The lesson of the trade war so far — unfortunately — is that the US is going to get away with it.
When Europe folded on retaliation and essentially accepted 15% US tariffs, that was the ballgame. It was the only bloc with enough buying power to stand up to the US and fight for the global status quo.
The best case scenario after that (and I think this is what the market is pricing in) is that we move on with a new 15% US status quo, give or take.
Today we might have gotten a hint of the problem with that line of thinking. What we’ve learned is that the bigger trade partner has huge leverage and the smaller ones will roll over. Larger countries and blocs may start to leverage that and trade fights could break out everywhere.
There is a report that the UK is drawing up options to retaliate against new EU steel tariffs. The EU has cut quotes and put on tariffs at up to 50%. In addition, the UK is looking at raising its own steel barriers.
Now this is all pretty rich given that the UK left the EU and is now saying this goes against the ‘spirit’ of a UK-EU summit in London.
On this episode, I have no idea how it turns out but the tariffs weapon is now in play everywhere and that’s going to lead to episodes that spiral, dragging on global growth.
This article was written by Adam Button at investinglive.com.