Will tariffs trigger a new era of trade wars?

Tariffs levied on imports could spread if Donald Trump returns to office. What does this mean for Britain and the global economy?

UK Prime Minister Keir Starmer Hosts European Political Community Meeting
(Image credit: Chris J. Ratcliffe/Bloomberg via Getty Images)

Inflation seems to have slipped from the headlines. This is unsurprising because, since May, inflation in Britain has been hitting the Bank of England’s target of 2%. Yet this is largely because of a sharp reversal in goods and energy inflation. Meanwhile, services inflation and the cost of owning and maintaining property in Britain continue to rise. This suggests that we are still in a broadly inflationary period, with much of the pressure being taken off as the costs of goods and energy ease from previous highs. 

This is particularly important to understand because talk of tariffs and trade war is on everyone’s lips – and there is nothing like a trade war to raise prices for consumers. Earlier this month the EU increased tariffs on Chinese electric vehicles (EVs) from 17.4% to 37.6%, because it is concerned that Chinese EVs might outcompete domestic European models. Yet while the bureaucrats fret over a lack of competitiveness, the industry thinks that tariffs will make the situation worse by rendering European-made cars uncompetitive on the world market. Just before the tariffs were imposed, Germany’s auto association urged the EU to drop them.

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Philip Pilkington is a macroeconomist and investment professional. He is the author of the book The Reformation in Economics, and blogs at Fixing the Economists and on Twitter @philippilk