Hello. Incredibly, a week is coming up without a major US tariff deadline in it, but never fear, as long as Donald Trump is in the White House and commerce secretary Howard Lutnick is allowed on television the entertainment will continue. Further evidence that the Trump tariff policy is genuine chaos (as I thought it would be) and not a cunning plan arrived last week via anonymously sourced news stories of administration infighting, with Lutnick the main target of blame. “The only one who thinks it’s chaotic is someone who’s being silly” was the former Wall Streeter’s unconvincing response. Last week the first set of non-China Trump tariffs actually happened, the 25 per cent steel and aluminium duties. Today’s pieces are on the various responses to them, specifically from the EU, Canada and the UK. The Charted Waters section, which looks at the data behind world trade, is on how the US is dragging down forecasts for global growth next year.
Get in touch. Email me at alan.beattie@ft.com
The EU’s well-oiled rebalancing machine
The steel and aluminium levies are entry-level Trump protectionism, placed on products whose markets have in any case long been distorted by state support and trade defence instruments (anti-dumping and anti-subsidy duties). They partly restored tariffs from Trump’s first term, which in the EU’s case were suspended after a deal with the Biden administration, and added a lot more.
Brussels didn’t have to think too much about the response, pushing the button setting the machine of countermeasures in motion, reinstating the tariffs it had suspended during the truce and starting consultations on expanding them. The EU insists these tariffs are for “rebalancing” rather than retaliation. Classifying Trump’s tariffs as “safeguards” (which are imposed to deal with a flood of imports rather than those unfairly priced) allows Brussels to impose counter-duties immediately. Is that WTO-legal? Very dicey, but since the US has frozen the WTO Appellate Body that would rule on the issue, Brussels will keep doing it.
The tariffs were as usual directed at supposedly politically sensitive areas, such as soyabean farmers in Louisiana, home state of the House of Representatives majority leader Mike Johnson. But as I’ve argued before, the retaliation game has changed. Supine Republican senators and congressmen are highly unlikely to make a big fuss about Trump’s trade war either privately or publicly.
The real challenge for the EU is yet to come, in the form of responding to future bogus “reciprocal” tariffs or punitive duties on champagne or whatever Trump’s brains trust comes up with that day, which are currently scheduled for April 2, though frankly who knows?
The moose that roared*
“Wow, Canadians seem so placid and diffident, I didn’t think they’d react like this” said someone who’s never met a Canadian trade negotiator. If the US tariff war against Canada were a baseball game, you’d have to be wondering if Trump was doing a Shoeless Joe Jackson and deliberately losing it for money. On the face of it, his strategy appears to be to build up political resistance in Canada while undermining his own negotiating position and trashing the US economy. It’s incredible to watch.
Sorry if this all seems obvious and repetitive, but let’s go through last week’s events to underline not just the destructiveness but the utter ineptitude. Once again, following the pattern with Colombia in the first week of his administration and then Canada and Mexico in the third and the seventh week, Trump threatened and then partially lifted or backed away from imposing tariffs.
This time it involved threatening extra-high 50 per cent import duties on steel before retreating after speaking with Doug Ford, premier of the Canadian province of Ontario, who had imposed export taxes on electricity sales to the US. The first couple of times it took the Canadian prime minister to face down Trump; now it’s the head of a single province. By the summer Trump will be running scared of a jug of maple syrup.
It’s a no-brainer for Canada to confront rather than placate Trump, since he demanded first the impossible and now the unconscionable. He’s moved on from targeting almost non-existent fentanyl smuggling to make a literally existential demand of annexing Canada, but without yet imposing the tariffs to impress on Canadians the cost of resistance. Trump has contrived to build a rock-solid political consensus against him in Canada and rocketed the relatively Trump-hostile Liberals back up in the polls. The same is true in Mexico, where President Claudia Sheinbaum is enjoying stratospheric popularity ratings.
If you believe that this is all a cunning plan to strike fear into the hearts of trading partners and force them to sign the mythical Mar-a-Lago accord to realign the dollar and buy US perpetual bonds, it’s not going very well. Any Canadian leader who goes to Mar-a-Lago and agrees to appreciate the Canadian dollar and indefinitely lend money to the US is likely to be clapped in irons for high treason on return.
*It’s a movie reference. Yes, film nerds, I know the premise of the original is actually a small country deliberately losing a war to the US, but some puns are too good to pass up.
Britain takes the punch and decides to talk
The UK tried something a bit different in response to the steel and aluminium tariffs, that is do nothing. Given that tariffs mainly hurt the economies that impose them you might regard this as an economically optimal approach, frequently suggested by people like me who don’t have to get elected to anything.
In practice it’s more likely to reflect simple pragmatism than a heart-warming return to the UK’s free-trade history. Compared with the EU, Britain is a small steel producer that doesn’t export much to the US. Certainly, an attempt to run a systematically more liberal trade defence policy under the Conservative government lasted about ten seconds when it came to protecting British steelmakers from Chinese imports.
More interesting, and risky, is Sir Keir Starmer’s government’s idea of signing some kind of trade and tech deal with the US to keep the Trump tariff wolf indefinitely from the door. I assume this will be a cobbled-together set of unilateral announcements rather than an actual preferential trade agreement (PTA), which even under this spineless Congress would be a slow process. The obvious candidate, given that Starmer’s government seems to have fallen under the spell of the artificial intelligence salespeople, is that the UK will please Trump’s tech pals by weakening its plans for data and digital regulation.
Even if you think this is a good idea (not my field, but my instinct is to be sceptical), the UK will get nothing back except a nonbinding promise to hold off tariffs or whatever other form of coercion Trump might favour in the future. They should first ask the Canadians and Mexicans how well agreeing the US-Mexico-Canada (USMCA) deal during Trump’s first term to forestall US trade aggression has worked out.
This mini-deal seems to be strongly associated with UK ambassador Lord Peter Mandelson, about whose judgment over trade agreements I have already expressed reservations. My doubts were not dispelled when Mandelson appeared recently on the US Sunday morning political talk shows and so flatly contradicted the government line on Ukraine that he had to be corrected the next day by a minister.
If you’re going to change your tech regulation plans, do it on its own merits. Don’t imagine that you’re going to get paid handsomely in durable trade concessions by Trump as a result.
Charted waters
Global economic growth is likely to slow next year, but note this is largely driven by the US (and Japan), while the EU economies are going to do pretty well.
Trade links
The trading system’s going to hell, as usual. And yet, as usual, actual goods trade growth looks OK just for the moment, according to the WTO.
The FT examines how tariffs and cuts to federal employment are weakening the US economy.
The Economist examines Europe’s potential leverage over the US in a trade war and concludes it’s bigger than you might think.
Contrary to Trump’s wishes, automakers are not moving production to the US to beat his tariffs.
Tej Parikh in the FT’s Free Lunch column argues that on a decades-long view Canada could be an economic powerhouse.
The FT’s Unhedged newsletter argues that the dollar may have stopped being a barometer of Trump’s actions on tariffs
Trade Secrets is edited by Jonathan Moules
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