Transatlantic Tariff Tango

The latest U.S.-EU tariff spat is a mutual dance of protectionism that ultimately steps on the toes of consumers and global prosperity. Trump's 30% levy on EU imports, effective August 1, has jolted European markets southward, yet, let's be fair: the EU has its own storied history of tariffs, from retaliatory duties on American bourbon and motorcycles in 2018 to broader barriers that have long skewed transatlantic trade. This isn't just Trump's doing; it's a cycle of government intervention where both sides erect walls under the guise of fairness, ignoring how free markets naturally balance through voluntary exchange.

Critics rightly point out that U.S. inflation remained subdued during Trump's first-term tariffs—hovering at 1.9% in 2018, 2.3% in 2019, and dipping to 1.4% in 2020 amid steel, aluminum, and China-focused duties. Empirical studies estimate these tariffs added a mere 0.1 to 0.2 percentage points to core inflation, with much of the cost absorbed by importers rather than fully passed to consumers. Back then, factors like low energy prices and a strong dollar buffered any spike, suggesting tariffs didn't ignite the inflationary fire many feared. But in the long run, tariffs act as hidden taxes, distorting resource allocation and stifling innovation over time, even if immediate effects are muted by market adaptations.

Delving further, the long-term drag is evident. Tariffs invite retaliation, as seen in the EU's past responses that targeted U.S. exports worth billions, escalating into a zero-sum game that reduces overall trade volumes—$1.7 trillion annually between the U.S. and EU. Interventionism breeds more intervention, leading to inefficiencies like higher production costs and reduced real incomes. In geopolitics, this fractures alliances when unity could counter real threats, while domestically, it props up inefficient industries at the expense of dynamic ones, contradicting unilateral free trade to unleash entrepreneurial vigor.

Wall Street's warnings—from Goldman Sachs forecasting a deeper Eurozone slowdown to Deutsche Bank's trifecta of risks including U.S. jobs data and bond yields—highlight unpriced volatility. Yet, amid this, sectors like French defense stocks rose on Macron's spending boost, showing how tariffs indirectly fuel government bloat elsewhere. The EU's trade surplus in goods ($200 billion) is offset by U.S. services advantages, netting a modest $50 billion gap—hardly justifying disruption. If inflation has fallen under tariffs so far, it's despite them, not because of them; sustained barriers erode purchasing power through higher embedded costs and lost efficiencies.

Ultimately, true expertise demands recognizing that protectionism, whether from Washington or Brussels, violates the core principle of free markets. Both sides should drop the barriers unilaterally, fostering specialization and mutual gain. Anything less perpetuates a cycle of economic meddling that impoverishes nations, one retaliatory duty at a time. Let's end this tango before it turns into a full-blown brawl.