Trump is hardly the West’s only trade warrior

US president Donald Trump has begun his second term as president threatening to impose tariffs on assorted countries, from Canada to China. While some of the tariffs have been postponed, such as those on Canada and Mexico, others remain in the offing, triggering no shortage of hyperbolic media coverage.

If Trump’s proposed tariffs do come to pass, this will certainly be bad news. For a start, they will likely have an inflationary effect on the US, bringing about a significant one-off rise in prices for American consumers and businesses. The tariffs may be paid by importers, but they usually try to pass along the higher costs to their customers through higher prices. This would raise Americans’ cost of living and business costs, which over time could further raise consumer prices.

None of this is guaranteed to happen, of course. Indeed, the tariffs Trump introduced during his first presidential term were found to have little to no inflationary impact. This was because increased import costs were offset by the rising dollar from early 2018 onwards. When a country’s exchange rate increases relative to other countries’, the price of its goods and services increases when measured in foreign currencies, while its imports become cheaper.

A higher dollar in response to Trump’s tariffs this time round – which some economists anticipate – would again cheapen imports. It seems that despite the end of US hegemony, global economic disruptions still usually result in capital flowing into American assets because investors see it as a ‘safe haven’ – even when it is the US itself that is causing the disruptions.

A higher dollar could therefore mitigate any inflationary effects. But it would also hurt the competitiveness of US exporters – another example of the perverse and counterproductive consequences of using tariffs to promote domestic growth and jobs.

More importantly, Trump’s tariffs agenda is damaging in broader economic terms. It will effectively further entrench the economic nationalism of Western states.

State intervention in the economy has been growing in the West since the 2008 financial crisis. Initially, many governments concealed the extent of their interventions. On trade, for example, they would impose non-tariff barriers, such as regulatory restrictions or export subsidies, rather than overt tariffs. But over the ensuing decade, and especially since the pandemic period of state bailouts, governments have become open, even enthusiastic, about intervening in the economy. So although the state never actually went away during the so-called neoliberal era, today many are proclaiming that the ‘the state is back’.

Trump’s tariffs, as ‘last century’ as they seem, are entirely in keeping with this period of state economic interventionism. Like every other Western politician, he is adhering to the contemporary delusion that state economic intervention is a good thing for domestic economies.

In reality, tariffs, state subsidies and the panoply of other state-led business-support measures are merely propping up the failing economic status quo. These measures operate effectively as a programme of protectionism. They indulge and sustain existing businesses, no matter how lacklustre and unproductive they are. This inhibits the process of creative destruction and impedes the business investment that everyone recognises is needed to energise productivity growth.

Of course, building a nation’s industrial capacity is a worthy goal. Making things at home matters in itself. It provides good-quality jobs, creates opportunities for innovation and bolsters a nation’s productive capacity. But protectionist measures, such as import tariffs, won’t help achieve this. Instead of strengthening domestic industries, sectors and employment within already developed countries, protectionism mollycoddles second-rate domestic firms. It impedes the incentives to innovate and to invest in better technologies.

Trump might think that his tariff actions are a bold promotion of America’s national interests. But he is mistaken. His tariff announcements may often only be short-term negotiating ploys, tools to force other nations to bend to America’s will on anything from border security to NATO defence spending. But to the extent they are actually used as long-term economic measures, they will hinder the development of America’s productive capabilities.

Chinese company DeepSeek’s successful development of an artificial intelligence (AI) model at a fraction of the cost of its American rivals should ring alarm bells in the US about the dangers of protectionism. The policy of controlling technology sales to China, pursued by both Joe Biden and Trump, only reinforced the complacency of the US tech sector – and helped accelerate Chinese innovation in AI.

Trump has already shown in other areas of policymaking that he is prepared to be disruptive. If he genuinely wants to fire up American productivity, he should try to shake up the business world, rather than trying to preserve existing businesses through tariffs and other protectionist measures.

What the Trump-bashing sections of political and media class fail to understand is that his tariffs programme is not a crazy aberration or a sign of his unsuitability for office. It is, rather, a continuation of Biden and other Western leaders’ economic-nationalist policies.

Biden not only maintained all of Trump’s previous tariffs against China – he also increased them and toughened export controls on US AI and chip technology. After all, it was Biden rather than Trump who imposed huge tariffs on Chinese electric cars at 100 per cent. Singling out Trump for condemnation conceals how widespread and established protectionism has become in the West.

Media fear-mongering about a Trump-led ‘trade war’ is also clouding the geopolitical, as well as the economic issues, at stake. Some have even speculated that we could be seeing a repeat of the global trade war of the 1930s. This historical moment itself has been mythologised. As I noted in my 2020 book Beyond Confrontation, much of the postwar narrative about the 1930s trade war exaggerated the effect of tariff impositions not just on trade, but also on the broader deterioration of economic and political relationships between nations.

All this is a reminder that concerns about trade wars should be kept in perspective. Not just because Trump’s threats often remain unfulfilled, but also because international conflicts over trade matters are usually a symptom of national economic problems. Indeed, it’s all too easy for domestic politicians to attribute their chronic home-grown economic problems to external ‘trade wars’. If the Trump tariffs continue, we might soon hear UK chancellor Rachel Reeves blaming them for the mess her own policies have created.

Admittedly, other nations are likely to retaliate to Trump’s actual tariffs. And this could escalate a trade war. But this type of conflict is only one symptom of an economically fragmenting world. There are far wider and weightier geopolitical problems on the horizon than tit-for-tat tariffs. Indeed, far more geopolitically dangerous than a trade war is America’s bi-partisan refusal to engage constructively with the reality of the rise of China – a consequence of Washington’s perilous attachment to the postwar US-led world order.

As Politico Europe’s trade editor, Douglas Busvine, shrewdly speculated, China is the White House’s ‘real enemy’ in its tariff wars. Busvine notes that even the tariffs still hanging over Canada and Mexico could be indirectly aimed at Beijing. Chinese companies operating in those two US trade partners normally enjoy duty-free access to the American market.

Trump’s tariffs speak to the US policymakers’ conviction that America must fight back against China and its economic model. As they see it, according to Busvine, China has ‘created vast industrial overcapacity and has flooded world markets with surplus production’.

Anti-China tariffs are just one more weapon in Washington’s dangerous, and futile, effort to contain China’s rise economically, technologically and geopolitically. As Lynn Song, China chief economist at ING bank, has pointed out, America’s trade war with China has already had the paradoxical effect of supercharging China’s quest for ‘tech self-sufficiency’.

Rather than obsessing over tariffs, we need to pay more attention to the domestic drivers of the West’s economic malaise. We also need to look more closely at the geopolitical issues at stake. That is where future international conflict is likely to be brewing. That should trouble us far more than Trump’s threats of a trade war.

Phil Mullan’s Beyond Confrontation: Globalists, Nationalists and Their Discontents is published by Emerald Publishing. Order it from Amazon (UK)