President Trump’s import tariffs on steel and aluminum has provoked righteous anger from the EU. The Commission wants to respond with targeted tariffs on US goods such as motorcycles, jeans, and bourbon whiskey—tradeables with major producers in GOP areas.
The “National Security” Excuse
The spectacle is rather depressing. As my colleague Dan Ikenson has outlined, in isolation Trump’s tariffs would not be that economically significant. After all, the EU imposes over 12,500 tariffs of its own, some of which are high. But Trump’s use of a “national security” justification and his broader gunboat diplomacy threatens to open a Pandora’s Box of global risks and retaliation.
Instead of goading Trump with punishment tariffs and rejecting his “national security” argument out of hand, the EU should do, well, nothing.
Of course, the President’s reasoning for protectionism is not sound. Given the origins of US imported steel includes major military allies, a “national security” justification is absurd. By increasing the input prices for downstream producers, tariffs on steel and aluminum are a wanton act of domestic self-harm. And all this to notionally “protect” jobs in two industries, when independent economic analysis suggests each extra job “saved” in these sectors would cost five times more lost in others, with a net loss of 146,000 jobs overall.
As dangerous as President Trump’s policy undoubtedly is, any game theorist will tell you that under the assumption of commitment to this course—or worse—the optimum strategy for the EU changes. Tit-for-tat retaliation risks exacerbating the economic pain at an already precarious moment and taking us to a mutually destructive equilibrium. Instead of goading Trump with punishment tariffs and rejecting his “national security” argument out of hand, the EU should do, well, nothing. At least not on tariffs.