12 Leaders The EconomistJune 9th 2018
1O
F ALL President Donald
Trump’sassaults on multi-
lateralism, his trade policy is the
most relentless. On June 1st his
administration expanded tariffs
of 25% on steel and 10% on alu-
minium to include imports from
allies: the European Union, Can-
ada and Mexico. The tariffs are justifiedby “national security”,
a ruse to render them legal at the World Trade Organisation
(WTO). The White House may not stop there. It is investigating
whether imports of cars and car parts also pose a “threat”.
America’s allies are brandishing their own lists of levies on
American imports, as is China. Should they strike back?
The arguments against retaliation are clear. A tit-for-tat trade
war will unleash destructive mercantilism, which lurks every-
where, not just in the White House. Even in good times, politi-
cians usually forget that the main benefits of trade are higher
productivity and cheap imports. Instead, they keep tariffs low
chiefly to open foreign markets for their hard-lobbying export-
ers. The more barriers they encounter abroad, the less value
they will see in supporting the global trading system. Decades
of progress towards freer trade could unravel.
But doing nothing entails costs, too. Mr Trump’s goals go far
beyond tariffs on a few metals. He seeks trade terms that will
force supply chains to move to America, damn the economic
consequences. For example, the administration wants the
North American Free-Trade Agreement (NAFTA) to expire
automatically after fiveyears, robbing firms of the certainty
they need to invest in Mexico. To roll over on tariffs today
would invite further, more damagingassaults tomorrow.
There are no good options. But on balance, it is better to try
to deter Mr Trump now, whilethe scale of thedispute is small.
Countries should organise their response so that it has maxi-mum effect at minimum cost.
They should act in unison and within the spirit of the rules-
based system. Condemnation of America’s actions by the rest
of theG7 on June 2nd was a first step. Countries are also right to
complain about the tariffs to theWTO. The rules may yet per-
mit retaliation; the idea that Mr Trump’s tariffs have anything
to do with national security is laughable; and it would smack
of double standards for retaliators to defend the multilateral
system while circumventing it.
Any retaliation should be carefully calibrated. It is sensible
to target symbolically important goods. Mexico has imposed
tariffs on bourbon and pork, which are produced in states that
are home to Republican leaders. Canada plans to tax imports
from swing states, such as chocolate from Pennsylvania and
orange juice from Florida. Mr Trump’s trade policy is already
unpopular among Republicans in Congress, some of whom
are trying to curtail the president’s power to act unilaterally on
trade. America’s allies should aim to weaken the remaining
support for protectionism.
Retaliatory tariffs should be structured so as to do as little
economic damage as possible at home. That means omitting
goods for which there are few available substitutes, as well as
parts and components. Otherwise, supply chains will be put
at risk and governments will probably be drawn into the busi-
ness of picking winners. To see how easily that happens, wit-
ness the thousands of requests by American importers for ex-
emptions from Mr Trump’s steel and aluminium tariffs.Bully pulpit
The Economistwas founded in opposition to tariffs and mer-
cantilism. Barriers to trade distort economies and harm con-
sumers, especially poor ones. Yet, in the long run, a measured
show of strength in the face of Mr Trump’s aggression offers
the best hope for keeping markets open.^7Trade retaliationRules of war
Value of US imports
$bn, 2017SteelAluminium2817Tariffs imposed, %2510America’s allies should stand up to its reckless trade policyT
HOUGH only a few days
old, June has been cruel to
the European Union. In Italy, on
June 1st, the first all-populist gov-
ernment was formed since the
second world war. It brings to-
gether in bizarre conjunction the
maverick left-wing Five Star
Movement, a party founded nine years ago by a television co-
median, and the hard-right nativists ofthe Northern League.
Also on June 1st Mariano Rajoy, Spain’s prime minister, was
dispatched in a confidence vote that has brought to power an
even narrower minority government under Pedro Sánchez(pictured). His Socialists control only 24% of the lower house.
Not for the first time, Spain and Italy appear to shadow each
other through economic and political tumult. Either or both
governments may be short-lived. And nervous markets have
pushed up the bond yields of both. But there the similarities
end. Spain these days counts as a bright spot, unlike Italy,
which has much to learn from its Iberian cousin.
Of the two southern European states, Spain had by far the
worse financial crisis of 2008. Its property bubble burst, crip-
pling the banks and causingmassunemployment that peaked
at 26%. In 2012 Spain was bailed out by its European partners,
in contrast to Italy which managed to hold on. Despite these
problems or, more likely, because of them, Spain has had theA new Spanish governmentThe gain in Spain
Populists of left and right are on the rise in Europe. Despite its political turbulence, Spain is different