How to win the tariff war
In social games of cricket, if a dispute arises it is common to pick up your bat and ball and go home. A similar strategy would seem optimal to counter the effects of a Tariff war.
Donald Trump has embarked on a Tariff war with a number of countries and regions. At stake is trade access to the US domestic markets. This used to be a bigger deal several decades ago than it is now. The US consumer is still voracious but the rise of the Asian Tigers, BRICS countries and the EU has marginalised the US. Trump recognises this marginalisation with the MAGA-slogan – Make America Great Again is an admission of decline. Do the leaders of industry need to succeed in the US domestic markets to be successful or can they take their bat and ball and go home?
US Corporations have already demonstrated their mobility by decamping their HQs to Ireland to avoid US taxes and it is common for companies to partition activities in response to US versus the Rest-of-the-World regulatory regimes so that they don’t conflict. A Tariff war sounds like a bad thing when there are only 2 countries involved. Add in a few more and the equilibrium becomes dominated by those that do not impose Tariffs – they trade with themselves without distorting taxes, they switch from a dependance on the Tariffed market to one that provides open access. The trick is to be flexible with whom you trade with.
One complication of the Tariff agenda is to influence political decisions rather than focus on trade issues alone. By this I mean that some of the Tariff war is about trying to stop the flow of drugs across the US-Mexican/Canadian border. This seems like a noble initiative and behooves countries to address their shortcomings regarding using their country to facilitate the distribution of drugs. But this should be easy to counter by articulating a political response that conveys the intention to be tough on drugs etc.
It is difficult to see any advantage to the US arising from their Tariff policy. It is interesting that many countries are wearing the Tariffs without retaliation (e.g Australia), but this might just reflect the fact that the US is not that important to them. Rather than engaging in battle, this may be the way of picking up your bat and ball and going home.