The first shots in US president Donald Trump’s trade wars (“good and easy to win”) have been fired. Who is most likely to be hurt? And in particular, were some of us right to say when Trump first started rattling his sabre that it would soon become clear that those bent on protectionism face high costs from turning words into action?
Quite right, it seems. The story of the week is how the EU’s retaliatory tariffs — which Brussels introduced in response to Trump’s tariffs on steel and aluminium imports from Europe — has prompted Harley-Davidson to move production for the European market out of the US to avoid import duties it says will add $2,200 to the cost of each motorcycle. It is not the only example of domestic casualties from Trump’s trade aggression.
It is important to understand that this is not just a matter of the EU lashing out in revenge. That would fit Trump’s narrative and he could, with some justification, argue that the US can give harder than it gets, hence it stands to “win”. But retaliatory import duties are just one of three ways Americans are hurt by their president’s protectionism.
There is also the higher cost of steel and aluminium he has engineered, which hits the bottom line of Harley-Davidson and other metals-consuming industries directly. (The US industries that use steel and aluminium as an input must be much more productive than those that produce the metal — that is why steel and aluminium producers want protection — so the tariffs hurt the things Americans are relatively good at to make them do more of what they are relatively bad at.)
Finally, and least well understood, if other countries lower trade barriers between them in a liberalisation that does not include the US, American exporters become less competitive in those markets. That is what is happening. For example: Japanese motorcycles, the EU import duty on which is being eliminated, now stand to gain market share from American ones. Meanwhile, the EU has just published its negotiation directives for the talks on liberalising trade with Australia and New Zealand. Perhaps Harley-Davidson should reconsider a decision to close its Australian plant.
