US tariffs throw harsh spotlight on Brexit realities

The decision by Donald Trump to impose tariffs on European steel and aluminium producers has surely exposed the brutal reality behind the claim by his Treasury Secretary Steven Mnuchin earlier this year that UK would jump to the front of the queue for a US trade deal.

As voters, Britons were told repeatedly both during the 2016 referendum campaign and afterwards that one of the major gains from leaving the European Union would be our freedom to strike deals with as many as 40 countries around the world, and particularly with the US as the world's largest economy.

So far there has been little sign of progress. The Government has been able to hide behind the fact that they cannot strike deals while they are in the EU and meanwhile claim to have started outline talks. However as recently as May, international trade secretary Liam Fox said he and his American counterpart had not even begun to discuss in detail what any trade agreement might look like.

Last week’s imposition of tariffs by Trump on the US's erstwhile political and military allies shows how remote that dream now is. Given that the first stage of bilateral trade talks centres on reducing tariffs, the White House has made clear that its priority is to raise tariffs rather than lower them. With 10 months to go until the UK officially leaves the EU, the chances of a UK/US trade deal in March 2019 are more remote than ever.

As one European observer put it, Trump’s decision was unexpected but not a surprise. Not a surprise because he had promised to impose tariffs during his election manifesto. Unexpected perhaps, because he seemed to have pulled away from a trade war with China, which is his ultimate target.

Unexpected also because Trump has targeted the three economies other than China with which the US has the largest – and generally balanced – trade relations (The EU, Canada and Mexico). Not only that but he used an obscure national security provision that allows investigation to see if certain imports imperil national security.

The bitter irony is that these measures were ostensibly aimed at China, they will probably have little effect

Trump started the ball rolling within three months of taking office, directing Commerce Secretary Wilbur Ross to undertake an investigation under Section 232 of the Trade Expansion Act of 1962. Only 26 such investigations have taken place of which only two resulted in trade measures being imposed — oil embargoes against Iran in 1979 and Libya (1982). Unlike European, Mexican and Canadian steel, Middle Eastern oil did present security issues. Indeed, the last time the US looked at the steel industry (iron ore and semi-finished steel in 2001), the Commerce Department concluded there was no national security issue.

This time the Commerce Department found a threat to national security and recommended a 7.7% and 24% tariff on aluminium and steel, respectively. Trump trumped that, imposing global penalties of 10% and 25%. While the target was China the global nature of the measures meant that Trump had to grant exemptions to US allies including the EU, Mexico and Canada. That expired on 31 May despite fruitless lobbying by the EU, the leaders of France and Germany and our own foreign secretary.

The bitter irony is that these measures were ostensibly aimed at China, they will probably have little effect. Although China is the world's largest steel exporter, it is only the 11th-largest source country to the US, accounting for just 2 per cent of total U.S. imports last year. In fact, it was Trump predecessor Barack Obama who imposed duties on some Chinese steel imports by more than 500 percent, causing Chinese imports to the US to drop by almost two-thirds.

The good news is that London has stood united with other European capitals against the US. Given the positive experience of unity seen by the common European stand on the Skripal affair, perhaps the real lesson is that Britain is stronger inside Europe than outside it. Maybe we can finally find something to thank Trump for: highlighting the perils of going it alone.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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