Trade is the lifeblood of the global economy, the single biggest driver of prosperity and a vital means of maintaining peaceful relations between countries.
It is also the latest victim of Donald Trump’s nationalist ideology.
Last week, the President shocked global markets by using a “national security” loophole in WTO rules to propose steep tariffs on imports of steel and aluminium to the US.
History has taught us how trade wars work. The first leader to impose tariffs may think they are protecting jobs in their country, but they soon find other nations retaliating, hitting exporters and crippling other industries. That’s not to mention the blow to domestic consumers and manufacturers requiring the imported goods, who see prices skyrocket. In the case of steel tariffs, US car-makers and industrial firms immediately saw their shares drop, while business groups slammed the President’s decision.
Unfazed by the backlash, Trump doubled down, tweeting on Friday that “trade wars are good, and easy to win”. He may be about to find out how wrong he is. Yesterday, the EU hit back, with trade commissioner Cecilia Malmstrom threatening EU tariffs on US imports of Levi jeans and bourbon.
At the heart of the protectionist ideology is a fundamental misapprehension that trade is a zero-sum game. America as a whole does not suffer if it imports more from China than it exports there – certain industries may deteriorate, but others will benefit from cheaper goods and thrive. Conversely, protectionist policies are as detrimental to the country imposing them as they are to those on the receiving end, and have the potential to knock trillions of dollars off the global economy.
We should not be surprised by Trump’s antics. From the launch of his presidential campaign to his recent speech in Davos, his mantra has been “America first”, while he has promised to punish other countries for “unfair” trade practices. But the fact that it was foreseeable does not make it any less alarming.
There is a reason we call this looming scenario a trade “war”. Trump’s disdain for trade norms represents a complex and unedifying challenge for the global economy. His rants against imports are just as damaging as his online feuds with North Korea’s Kim Jong-un. There is a dangerous risk of escalation, as we have already seen from the EU.
Politically, Brussels' response is understandable. However, when it meets tomorrow it should consider the benefits of staying on the moral high ground. A race to the bottom helps no one, and if the US wants to shoot itself in the foot – then so be it. Now is the time for leaders who understand the critical importance of trade to hold their nerve.