In 2018, as he signed new tariffs on imported steel and aluminium into law as US president, Donald Trump quoted 25th president and protectionist William McKinley, who said tariffs had “made the lives of our countrymen sweeter, and brighter and brighter and brighter”.
Trump appears likely to take a protectionist approach in his second term as president, pledging 10% tariffs on all imported goods – something which the WTO warned in April could spark “lose-lose” retaliation from other nations.
Today, the Daily Update is taking a look at what the effects of a second Trump presidency could mean for international trade.
EU preparations
The EU has been preparing a plan for its trade approach to a second Trump administration, according to reporting earlier this year by the FT.
The two-part plan includes an initial approach to Trump’s staff if he wins the election in November.
The EU plans to offer concessions on trade, including the purchase of larger volumes of particular US products, in a bid to discourage Trump from implementing a planned 10% universal tariff on imports to the US, which some predict could hit EU exports by as much as €150bn a year.
If the Trump administration continues to pursue the tariffs on EU goods, however, the EU would retaliate tariffs of up to 50% on certain US goods – particularly on products prized by Trump’s ‘core’ vote, including Harley-Davidson motorcycles and bourbon whiskey.
Hoping for a “cooperative approach”, EU trade chief Valdis Dombrovskis told the FT:
“We believe the US and EU are strategic allies and especially in the current geopolitical context, it’s important that we work together on trade.
“We defended our interests with tariffs and we stand ready to defend our interests again if necessary.”
Goldman Sachs chief economist, Jan Hatzius, has forecast that a tariff war between the US and EU could cost the EU 1% of its GDP and the US 0.5% of its GDP.
UK preparations
The UK, meanwhile, has also been preparing.
Business and trade secretary Jonathan Reynolds told Politico yesterday that "any G7 trade minister like myself would be concerned about the talk of tariffs".
"We model every potential outcome as to what some of the campaign pledges might mean for an economy like ours.
"[The UK government is] extremely well-prepared."
In conversation
The former president spoke to Bloomberg at the end of June to discuss his plans for the US economy and trade, explaining his sceptical approach to sanctions on Russia, as well as his admiration for McKinley.
That admiration is feeding plans for expansions on tariffs that could include as much as a 60% tariff on Chinese imports, which UBS economists have suggested could cut 2.5% from China’s annual GDP.
“I don’t love sanctions,” he said in the Bloomberg interview, suggesting he is reluctant to pursue further sanctions on Russia for its invasion of Ukraine or even to institute them against China should it try to seize Taiwan.
Arguing that McKinley “made [the US] rich”, Trump also mounted a fierce defence of trade tariffs as a tool of both economics and diplomacy:
“I can’t believe how many people are negative on tariffs that are actually smart. Man, is it good for negotiation. I’ve had guys, I’ve had countries that were potentially extremely hostile coming to me and saying, ‘Sir, please stop with the tariff stuff.’”
Addressing the question of EU trade tensions, he was critical, suggesting trade with the bloc was unfair:
“The ‘European Union’ sounds so lovely. We love Scotland and Germany. We love all these places. But once you get past that, they treat us violently.”
Round one recap
Trump’s record on trade during his presidency from 2016 to 2020 was heavy on protectionist measures that have largely remained in place under his successor, current President Joe Biden.
As of January 2020, the end of his term, Trump and his administration had imposed new tariffs on 16.8% of imported goods to the US, according to the US Congressional Budget Office.
Washington DC think-tank the Tax Foundation has suggested that the Trump and Biden-era tariffs have reduced long-run GDP by 0.2%, but have increased the tax take by US$200-300 per household annually.
It also said:
“Academic and governmental studies find the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.”