These tariffs…

I take time out from “A manifesto for Lord Mandelson”, my blog series on trade and other relations with the US, to comment on President Trump’s proposal to impose tariffs of 25% on imports of steel and aluminium. Unofficial briefings have it that the UK intends to refrain from retaliation. So it should, for the following five reasons:

1. Wrong in principle
   No-one will be surprised that writing as I do under the banner of Adam Smith, I regard tariffs as at odds with basic economics. Let’s remember what his near contemporary, David Ricardo, argued and centuries of experience confirms: tariffs distort markets, support inefficient producers, and penalise consumers. 

2. Unnecessary
   These particular tariffs are trivial. According to the most recent statistics, iron and steel represents 0.24% of the sum of British exports to the US which the ONS lists; metal ores and scrap 0.20%; and aluminium a fraction of the 0.85% listed as non-ferrous metals. So under one percent, all-up.

3. Self destructive
   Tariffs hurt the country imposing them. The most recent precedent is the retaliatory regime which the EU imposed in 2018, after Trump imposed similar tariffs. Then the UK was part of the Customs Union, which levied €2.8bn worth of tariffs, inter alia on headline US brands including Jim Beam bourbon, Harley-Davidson motorcycles and Levi jeans. Do we really want to penalise our jeans-wearing, bourbon-drinking motorcyclists, just because our neighbour is in a scrappy mood?

4. Ineffective
   Tariffs - whether  offensive or defensive-  are of questionable effect, as the example above suggests. In this instance, after Biden succeeded Trump, both sides walked them back. The parties agreed a temporary truce whereby the US partly removed the tariffs, agreeing quotas which expire at the end of this year, while the EU froze its measures till the end of next month. It looks like Trump acted in anticipation of these sunset clauses. 

5. Impolitic
   This takes us to the main point. Retaliating about something so unimportant to us would be tin-eared, politically and strategically. We have fatter fish to fry with the US, including defence, taxation, tariff-free trade and inward investment in selected sectors.
   
   So too artificial intelligence, where the UK has just given the right sort of signal, by joining with the US in declining to sign up to the final declaration on “inclusivity and sustainability” at the Paris AI summit. This frees our regulators and industry to find a balance which serves the national interest, at odds with the EU which for decades has revelled in being a “regulatory leader”, frustrating its industry and dampening its growth.

⁠Conclusion
Tariffs may grab the headlines, but our negotiators need to place them within the greater context of the country’s perennial dilemma: are we more like Europe or the US? There is no definitive answer, but at this particular moment, after Brexit and at the beginning of Trump’s second term, the UK needs to be nimble in our dealings with all parties. Quite apart from the underlying futility of tariffs, it would be profoundly ill-judged to get bounced into retaliation for something so unimportant. Let us hope our masters stick to their guns. For more on trade and other relations with the US, please read my blog series on the topic, which so far includes posts on

1. Introduction and limits - 17 January 2025;

2. Objectives and the UK’s offer - 24 January 2025;

3. Defence - 31 January 2025; and

4. Commercial :tariffs, taxation and piecemeal inward investment - 7 February 2025. 

Forthcoming posts will cover 

5. Labour markets- 14 February 2025;

6. Housing - 21 February 2025;

7. Energy - 28 February 2025;

8. Public services - 7 March 2025; and 

9. Conclusion - 14 March 2025