What is the Point of the Trade War?

The Trump Administration's attempt to reorder the global trading system is at risk of a major backfire

Towering Columns

In The Times, Juliet Samuel says Trump’s tariffs are a poorly executed attempt to redress the destruction of American manufacturing brought about by the global reserve status of the dollar.

For more than a generation, the US economy has been dragged hideously out of shape by a massive financial distortion caused by the way investors use the dollar. It has been a feature of the world economy since 1945, but the US is only now waking up to the threat posed to its industrial base and therefore its security. The distortion consists of two economic forces that are wildly out of balance, described by Stephen Miran in a paper published by Hudson Bay Capital. In theory, the dollar ought to be a medium of exchange like any other, only useful to foreigners who want to trade with Americans. But in reality, dollars, in the form of US Treasury bonds, have become the backbone of the world’s piggy bank. The dollar solves a dilemma. When a country accrues lots of savings, perhaps because it sells huge amounts of oil or has built a whole economy around battery or semiconductor exports, it needs to store the cash…

…If there is a grand strategy behind the trade war, which there certainly is in the mind of Trump appointees like the Treasury secretary Scott Bessent, it is an opening salvo in a struggle to fix the US trading position and to sort allies from enemies in doing so. Start with tariffs on everyone, let them feel the pain, then offer relief to those willing to help gradually deflate the dollar by slowly selling down Treasuries, opening up their own markets to US goods and agreeing to impose a tariff wall on China.

In return, allies get to keep American-provided security and tariff relief, a grand bargain that the ex-US official and economist Zoltan Pozsar has in prospect christened the “Mar-a-Lago Accord”. Those that won’t co-operate, namely China, could be slapped with even higher tariffs and gradually escalating fees on all those Treasury holdings. At the same time, domestically, the US could embark upon a massive deregulatory programme to cut production costs, pump more oil, clear away planning hurdles, cut payroll taxes and so on.

Also in The Times, Robert Colvile says a revival of UK industry must precede any restoration of defence capabilities.

To be a “defence industrial superpower”, you don’t just need a defence industry — you need industry, full stop. China’s naval shipbuilding capability is estimated to be 232 times that of the United States largely because it dominates civilian shipbuilding too. Without that industrial base, there is the risk that most of the parts for those fancy jets, tanks and drones, and even more of the raw materials, are coming from states that are not 100 per cent on your side. So how’s that going? Well, last week British Steel — already Chinese-owned — announced that it might have to close its remaining blast furnaces at Scunthorpe, which would make us the only G7 country that cannot produce virgin steel…

…A large part of the problem is, as the above suggests, energy prices and charges — which are being made worse by Ed Miliband’s desperate dash to decarbonise the grid by 2030, irrespective of the costs. But as I’ve pointed out before, we’ve also designed our entire net-zero system to count emissions in the UK only. So if that British Steel plant shuts down, and we start importing from China or India, it counts as a carbon win even if their steel is produced using the dirtiest coal on the planet and with none of the green levies we apply here.

In recent decades the proportion of our carbon emissions incurred through imports has duly been rising. In the process, as Kemi Badenoch pointed out recently, we have become overwhelmingly dependent on China to reach net zero — and, increasingly, to keep the lights on — since it dominates the production of solar panels, wind turbines, electric cars and more besides. But it’s not just about energy or climate. Britain has displayed a slapdash indifference to its manufacturing sector. We permitted the ridiculous ossification of the planning system, making it hard to build not only houses but factories, laboratories and the roads to connect them. George Osborne funded his corporate tax cuts by slashing the capital allowances that manufacturers relied on to invest.

In the Financial Times, Martin Wolf says Rachel Reeves’s fiscal tweaks will not transform the growth rate of the UK economy.

It is essential therefore to expand the economy’s supply potential. One of the government’s ideas for doing this — undoubtedly a good one — is to build more houses and infrastructure. The OBR provides an interesting analysis of the former. Its judgment is that it will help, but not by as much as one might have hoped or the economy needs. Thus, the OBR’s central forecast is that “cumulative net additions to the housing stock in the period to 2029-30 are under 1.3mn. Of this, we estimate 170,000 additions are due to the government’s residential planning reforms and these raise GDP by 0.2 per cent at the forecast horizon.” As always in such forecasts, there are large uncertainties. Capacity constraints — a lack of skilled workers, powerful opposition to building or obstacles created by judicial review — might prove more binding than expected. Yet it is also possible to imagine that economies of scale or other improvements in efficiency might lead to still greater expansions in supply.

In the OBR’s “low scenario”, the expansion in supply is 100,000 units lower by 2029-2030 than in the central forecast. In the “high scenario”, however, it is 100,000 greater than in the central forecast. The corresponding increases in GDP are 0.1 and 0.3 per cent. Increases in housing supply relative to what would have happened without the new measures should make house prices modestly lower than they would otherwise have been. The OBR also assumes that the economic benefits would build over time, as people move to more productive areas. Nevertheless, a much bigger housebuilding programme than this would be needed to transform the availability of housing and lower prices sharply. This suggests that the government must be far more radical if it is to improve growth prospects substantially.

Dramatic reductions are needed, for example, in the cost of constructing infrastructure. Sharp improvements are also needed in public-sector productivity. Particular attention must be paid to promoting innovation. The need to expand spending on defence could help in this regard. Pension reform, wisely done, might greatly improve the availability of risk capital. Reform and simplification of the tax system is also essential. Last but not least, the government should avoid any serious unforced errors. Its decisions to raise the cost of labour through higher taxation, higher minimum wages and much tighter regulation could prove huge mistakes.

Also in The Times, James Marriott says Britain has slipped into a rut of “normie” mediocrity where low talent is rewarded.

Britain seems peculiarly vulnerable to such characters [as former Post Office CEO Paula Vennells. I suspect part of the problem may be traced to the fact that our economy is heavily weighted towards the service sector. Many in Britain’s elite have spent their careers at several removes from real life and real consequences, in industries such as public relations or consultancy. It surely matters that where once our leaders were imperial administrators, soldiers and industrialists, we now draw our overclass from professions oversupplied with what the anthropologist David Graeber famously called “bullshit jobs”.

The bias towards bullshit extends deep in British life, from hospitals that are run by managers not doctors, to universities that employ vast bureaucracies staffed by administrators who are better paid than actual academics. Modern universities are also dispiritingly happy to supply the talentless with inflated credentials that are no longer much proof of intellectual distinction. Thanks to the expansion of higher education, the average IQ of a university student has been declining since the 1940s and is now at about the same level as the general population.

And the professional environment is only growing more propitious for such characters. As Pamela Dow of the think tank Civic Future observes, Britain is an “international outlier” in the size of its human resources sector — since 2011 our HR industry has grown at four times the rate of the rest of the workforce and is now the second largest in the world relative to population. Much of what HR does — diversity schemes, mental health awareness days — is well intentioned but tends to promote conformity and punish the awkward, sceptical types who are often independent thinkers.

On ConservativeHome, Miriam Cates says Generation Z have been failed not just economically, but culturally too.

Many on the right dismiss concerns about smartphones and social media as a ‘moral panic’ or an excuse to censor the internet. But this is hypocritical. When it comes to immigration, and scandals like the Pakistani grooming gangs, right-wingers readily acknowledge the failures of multiculturalism and the negative impact of certain cultural norms. Yet they turn a blind eye to the effects of children being immersed in an online anti-culture and claim it is a ‘parenting issue.’ When 97% of children own smartphones, an even those who don’t are being damaged by the culture they create, it is no longer a private matter, Even the most hardened libertarians can’t claim that 97% of parents are bad parents. Yet again, liberalism—masquerading as conservatism—prioritises individual adult freedoms over the boundaries that enable the safe and successful raising of children.

Many in the Boomer generation benefited from the liberal shift. They grew up in stable families and cohesive communities and then, as adults, reaped the rewards of asset price inflation, cheap immigrant labour, online shopping and greater individual freedoms. But while Boomers won the liberal lottery, Gen Z is liberalism’s collateral damage. Fatherless, indebted, unmoored from a shared national identity, and brutalised by the internet, many young people cannot even imagine the stability and rootedness Britain once offered.

Unsurprisingly, the normal U-shaped happiness curve—where happiness peaks in youth and old age—has collapsed. Young people are now more miserable than the middle-aged, with a 40 percent increase in those not in education, training, or employment just since the pandemic. Liberalism unravelled centuries of cultural and social stability in just fifty years. Gen Z may well ask what exactly conservatism has achieved.

For UnHerd, Aled Maclean Jones says Rolls-Royce is the kind of home-grown industrial champion the UK badly needs more of.

And in an era where tech companies live and die by narrative, Rolls-Royce refuses to play the game of hype. According to the company website, their mission is to “build a high-performing, competitive and resilient business with profitable growth; grow sustainable free cash flow; and build a strong balance sheet and grow shareholder returns”. Not exactly Mars by 2028. Yet Rolls-Royce embodies everything Britain claims to want — a homegrown industrial champion, a provider of sovereign capability, a builder of the hardest things in the world. Not vapourware, not hype, but physical technology of weight and consequence, positioned at the intersection of the defining forces of the next decade: energy and war.

While most moonshots exist as demos and press releases, Rolls-Royce is actually building leading-edge nuclear reactors, hypersonic-missile firing warships, and micro-reactors designed for space. Yet Britain, fixated on the next big thing, refuses to look up. A week after Rolls-Royce’s blowout results, the Ministry of Defence announced a new partnership: not with a British firm, but with the American defence startup Anduril. The announcement caused a stir not for its substance, but for its wording: the company was described not as American, but as “Anglo-American”. The basis for this claim appears to be nothing more than the presence of a UK subsidiary. In the absence of homegrown industrial champions, the Ministry of Defence felt the need to invent one.

But the ability to build great things isn’t something Britain has lost. Instead, it’s something we’ve chosen to overlook. This is because Britain’s industrial struggles aren’t just about the obvious — energy costs, planning permission, regulatory inertia — but about a deeper failure of political imagination.

On his Substack, Post-liberal Pete charts Britain’s epidemic of loneliness and isolation, particularly among men.

The statistics on this all point in one direction. In the UK, time with friends is down, the number of friends we have in the first place is also down, the number of people living alone has nearly tripled since 1971, fewer people are joining community groups, political parties, trade unions, going to church, pubs, nightclubs. we’re engaging less in volunteering, we’re also marrying less, and divorcing more. In the USA, you will find similar statistics, and in Japan, South Korea, Europe, and anywhere else you care to look with the standard features of modernity in place—i.e urbanisation, industrialisation, mass education and secularisation—you will find the same thing. It is telling therefore that before 1800 there wasn't even a word for loneliness in the English language.

The social recession falls most heavily upon men. As Robert Putnam wrote in Bowling Alone:- ‘Informal social connections are much more frequent among women, regardless of their job and marital status... Married or single, employed or not, women make 10-20 percent more long-distance calls to family and friends than men, are responsible for nearly three times as many greeting cards and gifts, and write two to four times as many personal letters as men…Women spend more time visiting with friends….women are more likely to express a sense of concern and responsibility for the welfare of others — for example, by doing volunteering work.’

In America, the percentage of men with at least six close friends has fallen by half since 1990, from 55% to 27%. Whilst the percentage of men without any close friends jumped from 3% to 15%. The male social recession has gone hand in hand in the decline of marriage as it is unmarried men who are disproportionately more likely to be socially isolated. Studies have demonstrated that relative to men, women, on average, have closer social ties outside of their romantic relationships that often serve their needs for intimacy and, when needed, emotional support. This, in turn, creates stronger dependence in men on their romantic partners.’ The decline of marriage, and of the family life which accompanies it, has created a tranche of men who are increasingly asocial, as Derek Thompson has written:- Single men without kids—who have the most leisure time—are overwhelmingly likely to spend these hours by themselves. And the time they spend in solo sedentary leisure has increased, since 2003, more than that of any other group.’

Wonky Thinking

On Commonplace, Oren Cass says the Trump Administration appears to be aiming at a reordering of global trade towards US interests with three main objectives.

While I can’t tell you what exactly the Trump administration wants, I can tell you what they seem to want based on what they’ve said, and I can combine that with my own assessment of what America should want. The result is a quite simple, clear, and compelling new approach to a multipolar world in which the United States anchors a strong economic and security alliance of likeminded allies. I was in Japan two weeks ago, meeting with a range of public officials, academics, and private-sector leaders. On more than one occasion, a speaker challenged me that the United States was being “irrational.” Each time, when I presented the following as a hypothesis for what we wanted and why we were acting so aggressively to disrupt the status quo, the challenger acknowledged that, yes, that would be rational, and yes, that would be better for the United States, and yes, that might even be better for our allies too.

Let’s begin with the premise: The costs to the United States of attempting to maintain the so-called “liberal world order” have come to outweigh the benefits (perhaps they always did). Of course, it was the United States that chose—indeed, largely dictated—the arrangement in the first place. But that does not preclude revisiting those choices as lessons get learned and conditions change. In the emerging multipolar world, in which China will advance its own interests contrary to ours, we can and should ask more of the many allies who would strongly prefer our sphere to China’s. We should treat our allies fairly and respectfully, and our demands should be reasonable, but the time has come to make them. Free access to the American market and partnership with us in national defense should be contingent upon:

1. Balanced Trade. The United States cherishes free markets and welcomes free trade with other market democracies. But the premise of mutually beneficial free trade is that it operates as trade—countries exchanging things they can make and do best for the things others can make and do better. What we will not tolerate is the situation that we have encountered over the past several decades, where things that we once made in the United States move elsewhere:

• not because those places have any genuine advantage in the production, and

• not because we are making more of something else once made elsewhere instead, but rather

• because countries make policy choices to expand their own manufacturing sectors at America’s expense.

Some economists object that trade deficits simply emerge in nature and are no one’s fault, or else that the real fault lies with the United States for running large budget deficits that lead us to borrow from around the world. To be sure, our budget deficit is a problem that we have an obligation to address. But the idea that these other countries don’t want their trade surpluses and have not actively pursued them is absurd. With the United States committed to maintaining the liberal world order and taking bad advice from near-sighted economists, policymakers elsewhere acted secure in the knowledge that we would do nothing to stop them.

And so the question becomes, what if those countries wanted something different? Or, more precisely, what if those countries found it in their best interest to pursue something different, because staying on their current course would mean losing access to the American market and defense commitments? In all of those areas where they have used policy to boost their own manufacturing sectors—currency valuation, industrial subsidies, government procurement, regulatory barriers, wage suppression, and so on—they could instead use their policy to boost ours.

Is it so outlandish that Japan would cap its export of vehicles to the U.S. market and tell Honda and Toyota to go make it in America instead? Trick question—that’s exactly what Japan did when threatened with tariffs in the early 1980s, and we have the booming auto sector in the American South as a result.

The notion of a “Mar-a-Lago Accord,” based on the 1980s “Plaza Accord,” fits squarely within this framework: bring U.S. allies to the table to agree upon a revaluation of currencies that would help to rebalance trade, backed by the threat of tariffs or other trade actions against countries that fail to participate. Even absent a gathering at any one of the many fine Palm Beach resorts, a U.S. shift from a market open by default to one protected by default puts the ball in our allies’ court to adopt policies that solve the problem if they want to come back inside a free-market zone.

2. Burden Owning. The extent to which U.S. allies have under-invested in their own defense capabilities, and relied instead upon the United States to lead and underwrite all military actions and deterrence around the world, should be deeply humiliating to them. But mostly, it is deeply humiliating to us. We accuse those nations of being “naïve” in their failure to maintain adequate defense, but they have been laughing all the way to the bank, or at least all the way to the more generous social welfare spending they can afford as a result. The United States has been the naïve one, having compliantly footed the bill year after year, its exhortations for greater burden sharing having elicited only smirks.

Lectures, unsurprisingly, have not worked. What may finally be starting to work, as I discussed with the UK’s Michael Gove earlier this month, is the United States in fact refusing to go along with the charade any longer. In the UK, Germany, and Japan, a reorientation may finally be underway.

But the United States must emphasize that there is no magic number for countries to spend that proves they are “doing enough.” The goal should not be burden sharing but burden owning. Japan’s goal should not be to spend 2% of GDP on defense, at which point the U.S. promises to defend it from China. Germany will not have done its part by bringing the size of its armed forces up from 180,000 to 200,000—a goal it has already pushed back from 2025 to 2031, and which moved further away as enlistment managed to shrink last year. No, Japan’s defense spending will be sufficient when it feels secure from China. Germany’s spending will be sufficient when it can successfully deter Russia.

The model here should be Israel, the American ally that generally asks us to stay home, it can handle its own business, thank you very much. Israel allocates an enormous share of GDP to its defense (more than 5% annually, even absent ongoing conflicts) and has universal conscription, not because that’s what’s necessary to pass some political test, but because that’s what’s necessary to defend Israel. Of course, the U.S. also provides Israel with military aid, mostly in the form of weapons systems, but that represents a small fraction of Israel’s total spending (less than $4 billion versus more than $20 billion), and basically nothing compared to what the U.S. spends on its own military commitments on behalf of its allies in Europe and the Pacific. Israel is also an invaluable intelligence and technology partner.

Could Japan and Taiwan face off against China in the same way Israel holds its own in the Middle East, with the United States playing a comparably complementary role? The only reason they cannot is that they have never had to and never tried.

3. China Out. The third requirement of participation in a U.S.-led economic and security alliance should be the maintenance of a collective perimeter that excludes China. Partners should agree on common tariff barriers, investment restrictions, export controls, and immigration policies. As AI-dominated information networks continue to develop, the technology ecosystem of the free world may also need to be kept apart from the Chinese-dominated one.

In some respects, a requirement of balanced trade would already push countries in this direction. If Mexico is committed to balanced trade with the United States, Mexico-based BYD factories could not flood the American market with subsidized EVs. But the United States has, and its allies should have, concerns about China that go far beyond trade deficits. The Chinese Communist Party has an explicit strategy of dominating critical links in supply chains and absorbing key technologies vital to military progress. It also uses foreign investment into China to gain leverage over the companies seeking profit there, and investment out of China to gain leverage over governments hungry for capital and infrastructure. While each individual country and each of its corporations will find endless situations where working with China seems attractive, an alliance will only be secure and its markets free if all have disavowed that course.

The new Centre for British Progress launched with a foundational essay expounding the importance of material advancement to the uplift in human happiness.

Human progress depends upon material advancement – the development of new technologies, infrastructure and products that expand human capability. Material advancement, in turn, depends upon economic growth. Growth is not an end in itself: it matters because it expands our capacity for true human progress – lifting living standards, broadening opportunities, and giving people the freedom to build better futures.

Britain, at its best, has not only understood this, but embraced it more wholly than any other nation. With industrialisation, the people of these isles were the first to be freed from the iron grip of scarcity. It was here that the first sparks of industry fanned into flames of progress – forging an entirely new path not just for Britain, but for the world.

Humanity’s first experience of widespread material abundance spurred something even more precious: social and moral progress. From political liberalism and the extension of the franchise to improved education and healthcare, a cascade of human betterment flowed from the prosperity of industrialisation. Surplus time and energy gave many ordinary British people the capacity to create, to imagine, and to discover, enabling ever larger swathes of the population to lift their sights higher and see beyond the horizon of mere survival, towards lives of meaning, purpose, and possibility.

Every great British achievement – from the NHS to the defeat of fascism, from Brunel's bridges to the eradication of smallpox – emerged from our capacity to marshal material resources towards ambitious common purposes.

This ability allowed Britain to build the world we live in today. The theoretical foundations of electricity, computing, antibiotics, and the jet engine were all laid here. IVF, the World Wide Web and fibre optic cables were pioneered by British ingenuity. British scientists split the atom, discovered evolution, and unlocked the secrets of DNA. Our creators, engineers, and inventors defined the modern age.

British ingenuity and economic prosperity have always gone hand in hand. Technological advances radically reduce the cost of production, creating material abundance and unlocking fresh capital for further innovation – a virtuous cycle of growth and invention. Newfound wealth creates choice for households, which in turn fuels demand for new products and services. Cheaper transportation opens up export markets, and facilitates the mobility of talent and investment. Sustained economic expansion propelled Britain into the ranks of the world's wealthiest nations, powered by those extraordinary inventions and discoveries that defined us.

But in recent decades Britain has stagnated. Economic growth has drastically slowed, investment is low, and wages and productivity have flatlined. For the first time in living memory, our children are expected to be worse off than their parents.

Our failure to grow has a human cost. Stagnation matters because it is ordinary families who suffer most, robbed not only of economic means but of confidence in the future. Britain's decline isn't just charted on graphs of GDP. It is etched onto the damp walls of neglected rental flats, shuttered shop fronts on bleak high streets, and the crumbling concrete faces of our schools. It can be felt in the stomachs of the four million children who go without enough food each morning; in the long, anxious wait – now averaging 14.4 weeks – just to start NHS treatment; and in the hollowed-out lives of 326,000 people in temporary accommodation—most of them families with children, caught in limbo with nowhere to settle and no place to grow.

There can be no compelling account of British renewal that does not place material progress and economic growth at its heart. Growth creates the fiscal space governments need to act decisively, allows citizens to look forward with ambition, and equips society with the resources to tackle big problems. Growth is the bulwark against society turning on itself – fighting over diminishing returns, rather than building toward a shared and expansive future.

But growth and progress will not return without effort. They must be chosen, championed, and purposefully prioritised. Above all, we must rediscover our national instinct to imagine beautifully, and act boldly.

Quick Links

President Trump announced a 10% general tariff on UK imports amid fear of a global recession, with the worst day on US financial markets since Covid.

The Falkland Island are facing a 42% levy.

A new poll forecast a Reform UK overall majority…

…but another put Labour narrowly in the lead…

…and a third put Labour third, with the Conservatives first.

Eid was broadcast live form a mosque by the BBC.

Twenty MPs wrote to the Pakistani government calling for a new international airport in Kashmir…

…but seven of them publicly opposed expanding Heathrow.

Police performance is at a historic low, with just seven in 100 crimes leading to a charge or summons.

And police spend 800,000 hours a year waiting with mental health patients.

The Museum of London told staff to “challenge whiteness”.