Donald Trump has clamped down with his intention of imposing steel, aluminium, and possibly car and other tariffs on member countries of the European Union. Their political leaders have insisted that they will not be bullied or insulted by Trump and will therefore retaliate with counter-tariffs against a variety of American goods. Hello trade wars?
This is economic madness, with potentially very damaging trade wars. In spite of their rhetoric for decades, neither the U.S. nor the Europeans have actually practiced free trade; very much to the contrary, with some high import taxes on each other’s goods.
But whether it is Trump’s new tariffs or Europe’s counter ones, all that will happen is reduced freedom of choice for their respective citizens. The result: higher prices and fewer varieties for what they wish to buy.
The right response by both the U.S. and the European Union to the protectionist policies of the other is: free trade. The 19th century British economist, Henry Dunning MacLeod, said, if another country slaps your country on the face with a tariff, imposing a counter-tariff is then like slapping yourself on the other side of the face even harder.
You end up harming the citizens of your own country far more with such trade retaliation. Better for your country to lower or abolish its own tariffs and allow the offending country to harm itself, alone, rather than exacerbating the harm the other country has done to you by, then, harming yourself.