantic trade war?
So far, the UK has been moving closer to the EU, including on food and farming standards. This will make it very difficult to reach a close trade agreement with the United States.
The Biden administration is not interested in such a deal. Trump’s still-influential chief trade negotiator, Bob Lighthizer, even said the assumption that Britain would maintain close ties with the EU to help its businesses was holding him back from pursuing a deal.
“They are a bigger trading partner to you than we are,” he told me in an interview.
The UK can try to remain neutral, but it will be difficult to avoid crossfire, especially when it comes to trade in goods such as medicines and cars.
The UK government’s rhetoric suggests it could try to be a peacemaker in the global trade war, but will anyone listen?
Britain could choose sides and try to exempt itself from Trump’s more widespread tariffs.
Diplomats were encouraged by suggestions from the president-elect’s more pragmatic economic advisers that friendly allies might be able to strike a better deal.
Or would the world benefit more if the UK joined forces with the EU to prevent such trade tariffs from being implemented?
What about role models for the rest of the world besides the United States?
If the world’s largest economy resorts to massive protectionism, it will be difficult to convince many smaller economies not to do so.
All of this is very much up for grabs. Trump’s warning can be taken at face value. Nothing is certain, but this is how a very serious trade war begins.
