President Donald Trump has threatened to impose more tariffs on European trade with the United States. This is not the first time he has made this threat, and it is not an idle one. It is, however, bad economics and bad policy. Worse, it is a distraction from a better trade agenda and the true trade threats from Europe.
The threat of new tariffs on $4 billion in imports of European cheese, ham and whiskey is the latest move in an endless dispute between the United States and the European Union over the subsidies that both sides give to their respective aircraft manufacturers, Boeing and Airbus.
For the record, the United States is more sinned against than sinning in this particular tussle. But that doesn’t make imposing tariffs the right response. It’s U.S. consumers, not the foreign exporters, who pay the price when the U.S. imposes tariffs. A tariff is nothing more than a sales tax on imports, and like all sales taxes, it’s the buyer, not the seller, who pays.
Nor is it wise for Trump to use national security powers delegated by Congress to impose tariffs on EU trade. The EU poses a range of trade problems for the U.S., but selling us Parma ham is not one of them. This is government overreach that a liberal would be proud of.
Trade tensions with the EU are hardly new, and Trump is not the first president to resort to tariffs in response. In 1964, a squabble over exports of U.S. chicken to Western Europe resulted in U.S. tariffs on imports of light trucks — a sales tax that is still with us today.
The difference is that tariffs, and threats to impose them, make up a much larger part of U.S. trade diplomacy today than they did in 1964. Simply put, tariffs are thinkable today in ways that they have not been in decades. In the past, tariffs were the last alternative. Today, they seem like a first one.
This fits in with the Trump administration’s view that the United States has taken far too narrow a view of its power. For example, the administration was willing to restore U.S. sanctions on Iran after they were dismantled by the Obama administration. Many commentators, myself included, believed the U.S. could not put sanctions back on effectively. The administration thought otherwise, and has been proved right.
But not every foreign policy initiative that is new is good. Under Trump, the United States has concentrated too much of its firepower on fixing trade relationships that were never broken in the first place. From Canada to Mexico to South Korea, we have made vast efforts for gains that are modest at best.
The EU, meanwhile, has expanded into new markets. It has a new free trade agreement with Japan, an expanded one with Mexico, and has just announced a major agreement with the four Mercosur states of Argentina, Brazil, Paraguay and Uruguay.
While the EU is reaching out to new markets with one hand, it is finding new ways to discriminate against U.S. firms with the other. France has imposed a so-called GAFA tax — a tax on big tech firms like Google, Apple, Facebook and Amazon — and the EU leads the charge for a global tech tax.
You can bet your bottom dollar that the EU wouldn’t be doing this if the GAFA firms were European.
With its enthusiasm for an ambitious trade deal with post-Brexit Britain, the administration has a constructive agenda, one that goes beyond tinkering with the status quo. But it’s not as far-reaching as the EU’s, which is finding new markets and innovative ways to tax American firms. The tariff war the United States is waging with the EU is yesterday’s battle. And it’s one neither side can win.
Ted R. Bromund is a senior research fellow in The Heritage Foundation’s Thatcher Center for Freedom.