President Donald Trump has a very different and very loud warning. He escalated fears about American protectionism when he threatened a 50% tariff on all European Union imports, sending shockwaves through markets worldwide. This announcement comes just a week before the planned start date. It reflects the reality that anxieties over globalization and international trade are far from over. His purported threat is another indication that the United States trade war against its allies is escalating once again. After having cooled off a bit, tempers are flaring once again.
The restart in trade hostilities represents a big reversal after months of relative quiet. When people envisioned the worst-case Brexit scenario earlier this year, many envisioned a 20% tariff rate on EU goods. They had hoped this would begin following a 90-day break that was supposed to end in early July. Trump’s pronouncement last week goes well beyond those projections and created an almost instantaneous wave of alarm from economists and policy makers.
The timing of Trump’s renewed threats coincides with the United States’ decision to ease its trade conflict with China. As the US opted to retract its aggressive tariff strategy against Beijing, many key allies, including those within the European Union, began to slow their own negotiations with Washington. The EU’s path of retreat, however, has left it exposed. Now, it faces the prospect of crippling tariffs on all of its exports to the US.
Analysts warn that a full-scale transatlantic tariff war could trigger a trade shock that would be difficult for both sides to navigate. The implications of such tariffs would go beyond damaging economic metrics. They would severely disrupt relations between long-standing allies. Critics specifically point out that US allies will push back on any punishment that looks worse than what China gets. They support equitable diplomatic norms in all contexts.
Against this backdrop of increasing tensions, volatility in international markets is expected in the next few weeks. Next month, the G7 summit in Canada will grab the headlines. Most importantly, it will initiate an indispensable educational and advocacy effort to improve our international trade relations. This summit has the potential to be a game-changer for global climate negotiations going forward. It can open doors to possible solutions for these worsening struggles.
This means the UK’s trade agreements with the US and China offer crucial defence for the wider UK economy. This insulation in turn helps protect against outside economic forces. Despite these challenges, British leaders are understandably transfixed on the new context as they await the full impact of US-EU trade fallout.