Donald Trump’s imposition of tariffs of 25 per cent on goods from Canada and Mexico and 10 per cent on Chinese imports is not only bad news for these countries but also for the US and the rest of the world.
As the US president acted on the threats he made during the election campaign, the White House said the tariffs on Canada would remain until it “co-operates with the US against drug traffickers and on border security” and held Mexican drug cartels responsible for trafficking the synthetic painkiller fentanyl and other substances. It claimed China “plays the central role in the fentanyl crisis” through exports.
Canada has already hit back with tit-for-tat measures including 25 per cent tariffs on £17bn of US goods entering Canada, with a further £69bn to be added in three weeks. “We didn’t ask for this but we will not back down,” said Justin Trudeau, the outgoing Canadian prime minister. Similarly, Claudia Sheinbaum, the president of Mexico, has ordered retaliatory tariff and non-tariff measures, while China said Mr Trump’s move “seriously violates” World Trade Organisation rules.
US businesses are alarmed, and the moves could raise prices and inflation in America while harming growth. On the face of it, Mr Trump is playing with fire, given the damage done to the Democratic Party’s election prospects by the impact of inflation on living standards. However, Trump’s allies suggest the measures do not signal a global trade war in which there would only be losers, but the great deal-maker’s opening move in a negotiation that could see the tariffs lifted if he could claim victory after tangible progress – on border security, for example.
The president made clear the EU is also in his sights and the 27-member bloc is gearing up to retaliate. Even if the UK is not targeted directly with tariffs, as the Starmer government hopes, it is unlikely to escape the fallout. There will be trade diversion and supply chains will be affected. Canada will urge the UK to join it and like-minded nations in opposing the Trump tariffs; there is even talk of a G6 alliance of the G7 minus the US. This would put Sir Keir Starmer in an awkward spot as he tries to build a working relationship with the new president.
So will the prime minister’s drive to reduce trade barriers with the EU, which begins in earnest when he meets his EU counterparts at a dinner in Brussels on Monday. Predictably, Kemi Badenoch and Nigel Farage are warning that the UK will be more vulnerable to US tariffs if Sir Keir hugs Brussels close. True, in a worst-case scenario, US tariffs on UK imports could mean higher UK interest rates and a hit of up to 2.5 per cent to UK GDP over three years, according to the National Institute for Economic and Social Research think tank.
However, The Independent believes Sir Keir should ignore the discredited Brexiteers, whose pet project is on track to reduce UK GDP by four per cent over the long term, and should pursue a closer economic link with the EU.
The UK should simultaneously seek a deal with the US on services and advanced technology including AI. That is much more realistic than a traditional one including agricultural and food products, on which it makes sense to reach a veterinary agreement with the EU to reduce trade friction. There is no contradiction between a deal with the EU on goods and one with the US on services – unless Mr Trump wants to create one by forcing a choice on the UK, which regrettably he might.
Despite the bruises left by Brexit, the EU might prove a more reliable partner than the mercurial US president who, after all, has just ripped up the US-Mexico-Canada trade agreement he largely dictated in his first term when he abandoned the North America free trade agreement.
Although the US is the UK’s single biggest trading partner, with exports of £188bn, that is dwarfed by the £346bn of UK exports to the EU. Unfortunately, Labour’s “red lines” to remain outside the single market, customs union and free movement will limit the scope of the EU negotiations. But there is still much to be gained from a better deal than the threadbare one Boris Johnson struck; the reset could offer the UK its quickest and easiest route to some much-needed growth and eventually be worth up to 0.7 per cent of GDP.
Sir Keir should aim high. He should overrule Yvette Cooper, his home secretary, who reiterated the government’s opposition to a youth mobility scheme on Sunday. This is a key EU demand, and negotiations will stall unless the UK compromises. Such a scheme would not amount to free movement, as its critics suggest.
Sir Keir will need to be bold. He should ignore the self-serving “noises off” from the Tories and Reform UK and remember the public prioritises links with the EU over the US. The threat of Trump tariffs should not divert him from the vital task of removing trade barriers with the UK’s natural and biggest partner.