Avoiding a trade war is simple: don’t fight back. Mark Carney will make life more expensive for Canadians by imposing a 25 per cent tax on American cars and threatening more. The EU is right to say tariffs cause misery, but it will double that misery by levying a “retaliatory” tariffs payable by its own consumers. Polls show most Europeans are crying out for such countermeasures. It’s as if everyone’s response to Uncle Sam shooting himself in the foot is to reach for their own gun and fire down.
Britain, so far, is keeping calm. Every business to contact No 10 is saying the same thing: retaliation would be madness. If you think Trump’s tariff logic is wrong, why copy it? And this isn’t about morals, it’s about cold national self-interest. The UK is, by history and culture, a free-trading country because we believe this system is better for the world — but first, and very much, for us.
The great advantage of Trump’s tariffs is that he’s doing a Liz Truss: showing the world what not to do. His theory that this will somehow lead to a growth surge is already being tested. The result, so far, is crashing markets and capital flooding out of America. Polls show predictions splitting along partisan lines: Republicans think inflation will be negligible; Democrats think it will be monstrous. We’ll soon know, but a lot of investors aren’t hanging around to find out.
Just when America is resigning as the world’s policeman, it’s also walking away from leading a global free trade system it did so much to shape. What spooks investors is realising this is not just Trump’s madness. It’s fuelled by anger of tens of millions of Americans in rust-belt states and beyond who feel overlooked and undervalued. They have spent decades being told they’re the past, the roadkill of globalisation. Asian imports are better and cheaper, so they’re not needed.
Trump is offering a new narrative: decline was never inevitable. You were betrayed! Used as sacrificial offerings to a globalist god. No longer! Tariffs will restore American industrial might, tilting the playing field back in favour of factory workers and their communities. This argument is sometimes called economic populism but what matters is that it’s popular. In democracies, popular agendas have a habit of finding someone to implement them: as JD Vance or any number of others now stand ready to do.
In Britain, things are different. Our big economic readjustment came with Brexit, intended to dial back globalisation and find a more cohesive economic model. Levelling up is now taken seriously by all parties. The Tories failed on immigration and paid the political price. But over the past ten years, the biggest pay rises have gone to the likes of engineering and chemical plant workers, farm hands and care home workers. The surge in American wealth inequality has not been seen in Britain.
Our size helps. We’re big enough to have clout on the world stage but realistic enough to know we can’t produce everything we need ourselves. We don’t take it as a national insult if our lamb comes from New Zealand or sugar from Australia. What manufacturing we have left is pretty good and can compete with the world’s best: it wasn’t long ago that the Nissan plant in Sunderland made more cars than all of Italy. Most of our exports are anyway services (law, accountancy, advertising), in such demand that their growth has not been even dented by Brexit.
We’re less inclined to see imports as a threat, slightly more interested in bargains. And if the trade wars now mean a glut of cut-price goodies rebuffed by America — MG4 electric cars or 43” plasma televisions — then British shoppers are likely to welcome them with open trolleys. This kind of “dumping” will lower prices, cut inflation (and there’s no sign yet of a serious threat to jobs). It’s a blessing to be bagged, not a threat to be repelled. Britain has always been a country where shopping tends to triumph over politics.
Perhaps that’s why British protectionism has, so far, been the dog that has not barked. The business leaders now begging Keir Starmer not to retaliate echo the London, Manchester and Glasgow industrialists who petitioned parliament to drop tariffs in the 1820s, ushering in a free-trade era that transformed the country. The principles of Manchester liberalism, the work of Cobden and Bright, became the basis of free-trade principles for the world, with revolutionary results. Trading freely, exporting what you’re good at and importing what you’re not, has made the postwar world far wealthier and more equal.
For America to abandon this system is bizarre but nonetheless takes us back to the Cobden-era argument of protectionism vs free trade. We can see Trump leading the new wave of neo-protectionists. Who will champion the free-trade world?
Mark Carney is an unlikely candidate: the pressures of Canada’s election mean he has to threaten protectionism. Giorgia Meloni says she thinks retaliation will hurt Italy but as an EU member she has no say in this. It’s down to Ursula von der Leyen, who says the consequences of tariffs “will be dire for millions of people” but is preparing her own nonetheless. Marine Le Pen, who is all for tariffs and protectionism, says she is delighted people are finally coming around to her way of seeing things.
Britain is the obvious candidate to pick up the abandoned post of free-trade leader. We’re a top-six world economy with an independent trade policy and a long free-trading history. More trade between likeminded, open economies is the obvious remedy to less trade with drawbridge-up America.
If this can be done at speed, it might even deliver the growth boost Starmer needs. He can tell the EU it’s time for a closer relationship, to drop the pointless paperwork and clean up shrapnel from the Brexit wars. Can either side afford such pettiness when the world is changing so fast? With so much at stake — and our own markets plunging — isn’t it finally time to stop arguing about fish?
“We are a nation that believes in open trade,” David Lammy said on Friday. The foreign secretary was expressing a principle and he might end up with quite a dividend. With so much global capital on the move, Britain can pose as a country that sees free, global trade not as a party political issue but part of our DNA. If we use this drama to improve the meagre post-Brexit free-trade deals struck with Canada and Australia, so much the better.
Whatever its effects on the world, the Trump presidency is proving good for Starmer. It has given him a foreign policy: convening a “coalition of the willing” on Ukraine. If he could do the same for free trade, Britain could yet end up a winner from the Trumpian mayhem.
