The Brief – Praise be Brussels for resisting the call of mercantilism

The second term of Donald Trump has the golden MAGA emperor figure come ever closer to becoming a knock-off of the “Sun King” Louis XIV. While the Frenchman pursued ever greater excess, the Americans are chasing a toxic cocktail of respect and dominance. 

With today’s would-be emperor announcing a 30% baseline tariff on EU exports from 1 August – on top of a blanket 10% on all goods, 25% on cars and 50% steel and aluminium – Brussels sees yet another existential challenge. 

With trade ministers piling into the city to discuss the game plan, France was especially eager for a more combative stance, urging the Commission to adopt a “change of approach”. This comes after the bloc’s executive, which is exclusively in charge of trade policy for the bloc, hit the pause button on Sunday. 

And though the Commission hasn’t shown the courage France would like, other influential voices have willed Europe to show some muscle.

“My advice to the EU is to go ahead and retaliate,” said US economist Paul Krugman. “Trump says he’ll raise his tariff even higher if it does, but how much more damage can he do?” he pondered. American consumers would eventually pay for the policy, he added. 

Within Europe’s own ranks, Italy’s erstwhile PM and leading thinker Enrico Letta also feels the “time has come to react”. Similarly, the Parliament’s trade committee chair Bernd Lange said that “now we should start our first set of countermeasures.”

Sage counsel, one might think. After all, when punched by a bully, isn’t the best course of action to punch back?

Already the case for tariffs was made when China's stand-off with the US stoked fears of trade diversion. This argument is only made stronger given Beijing’s strategy to usurp climate-friendly industries.

However, this is a simplistic reading of the situation, which presupposes that the Trump administration is rational. On top of which, it fails to heed the descent to neo-mercantilism that tariff barriers entail, which would have grave implications for the global economy. 

Already, Trump’s 30% tariffs risk leading the US and EU economies to decouple, the EU’s trade chief warned on Monday.

“Europe should avoid tariff escalation,” Alfred Kammer, the IMF’s Europe chief, warned in May. Better to focus on the things that matter: rebooting the EU’s single market, domestic reforms, and a smarter long-term budget. 

European consumers should count themselves lucky that Brussels has yet to deploy €21 billion in retaliatory measures. Tariffs might protect factory owners (and workers), but it would be consumers who bear the cost. 

For all the pain of losing face and the temptation to play chicken with Trump, can we really risk following the path towards a neo-mercantilist world? 

The TACO truism attached to Trump no longer holds weight. More apt, as the FT’s Alan Beattie notes, is the admission: “Nobody knows anything”. And in such circumstances, Brussels should continue to resist the calls to hit back. It would only end up with a bloody nose.

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