Philip Hammond has warned Donald Trump that triggering a full-blown trade war would spell “disaster” for the US economy.
Firing the latest warning shot for Trump as the president ratchets up the pressure on the EU and China by promising higher tariffs on US imports, the chancellor said he still harboured hopes that a full-scale trade war could be averted.
However, he also warned a trade war between the US and its traditional allies would be a “disaster for everyone, not least for the United States”.
Speaking to the American news channel CNN while on a visit to India, Hammond warned the president against breaking the status quo of recent decades during which the White House acted as a beacon of open markets and free trade. “Now the United States is questioning the value, the fairness of some of our arrangements,” he said.
The chancellor also sought to spell out Britain’s commitment to free trade, coming at a time of growing concern among business leaders over the potential for a hard Brexit, which could cost jobs and investment in the UK.
“Whatever happens the UK will remain an outspoken proponent of open markets and free trade, low tariff barriers and low non-tariff barriers,” he added.
The escalating tit-for-tat dispute between the White House and several other advanced economies has rocked financial markets in recent weeks. A further drop in the Chinese stock exchange on Tuesday means it has now entered a bear market, after falling more than 20% in the past six months.
Trump has promised as much as $200bn of tariffs on Chinese imports arriving in the US to remedy what he calls “unfair” trade practices being used by Beijing.
Having fallen sharply at the start of the week, shares on Wall Street and in the City staged a muted recovery on Tuesday. Technology stocks, which on Monday were among the biggest fallers after Trump’s latest trade threats hit the sector, led the recovery.
Hammond’s comments came hours before Trump launched a further attack on Harley-Davidson over its plan to move some motorcycle production to Europe in order to beat retaliatory tariffs being imposed by the EU. Trump threatened the US company with “big tax” in a series of critical tweets, which followed an initial salvo late on Monday.
Brussels last week imposed higher taxes on a wide variety of consumer goods made in the US – including motorbikes, bourbon whiskey and Levi’s jeans – in response to White House tariffs on European steel and aluminium, which Trump says are required to protect American jobs.
The president said on Tuesday his administration was getting closer to completing a study about increasing import tariffs on cars from the EU, while suggesting he would take action soon. Trump threatened last week to slap a levy of 20% on European car imports after the EU imposed its retaliatory tariffs.
Most economists believe an escalation of the dispute into a full-scale trade war would have damaging consequences for the world economy.
Greg Daco, head of US economics at the consultancy Oxford Economics said as many as 70,000 US jobs could be lost as a result of the steel and aluminium tariffs, while as much as 0.3% of US and Chinese GDP could be lost as a result of greater trade barriers between the two countries.
Jonathan Haskel, an economist at Imperial College London who will join the Bank of England’s rate-setting monetary policy committee in August, warned a trade war would have a negative impact on the UK economy.
Answering questions from MPs on the Treasury select committee ahead of his appointment to the MPC, Haskel said such a scenario could disrupt British businesses, trigger inflation and lower consumer demand. “If protectionism were to break out into a widespread trade war I would of course be very concerned,” he said.