Marking his trip to Britain by clobbering hopes of a UK-US bilateral deal last week, Donald Trump reminded everyone that he is a deeply aggressive and unreliable interlocutor on trade. His threats have turned into reality. Having already implemented one round of steel and aluminium tariffs against a range of countries, supplanted with more duties on imports from China, the president is now threatening a general set of restrictions on autos plus an escalation of the tariff war with Beijing.
So far, both of America’s most prominent trading partners, the EU and China, have responded with the traditional tactic of retaliatory tariffs. But before long, this is likely to become self-destructive. Brussels and Beijing should give very serious thought to simply lifting their eyes from Mr Trump’s ludicrous misadventure and refusing to become involved.
In March, Jean-Claude Juncker, the European Commission president, referred to tariff retaliation as “stupid”, albeit a necessary stupidity. This is a little harsh. In reality it is not much sillier than any form of trade negotiation. The political economy function of retaliation is to encourage influential exporters in the opposite country to lobby against the protection afforded to domestically oriented industries, preferably while sparing one’s own economy by hitting imports of consumer goods with readily available substitutes. Thus, just as with a trade deal, mutual export mercantilism delivers freer trade.