Europe is still in denial
If you want to know how to respond to Donald Trump’s trade tariffs, just think back to what happened between the EU and the UK after the Brexit referendum. The EU thought it could pressurise the UK either into reversing Brexit or accepting a bad deal. The EU, as the larger power, believed it had a stronger position — and the media concurred.
But the EU had a big trade surplus against the UK, and so had more to lose from a trade war. And this is how it played out. The single biggest victim of Brexit was not the UK economy, but German industry. Germany’s spectacular decline started in 2018, kicked off by Brexit and followed by a string of supply shocks including the pandemic and then Russia’s war in Ukraine. Trump’s tariffs will be next. The overarching lesson here is that if you are the surplus country, no matter how large you are, you should not engage in trade warfare.
