Tariffs and the European Union

Tariffs are a counter-productive policy, both misconceived and damaging to those who impose them. The new tariffs imposed by President Trump will make US goods more expensive for US consumers. They are contrived to make foreign goods more expensive in the US so that US producers can compete against them in their domestic market. They will not help US producers to sell abroad, however, because they will not face the competition at home that works to keep them lean and innovative.

Any tariffs imposed by foreigners in retaliation will similarly raise the price of US imports in their own countries and force their consumers to pay higher prices. The world will step back from the global order in which goods were produced by countries that could do it better and cheaper than others. That made for a richer world, with unprecedented increases in living standards across the planet. Now it will change.

For a moment try looking at it through the eyes of President Trump and his supporters. The European Union under its present and previous names was established to create a third great power that could rival the United States and the Soviet Union. Individually, the nations of Europe might be small, but collectively they could have clout.

The EU was never a free trade area. It was always a Zollverein, a customs union in which domestic producers were protected against foreign imports by a Common External Tariff. That tariff wall was designed to achieve what President Trump hopes to achieve: the protection of domestic producers, even at the expense of domestic consumers.

The EU had the advantage that although it aspired to be a great power, it did not have to pay for its own defence while doing so. Through NATO, the US contributed far more to the defence of Europe than its constituent nations did.

Through President Trump’s eyes, the US did not start the trade war; the EU and other nations did. As Sir Arthur Harris (Bomber Harris) might have said:

“The European Union entered this trade war under the rather childish delusion that they were going to put tariffs on everybody else and nobody was going to put tariffs on them. They sowed the wind, and now they are going to reap the whirlwind.”

 Tariffs are the wrong thing to do. They impoverish. The EU made its citizens poorer through its Common External Tariff, and now the US has done the same in retaliation. There will be EU retaliations against the US retaliation, and they will further impoverish. Adam Smith said that free trade, not tariffs, creates riches. But no-one now is listening.

Madsen Pirie