Donald Trump has started a tariff war based on awful economics, with little thought to the consequences for US businesses, consumers or markets, and no clear end game. But the US does have some legitimate grievances about the trade policies adopted by other countries – and not just by China.
For the last forty years the Office of the United States Trade Representative (USTR) has published an annual report detailing the barriers to fair competition. These are classified into no fewer than 14 categories, covering both tariff and non-tariff policies.
As you might expect, the European Union’s rap sheet is longer than most. Indeed, the EU takes up 34 pages of the latest report, second only to the 48 pages devoted to China
Tariffs are typically the most visible barrier. In 2024, the simple average of the EU’s tariffs was 5.1pc, not that far above the 3.4pc then applied by the US. But this average conceals a wide range, with significantly higher rates for many goods exported by the US.
Moreover, tariffs are just the tip of the iceberg. The USTR report also details a long list of non-tariff barriers, including the EU’s overly restrictive and complex regulations covering everything from AI to zootechnics.
The costs of these barriers are much harder to quantify, but they impose a substantial compliance burden on foreign firms. We do not have to look far for evidence of this.
The underperformance of UK exports since Brexit has been grossly exaggerated by those who want us to rejoin the EU. Nonetheless, the new challenges faced by many British firms are testament to the trade barriers that the EU has long maintained against other countries.
The UK merits just five pages in the USTR report, but we could still do a lot better.
Again, tariffs are the easiest place to start. The UK’s average tariff rate was 3.8pc in 2024, so much closer to the US than the EU. But this average also hides a wide range, such as 10pc on passenger cars and much higher rates on many foodstuffs including meat, seafoods and dairy products.
The US is right to complain that these rates apply to US goods but not to those imported from countries like Germany and Ireland, thanks to the tariff-free deal agreed between the UK and EU after Brexit.
In almost all cases, the UK Government has simply rolled over the global tariff rates applied by the EU, perhaps fearful of any divergence which might make it harder to realign in future. The same point also applies to many of the non-tariff barriers, making ‘Global Britain’ only a little less protectionist than the EU.
Admittedly, genuinely ‘free trade’ is not easy to sell. Measures that would lower barriers to cheaper imports are often framed negatively as ‘concessions’, even if they would benefit domestic consumers as least as much as foreign producers.
This even applies to calls to ditch the UK’s Digital Services Tax (DST), which the US regards as a discriminatory tax on US tech platforms. But just as importantly, the DST is a fundamentally bad tax on economic activity, because it applies to revenues not profits. It is also inevitably passed on to UK consumers, and was only ever intended as a stop gap.
The lack of imagination here is also illustrated by the fanfare given to the recent announcement that the UK is temporarily suspending tariffs on just 89 products, only for two years, saving UK businesses and consumers a mere £17 million a year. For context, customs duties raise about £5 billion annually (another reason the Treasury is reluctant to give them up).
The detail underlines the ridiculousness of these tariffs. The first item on the list of duty suspensions was “blue weber agave syrup”. I had to look this up, but apparently it is a sweetener often used as a vegan alternative to honey. Why not drop this tariff permanently?
Many of the other suspensions are completely baffling. One only applies to sheets of aluminium alloy of a thickness exceeding 3mm but not exceeding 6mm, for use in the manufacture of balcony parts. Remember, someone in Whitehall is working on this on your behalf.
The UK does at least have zero tariffs on many agricultural commodities that we do not produce, such as cocoa and coffee beans. But a 6pc tariff is still applied if the coffee beans are roasted, rising to 8pc if they are decaffeinated. The Government is, in effect, protecting coffee processing businesses in the UK, regardless of the additional costs to consumers.
Canada deserves a dishonourable mention too. The maximum US tariff on imports from China is now an eye-catching 245pc. However, free trade loving Canada imposes an even higher tariff of 245.5pc on imports of European cheeses which exceed the relevant quotas, whether from the UK or the EU.
Trump’s strategy still makes no sense. There is no world in which you would expect each country to have balanced trade in goods with each and every other country. And even in a best case, the US is likely to exit a trade war with higher and more complex tariffs than before.
Supporters of free trade should therefore continue to criticise the US. But we should take a long hard look at what the EU and UK are up to as well.
This piece was first published in the Daily Telegraph on 22 April 2025
Plain-speaking Economics 