Can a global trade war be avoided?
If the rest of the world responds wisely, the damage could be largely limited; the EU will be the key actor to make this benign outcome possible
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ON APR 2, US President Donald Trump proposed sweeping tariffs on nearly all of America’s trading partners, wiping more than US$5 trillion from the value of global stock markets and fuelling recession fears. In the face of the impending financial meltdown, the “reciprocal” tariffs were then “paused” for 90 days, but the tit-for-tat retaliation with China continued, leading to absurd rates exceeding 100 per cent on both sides.
The pause on the rest of Trump’s “Liberation Day” tariffs will lead to three months of febrile negotiations. But if the rest of the world responds wisely, the damage could be circumscribed entirely to the US, with even a small dose of liberalisation for everybody else. The European Union will be the key actor to make this benign outcome possible.
This is not the first time the US has suddenly embraced protectionism. In 1930, the US Congress passed the now-infamous Smoot-Hawley Act, which increased tariff rates on a large share of US imports by 40 to 60 per cent.
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