Trump’s trade deals: It’s not 1931, yet.

The overall impact of Trump's actions may only represent a modest shock to the rest of the world, primarily because the US budget and trade balances are likely to widen due to the fiscal stance, which will boost US demand relative to output. However, there could be significantly different relative impacts on other countries. Ultimately, the final outcome will depend on whether the rest of the world magnifies or dampens these effects. The spate of recent “trade deals” done by the US does not stabilise the world trade system; rather, it creates ongoing uncertainty. It’s not like 1931 when the Smoot-Hawley tariffs dramatically increased tariffs on all suppliers across the board simultaneously as US aggregate demand was collapsing, sending a huge macro-economic shock across the world. The US was the world’s biggest importer, and other countries worsened the situation by raising protectionist barriers against one another, e.g. the UK Tariff Act of 1932. Even though the new Trump tariffs are nearly as high as those of the Smoot-Hawley Tariff Act, the US accounts for only about 15% of world imports. At the same time, Trump is cutting taxes (on the rich) in a manner that is very likely to increase [...]

By |2025-07-30T09:35:39+01:0030 July 2025|Blog, International Trade, UK- EU|0 Comments
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Stroking a bear to get half a sandwich

The UK and the US announced the first bilateral post-Reciprocal Tariffs deal on 8 May, named the 'U.S.-UK Economic Prosperity Deal' (henceforth the US-UK EPD). The document published yesterday draws out the contours of this EPD, alongside some concrete initial proposals for reciprocal preferential market access for selected goods. Notwithstanding the negotiations starting immediately, this arrangement can be called off at any time, simply by the two parties giving each other written notice. Besides its symbolic and diplomatic relevance, what is the value of this emerging deal for the UK? This is not a Free Trade Agreement. At first glance, it looks like a quid-pro-quo “mini-deal” of limited economic relevance that the US strong-armed the UK into accepting under the threat of tariffs. The UK is getting some respite from Trump’s tariffs in the (important) car and the (strategic) steel and aluminium sectors, in exchange for lowering tariffs on some agricultural products such as ethanol and beef, the latter on a reciprocal basis. But a closer reading of the ‘General Terms document’ suggests that it is more than this, and a lot worse. First, as stated on page 1 of the text, the arrangement that the US and the UK [...]

By , , , , |2025-05-09T18:57:18+01:009 May 2025|Blog, International Trade|0 Comments
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Bridge over the River Kwai or Road to Nowhere?

It is not often that there’s a genuinely new idea around in trade policy, but lo and behold, here’s one: a tariff on a service.  US President Trump is considering a 100% charge on films made abroad. Spielberg would call it a close encounter of the third kind. Although the charge would apply in principle to any foreign-made film, it could hit the UK film sector, part of its successful creative industries, particularly hard, turning it into the English Patient if the idea gained traction. But how could it even work? Since services are intangible and non-storable, suppliers and consumers of services somehow need to come together for a service to ‘change hands.’  Internationally, this can happen in a variety of ways. For instance, the service may be delivered digitally via the Internet, as indeed it would be the case for a movie or an architectural blueprint.  The consumer could travel abroad to enjoy a service (e.g. tourism), or firms could set up affiliates abroad to sell their services to local consumers (anyone who hasn’t done their groceries at Lidl or Aldi?).  Lastly, a service supplier who is a natural person, such as a movie director, could travel to another [...]

By |2025-05-07T15:58:32+01:007 May 2025|Blog, International Trade|0 Comments
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A beginner’s guide to tariffs: Why are they harmful?

Trump is using tariffs as his main international economic policy tool and is providing two conflicting narratives on why he is using them. On the one hand, he suggests that raising tariffs is the key to making America wealthy again: the US government will supposedly raise trillions in tariff revenue, manufacturing production and jobs will move back to the US, and the US trade deficit will finally shrink. On the other hand, tariffs are an instrument to bring countries to the table and negotiate a deal.[1] Yet, of the two narratives, only one can stand. To bring back jobs and reduce the deficit, tariffs must be permanent. If they are a negotiating tool, they must be temporary. Leaving behind the motivations for the tariff increases, economists tend to disagree that raising tariffs will make America wealthier. Ever since the first round of tariffs on Canada and Mexico was announced, experts have warned about the negative consequences: prices for US consumers will increase, fewer products will be available, exports will fall, and economic activity (GDP) will contract. And this is just for the US. Since the US is a large market with the power to affect world demand and prices, the [...]

By , |2025-04-25T17:55:06+01:0025 April 2025|Blog, International Trade|0 Comments
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The real Donald Trump: A free trader in protectionist clothing or vice versa?

This blog was originally published in 2018. We are republishing now because it is striking how much of its analysis and assessment of President Trump’s approach to trade and tariffs resonates today. Importantly, looking back in this way helps to give a longer run historical perspective on the Trump approach to trade policy, which may also help to shape thinking about the future, and responses to that future. Note from the author: In 2018, I described the tug-of-war between the mercantilist and Reaganite factions of the Republican party as the key to understanding the trade policy fluctuations of Trump's first term. This time around, the mercantilists have clearly won. The explicit tying of Trump's "reciprocal" tariffs to U.S. bilateral trade deficits, along with a baseline ten percent tariff, indicates that trade deals alone are not the goal. Trump wants to end trade deficits, pursue import substitution in manufacturing and bring back a 19th century tax system based on customs revenue. These are disastrous goals in themselves; moreover, nothing America's trading partners can do with their own trade policies can satisfy them. This is why the markets have melted down. Perhaps as the effects take hold in the real economy, Trump [...]

By |2025-04-09T14:53:12+01:009 April 2025|Blog, International Trade, UK - Non EU|0 Comments
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Blinded by the light: The trouble with today’s trade policy

Trade policy is more difficult today that it was three months ago, and significantly more so than five years ago. The former is due to the actions of the new US administration, but the latter is a more complicated story that has dramatically changed trade policy across the world. Over the last 30 years or so trade policymakers have largely focused on efficiency gains - more open markets leading to better productivity and economic growth. This was more or less taken for granted, backed by considerable evidence. The distributional implications and broader concerns beyond economic growth have been seen as beyond the purview of trade policy, perhaps too easily. Once again, trade policy makers and analysts either took for granted that these issues were not so important in the trade context, or if they were, they would be dealt with by other areas of government policy. However, in today’s world even efficiency and equity considerations fail to adequately capture the concerns of trade policy. Unforeseen events – Covid-19, the Russian invasion of Ukraine, extreme weather, and semi foreseen events such as Trump tariffs – have underpinned increasing concerns about economic security, supply chain resilience and national security, and the threats [...]

By |2025-05-02T11:25:34+01:004 April 2025|Blog, International Trade|0 Comments
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What’s wrong with the USTR analysis of worldwide protection?

The analysis by the office of the US Trade Representative (USTR) that accompanies President Trump’s tariff announcement on 2 April is so profoundly wrong that one might (almost) feel sorry for the USTR staffers tasked with putting academic lipstick on a wayward pig. Their central argument is that one can measure how protectionist a country’s trade policies are by the size of its trade surplus in goods with the United States. Vietnam is judged to be highly protectionist because it exports to the USA much more than it imports. It is a relatively poor developing country with a competitive advantage in low-paying manufactures (such as clothing) which the US largely abandoned decades ago. It also has little appetite for the kinds of goods and services that the US exports. Vietnam’s trade with the US is not the result of protectionism. The EU, which retains a strong manufacturing sector in Germany, and has a significant surplus with the US, is judged to be more protectionist than the UK, whose competitive advantage is stronger in services. The reality is that despite Brexit, there is little difference between the trade policies of the UK and the EU. The USA runs a trade deficit [...]

By |2025-04-04T11:01:30+01:004 April 2025|Blog, International Trade|0 Comments
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Trump’s steel and aluminium tariffs: A problem for some products

You will have read many columns in the past weeks on the wild and unstable tariff-hikes announced by the Trump 2.0 administration. Yet, only a fraction of these announcements was effectively implemented. Here we look at one of them, the steel and aluminium tariffs, and try to gauge their relevance for UK exporters. Let us start by recalling the core elements of the policy. On March 12th the US applied new and higher import tariffs on steel and aluminium products from all countries. These tariffs expand the existing “Section 232” tariff programme on steel and aluminium, first applied in 2018 by the Trump 1.0 administration, in three main ways: all existing exemptions and special arrangements were closed. After the application of Section 232 tariffs in 2018, several countries reached arrangements with the US to be fully or partly exempt from these taxes. The UK benefited from tariff-rate quotas on both steel and aluminium but this arrangement, together with those of several other countries (including, among others, the EU, Canada, Mexico, Japan, and Australia) was now terminated. tariffs on aluminium products were increased from 10% to 25% tariffs were expanded to cover several products containing steel and aluminium, i.e. derivatives produced [...]

By , |2025-03-21T13:32:15+00:0021 March 2025|Blog, International Trade|0 Comments
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The ‘new normal’: Can the UK and other democratic middle powers play a pivotal role?

We are now living in the ‘new normal’ where the US presence is absent in maintaining the international trade order. The US played a major role in building and maintaining the open and rules-based world trade order from the latter half of the 20th century to the first decade of the 21st century. During the first Trump administration (2017-2021), world trade was exposed to US protectionism involving unilateral tariffs, withdrawal from the Trans-Pacific Partnership (CPTPP) and the renegotiation of the North American Free Trade Agreement (NAFTA). The Biden administration (2021-2024) revised the US’ unilateralism by promoting international cooperation with its strategic allies in areas of US interest, such as G7 work on economic security and the Indo-Pacific Economic Framework for Prosperity (IPEF). Yet, its inward-looking approach remained basically the same as the previous Trump presidency. For example, President Biden retained most of the unilateral tariffs, especially those on Chinese imports, that were imposed during the Trump administration. The Inflation Reduction Act (20220) and CHIPS and Science Act (2022) prioritised domestic industry by providing subsidies and other financial incentives. The ‘new normal’: The absence of the US in the international trade order With Trump back as President of the US, we are [...]

By |2025-03-14T14:21:55+00:0014 March 2025|Blog, International Trade, UK - Non EU|0 Comments
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Will Trump’s tariff policy correct an unusual imbalance?

One of the quirks of tariff regimes is that EU and UK light vehicle exports to the US face just a 2.5% tariff whereas those coming the other way face a 10% charge on a vehicle's declared landed value[1]. It seems surprising that this difference has continued for as long as it has, but it probably won’t last much longer. President Trump has been threatening allies and enemies alike with tariffs but – as in Canada and Mexico – he has postponed them following political, or rather quasi-military concessions. It would not been entirely surprising if these threatened tariffs were not actually implemented. While with Trump it is unwise to be too definitive with predictions, in this fast-changing environment steel and aluminium-specific tariffs now appear likely. Attention now shifts to the EU and the UK. The former has long been in the President’s sights, and the latter potentially is, too, although Trump has hinted he could give the UK better treatment than the EU. The promise of a second state visit and a ride down the Mall in a gilded cage or carriage, may have some economic benefits after all. Significantly, before President Trump has “decided” on his tariff policy [...]

By |2025-02-11T08:59:37+00:0010 February 2025|Blog, International Trade, UK - Non EU|0 Comments
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