This was unthinkable just weeks ago, when the Commission’s mantra was “derisking” the supply chain, and the two sides were daggers drawn over EU tariffs on electric vehicles.
China is still smarting over the EU’s sweeping investigations into Chinese technology theft and predatory investments. The EU is still smarting over the tsunami of Chinese exports flooding its market, which pushed China’s structural trade surplus with Europe above €300 billion ($515 billion).
But they both have a bigger wolf to contend with today.
He Lifeng, China’s vice-premier, said the two economic blocs should team up to defend themselves against Trump’s assault on the global trading order.
“China is willing to work with the EU to handle economic differences in the proper manner,” he said.
The Trumpian trade era is fundamentally different from the early 1930s because a) the world was then far less integrated (trade was just 2 per cent of US GDP), and it retreated further into protectionist blocs or semi-autarky after the US Congress passed the Smoot-Hawley tariff act; and b) the Federal Reserve made matters infinitely worse by forcing a 25 per cent contraction of the US money supply and pushing everybody into debt-deflation via the interwar gold standard.
Uncertainty surrounds Donald Trump’s “Liberation Day” tariffs.Credit: nnamleach
Over that decade, Canada, India and (loosely) Scandinavia joined Britain behind the wall of imperial preference. Germany put a cloak over Mitteleuropa. The Japanese formed a trade bloc based on occupied Korea, Taiwan, Manchuria and North China.
This time, the stronger reflex is to try to save open trade in 80 per cent of the world economy, leaving the US to stew in its own absurdities.
Trump’s tariffs are, of course, unconstitutional. Article I of the Constitution gives Congress exclusive power “to lay and collect taxes, duties, imposts and excises”, and for good reason.
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The drafters feared a drift towards monarchy if the president had an independent source of revenue, as Charles I had sought to do by stretching and abusing the “wartime emergency” justification for raising ship money in the 1630s.
Congress has delegated certain tariff powers to the White House in various acts, mostly in the 1970s, but only for limited purposes. Trump has abused these in exactly the same way as the Stuarts by claiming, yes, emergencies, such as the fiction of fentanyl and migrants from Canada.
The data actually shows that the US is itself a net exporter of fentanyl and migrants – and illegal firearms to boot – across the Canadian border.
A few Republicans are grumbling. Congressman Don Bacon said last week that Capitol Hill had “made a mistake” by giving presidents too much scope to raise tariffs.
“We have the power of the purse, and I think we should restore these authorities back to the House,” he said.
Don’t hold your breath waiting for common-sense Republicans to face down the intimidation of the Trump-Musk-MAGA machine.Credit: nnaKCampbell
Good for him, but don’t hold your breath waiting for common-sense Republicans to face down the intimidation of the Trump-Musk-MAGA machine. Nor do I expect restraint from the Supreme Court, itself now in thrall to the Bonapartist cult of unitary executive theory.
We will learn on Wednesday (Washington time) whether “liberation day” tariffs cover “all countries” as Trump says when he is in a bad mood, rather than just a “dirty 15” with big trade surpluses suggested by Treasury Secretary Scott Bessent.
Trump’s trade guru Peter Navarro says the plan will raise $US6 trillion ($9.5 trillion) in tariff taxes – he calls it revenue – over the next decade, which is a revealing claim.
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If it is to raise $US600 billion a year, it will be a contractionary macroeconomic shock of 2 per cent of GDP, unless offset immediately by tax cuts.
It will lead to Nixonian stagflation, inviting Nixonian price controls as the next logical step, to prevent an inflationary psychology taking hold in the manner of the late 1970s, especially since Trump will almost certainly try to bully the Fed into accommodating his economic adventurism.
Navarro is telling us that import substitution with US-made wares will fail, and that foreign companies will not in fact relocate their factories to the US on a large scale.
Navarro is also telling us that Trump’s tariffs are not bargaining leverage to force free-trade reciprocity. They are an end in themselves, a revenue source harking back to the McKinley Tariff of 1890, which a wiser President William McKinley later regretted.
The average rate of US tariffs was around 2.5 per cent last year. JP Morgan expects it to jump around 20 percentage points, pushing the risk of a global recession to 40 per cent this year. Goldman Sachs says the total effective tariff on European imports could rise to 36 per cent if Trump goes for the jugular over VAT.
“For all intents and purposes, the US is now a rogue nation when it comes to trade.”
Michael Gasiorek, the director of the UK Trade Policy Observatory at the University of Sussex.
This will force serious retaliation even from Commissioner Sefcovic – pedantically uncompromising with apostate Britain, but a pussycat when faced with a bigger bully – and that will set in motion a tit-for-tat spiral as Trump asserts his pathological need for “escalation dominance”.
He has already warned his victims not to talk to each other. “If the European Union works with Canada in order to do economic harm to the USA, large-scale tariffs, far larger than currently planned, will be placed on them both,” he posted on Truth Social.
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But talk they will, because the world cannot put up with this wolf warrior behaviour any longer, and they will retaliate until the temple comes down on Trump’s head as well as their own. Where does the Trump “put” lie?
The S&P500 at 5000, gold at $US3500, Bitcoin at $US50 or Tesla heading for bankruptcy? Let’s test it, shall we?
Telegraph, London
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