I'm generally opposed to tariffs but I still stand with Donald Trump

Donald Trump is using tariffs as a strategic tool in a new great game between the US and China

The import tariffs announced by President Donald Trump on his self-styled “Liberation Day” have been a long-time coming so no-one should be surprised – and yet many are reacting as if it was unforeseen, that he never really meant it and it is a right-wing challenge to the globalist liberal order.

Such comments are unjustified, some are naïve, some are wilfully antagonistic – too much ‘war, war’ in trade matters and not enough ‘jaw, jaw’ will only make matters worse.

Starting from first principles, I declare I am in general opposed to tariffs. Tariffs are a tax, an import tax; they make goods more expensive to the consumer (in this case the American public), they reduce competition, innovation and creativity. Tariffs also make investment less likely in new products requiring larger export markets to be profitable.

Donald Trump's tariffs have already persuaded more than 50 countries to start to talk about new trade deals, with lower tariffs for US goods (Picture: Andrew Harnik) | Getty Images

Inflationary pressures

So the likelihood is in the main, over a period of a year or two (industries and economies need time to adapt) goods will become more expensive to American consumers. There will be inflationary pressures inside the US and some products will become very difficult to obtain.

A case can be made for certain tariffs designed to protect a security concern, such as production of virgin steel or very high-grade metals required for the defence industry. An alternative is to have no tariffs but use targeted state subsidies or nationalisation of an industry (so it may operate unprofitably) as a means of preserving a production facility that otherwise makes no economic sense.

The reality is in times of war (or even just nation-on-nation blackmail) supplies can be cut off by even passive governments not wishing to take sides, or worse trying to influence who is the victor (think of attempts to halt Britain’s negligible defence exports that are presumably important to Israel).

Despite all of the foregoing, Trump likes tariffs and sees them as a valuable economic tool. This should not surprise anyone, as a dealmaker Trump has always seen public policy as a transaction he believes he can improve upon (and he often does). He is also an old-style Democrat who believes in state control and using selective import taxes to protect vulnerable US industries.

Trump is being consistent

For anyone doubting this, I can point to two video clips publicly available that show a much younger Trump being interviewed by Oprah Winfrey in 2004 and Nancy Pelosi speaking in Congress supporting tariffs against China in 1996.

Trump is being consistent; he is doing what he always said he would do, what he started in his first term, and in keeping with his platform that the American people voted for. Nobody should be surprised and much of the outrage is because other countries or customs unions (like the EU) are suddenly being exposed for the tariffs they have had all along.

While Trump supports markets, he is not what should be called a right-wing free marketeer, he believes in the state seeking to reduce competitive advantage of foreign businesses so American-based businesses always have a domestic dominance. The key is “American-based” – one of Trump’s three aims is to encourage reshoring or relocation of manufacturing from outside to within the US border, bringing with it jobs, wages and tax revenues.

For instance British companies like JCB will not face tariffs on the diggers it assembles in its Georgia factory or the one planned to open in Texas. It’s also why Toyota, Honda, Nissan, and Subaru are already located in the US – avoiding the new 25 per cent tariff on all imported cars.

Converts to low tariffs are welcome

The EU is especially in Trump’s crosshairs because it has for a long time run high tariffs against US products (such as cars) and had regulations (non-tariff barriers) that seek to prevent US goods entering the EU market. For EU Commission President, Ursula von der Leyen, to say Trump “started it” by bringing in a 20 per cent tariff on EU goods is to turn the evidence on its head.

Readers will have noticed the UK escaped with only a 10 per cent goods tariff, an outcome that would have been impossible without Brexit and clearly an inducement to Keir Starmer to jaw, jaw to agree a trade deal that will reduce all tariffs on goods and cars to zero. Converts to low tariffs are always welcome.

This brings us to Trump’s second aim to actually reduce import tariffs the US faces by bargaining down his tariffs. This is already happening. Over 50 countries have started negotiations to cut new trade deals, with lower tariffs for US goods.

This illustrates how Trump has challenged head-on the cozy certainties of Doha-led version of globalisation that’s seen genuine competition marginalised as developing countries faced the continued tariffs of the EU customs wall and the G7 introduced a minimum corporate tax rate. If this edifice breaks apart, we should all cheer.

Not about tariffs

The third goal is the most important to Trump and the least understood – to break the growing dominance of China strategically as it seeks to become the world’s dominant power. Trump wants to not only ensure the US has the economic power to withstand a physical or blackmail threat from China, but to ensure other countries’ interests lie in backing the US.

Allowing China to reroute goods through them or special deals with China is why there are some odd tariffs against small islands or neighbours such as Canada. Splitting Russia off from China is also part of the tariff manoeuvring.

The great game Trump is playing out is, in truth, not about tariffs at all, but deciding the dominant economic power between two different views of life and liberty itself. In that regard, despite my dislike of tariffs, when it comes to using them as a strategic tool, I stand with Trump.

Brian Monteith is a former member of the Scottish and European parliaments and editor of ThinkScotland.org