So Many Losers

Thoughts on Trump's trade war "success", what British history can teach America, the EU's problem with China, the unstoppable rise of renewables, and the prize for Britain's worst chancellor

Photo by Liam Nguyen on Unsplash

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In this newsletter:

• Trump’s Trade Deals: So much winning

• Lessons from British History: Unsplendid isolation

• EU-China: Second world problems

• The Price of Renewables: Electric Shock

• Britain’s Worst Chancellor: Who gets the prize?

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1. Trump’s Trade Deals

You have to hand it to Donald Trump, on the face of it, he is clearly winning his trade war. He has not only delivered on his campaign pledge to raise tariffs on the rest of the world, but he has raised them far higher than anyone imagined when he took office in January. Last week Japan succumbed to a hopelessly one-sided trade “deal” with the US which will see its exports taxed at 15 percent, up from around 1.6 percent pre-Trump. It is a mark of how far expectations have shifted that Japanese stocks actually rose on the news in relief that the country had avoided threatened “reciprocal tariffs” of 25 percent.

Today Ursula von der Leyen will travel to Scotland to meet Trump in the hope of securing a similar 15 percent tariff deal for the European Union - a level of tariff that would have been unthinkable even three weeks ago, when Brussels thought it had a deal for a 10 percent baseline deal, and unimaginable at the start of the year when it was threatening retaliation if tariffs rose at all.

Meanwhile, the baseline tariff for developing countries appears to be 20 percent, judging by “deals” so far agreed with Vietnam, Indonesia and the Philippines. While tariffs on China remain at 55 percent. That means that America’s average effective tariff rate is now likely to be around 20 percent. That is higher than the Smoot-Hawley tariffs that caused such damage in the 1930s and far above the roughly two percent average at the start of the year. And yet:

• the US stock market has continued to soar, with the S&P500 and Nasdaq closing at record highs on Friday, and there has been no sign of a repeat of the stress in the bond markets or fall in the dollar that prompted him to pause his tariff threats after just one week in April

• tariff revenues rose almost fourfold to $24 billion in May, a level which, if sustained, would make a sizeable debt in the extra $3.4 trillion increase in federal debt that the Congressional Budget Office forecasts over the next decade arising from Trump’s Big Beautiful Budget Bill. Indeed, Trump on Friday was even floating the idea of rebates for some taxpayers

• there is little sign so far of the inflation that many economists had predicted as a result of tariff rises. The most recent data showed a modest uptick from 2.4 to 2.7 percent in June

• Trump’s approval ratings remain resilient, according to the latest poll for the Wall Street Journal. It found that while most voters didn’t like his tariffs, or his budget for that matter, 46 percent approve of his performance while 52 percent disapprove, which is unchanged since April. Among Republican voters his support remains rock solid, with 88 percent approval

On the other hand:

1. Trump claimed that foreigners would pay the tariffs. But the latest data shows that it is US companies that are footing the bill. On average, the import price index, which measures the prices of goods coming into America, is UP modestly up this year, suggesting foreign exporters have raised rather than cut prices. At the same time, a slew of US companies have reported tariff related hits to earnings. General Motors, for example, said that it paid more than $1 billion in tariffs in the second quarter. Nike expects a $1 billion hit this year. How much longer will US companies continue to absorb the costs before starting to pass them on to customers? As stockpiles of inventory acquired earlier this year start to run down, expect inflation to pick up.

2. Trump claimed that tariffs would boost investment and manufacturing jobs. But the Japan deal, for example, appears to put American automakers at a disadvantage. Japanese carmarkers can export cars made in Japan to America and pay only a 15 percent tariff. But US automakers must pay a 50 percent tariff on imported steel and 25 percent tariff on imported parts. “If this sounds incredibly stupid,” says Paul Krugman, that’s because it is.” Meanwhile, there is a disconnect between US and Japanese accounts of how a Japanese commitment to invest $550 billion in America, which Trump says the US will direct and retain 90 percent of the profits, will work in practice, raising questions about how much of it will actually happen.

3. Trump said his tariffs would lead to more trade. This may actually be true - everywhere except America. Trump’s tariffs are almost certain to lead to lower US imports - and by extension lower exports, as local production focuses on the domestic market. But the rest of the world is responding to US protectionism with a flurry of free deal-making designed to bring down trade barriers. That should lead to increased trade, and make their economies more competitive and more productive. On the other hand, US firms shielded behind a high protectionist tariff wall risk suffering the opposite fate.

So much winning.

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2. Unsplendid Isolation

Another price that Trump seems happy to pay with his trade policies is upsetting America’s allies. Indeed, the US president has reserved some of his harshest rhetoric and toughest tariff threats for America’s traditional partners. It’s truly bizarre behaviour. Indeed, as Margaret Macmillan, emeritus professor of interntional history at Oxford University, argues in Foreign Affairs, “it’s hard to think of a case in which the leader of a major alliance has so casually and brutally cast aside allies that, for the most part, have been dependable and have accepted its writ.” History also suggests it is unlikely to be a long-term winning strategy.

Take the case of Britain, which for most of the 19th century had pursued a policy of “splendid isolation”, eschewing permanent alliances. Yet by the end of that century, the British empire suffered from “imperial overstretch”.

The British economy was still powerful and its navy ruled the oceans, but others were catching up. The British Treasury and the British taxpayer grumbled at the expense of maintaining dominance.

The moment of truth arrived when Britain struggled to crush the two tiny Afrikaner republics (the Transvaal Republic and the Orange Free State) in the South African War of 1899–1902 and in the process came to realise how widely it had come to be resented:

The early Afrikaner victories not only showed the inadequacies of the British Army but were generally welcomed around the world. The brutal treatment of Afrikaner civilians further undermined the reputation of the British Empire. At the Paris Exposition in 1900, admiring crowds piled flowers at the Transvaal Pavilion. The realization of how much they were loathed shocked the British into seeing that even they needed friends. In short order, the British government reached understandings with its rivals France, Japan, and Russia, which lessened the chance of conflict with each and encouraged cooperation, and so mitigated the overstretch. The United Kingdom, in the eyes of its contemporaries, remained the world’s dominant power, arguably until the middle of World War II.

America now finds itself in a similar position to the UK in the heyday of its empire, says Macmillan, with its debt burden rising to “staggering levels”, ambitious powers, particularly China, pouring resources into a new arms race, and other nations tempted to abandon the old power for the new.

If Trump’s current hostility to alliances continues and the administration keeps insulting, belittling, and even economically harming its long-standing partners, the United States is going to find the world an increasingly unfriendly place.

Former allies or uncommitted powers may decide, as the Slovak Republic or Serbia have already done, that Putin’s Russia is a better bet; others may bypass the United States with new trade arrangements or, as is happening with European nations and Canada, sharing in their own military production, planning, and mutual deterrence, on the assumption that the United States is no longer a dependable ally. In a harbinger of things to come, Canada has just shipped its first container of liquefied natural gas to Asia.

Like Britain, America will come to regret Trump’s unsplendid isolation.

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3. EU-China

Trump can at least take comfort from the fact that despite his egregious mistreatment of America’s European allies, the EU is not growing closer to China, judging by the outcome of last week’s EU-China summit. This was supposed to have been a celebration of the 50th anniversary of EU-China relations and a few months ago there had been signals from both sides that they might respond to American isolationism by seeking to deepen ties. In fact, the summit revealed a deep distrust - over trade, Chinese support for Russia, export controls - that neither side made much effort to mask.

Yet even this lack of any significant developments in EU-China relations is not the vindication for Trump’s foreign policy approach that some in Washington seem to think. As Julian Gewirtz, a former Biden White House China adviser, argues in Foreign Policy, China’s strategic goals are for Europe to assert greater independence from the United States, undermining Washington’s ability to partner with its allies to compete with China, and for the continent, as a significant market and source of advanced technology, to develop greater dependence on China, boosting its growth:

But rather than woo Europe, China is turning the screws. Public reporting and private conversations both make clear that Beijing offered far fewer inducements or constructive negotiating proposals ahead of the summit than many European officials had expected. China lifted sanctions on some European parliamentarians, but in the most strategically significant areas—which include China’s support for Russia, its export control licensing regime for critical minerals and rare earth magnets, and its massive industrial overcapacity—China has done little to assuage European concerns.

The reality is that Beijing did not make any meaningful concessions to improve ties because it did not feel it needed to, reckons Gewirtz:

In fact, Beijing’s assessment is that the United States is dismantling the sources of its strength—its global network of alliances and partnerships, including with Europe; its science and technology research ecosystem at its universities; and arms of U.S. influence around the world like the U.S. Agency for International Development and Voice of America—and, from Beijing’s perspective, as many Chinese commentators have suggested, this is a moment when it believes it can let that self-sabotage play out.

A broader and more ominous conclusion from the lack of progress on EU-China relations at the summit is that Beijing no longer sees the EU as a priority partner. The main focus of Chinese diplomacy these days is on building economic links with the Global South (as Wealth of Nations has been highlighting, following the recent China-ASEAN-GCC summit and Beijing’s decision to eliminate all tariffs on the 53 African countries with which it has economic relations). In this context, Europe no longer has the geopolitical value to China that it once had.

Indeed, China's new foreign policy priorities resemble an updated, 2.0 version of Mao's 'Three Worlds' theory, first articulated in 1973-1974, reckons Alice Ekman, a China expert at the EU Institute for Strategic Studies:

At the time, Mao categorised the world into three parts and hoped to create a 'Third World' coalition of states to counter the dominance of the US and Soviet Union in global politics. This broad group of countries (including most of Asia, Africa, Latin America and the Caribbean) was then perceived by Beijing as a natural coalition of partners. In contrast, 'Second World' countries (primarily Canada, Japan, and European countries) were not seen as natural partners, but still considered as potentially useful in creating a larger, united front against the main enemies: the 'First World' superpowers, the Soviet Union and the US, during the Cold War era.

This resurrection of Chinese strategic focus on what used to be called the Third World but is now known as the Global South has huge implications for Europe and the EU needs to be clear-eyed about them. As Ekman says, behind it lies a comprehensive plan to alter the global balance of power by creating an alternative coalition of countries that pointedly excludes Europe and the US.

Focusing on bilateral relations is to miss the bigger picture. The lesson of the EU-China summit is surely that if Europe is to be a pole in the emerging multipolar world - to have geopolitical leverage rather than remain at the mercy of two increasingly assertive superpowers - then it will need its own strategy to counter China's coalition-building efforts in the Global South.

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4. Electric Shock

One area on which the EU and China were able to find common ground was climate policy, where they agreed to work closely together ahead of this year’s COP30 climate summit in Brazil. This is also, of course, one issue on which the US and EU are diverging. Not only has the Trump administration pulled out of the Paris climate agreement, promising instead to “drill, baby, drill”, but its Big Beautiful Budget Bill slashed tax credits for renewables.

Two reports published last week by the International Renewables Association (Irena) and the United Nations, cited in a speech by UN secretary general Antonio Gutteres, show how remarkably short-sighted this is likely to be. They found that:

• Costs for renewable energy had plummeted over the past 15 years. More than 90 per cent of renewables worldwide had produced electricity for less than the cost of the cheapest fossil fuel alternative

• Solar photovoltaics were, on average, 41 per cent cheaper than the lowest-cost fossil fuel alternatives, while onshore wind projects were 53 per cent cheaper, according to the Irena report

• In 2024, renewables made up 92.5 per cent of all new electricity capacity additions and 74 per cent of electricity generation growth

• In value terms, $2tn was invested in clean energy last year, or $800bn more than fossil fuels, up almost 70 per cent over 10 years

• In China last year, the clean energy sector accounted for 10 per cent of the economy and a quarter of GDP growth. China’s clean-energy exports in 2024 alone would cut annual overseas emissions by one per cent, a separate analysis published in Carbon Brief on Tuesday estimated

• The UN-issued report calculated that between 2015 and 2024, global annual electricity capacity of renewables had increased by around 2,600 gigawatts, while that of fossil fuels increased by around 640GW

What makes Trump’s rejection of renewables so egregious is that the White House has just published an AI Action Plan which requires the US to accelerate the build-out of vast, energy intensive data centres. Yet the Department of Energy warned earlier this month that electricity demand is set to outstrip supply, with the risk of power outages likely to rise 100-fold between now and 2030. Given that renewables were the biggest contributor of US electricity supply growth last year and that there is a a five-year waiting list for gas turbines, where does Trump think the energy to enable the US to win the AI race is going to come from?

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5. Britain’s Worst Chancellor?

The Tories may be languishing at 18 percent in the polls, vying with the Liberal Democrats for fourth place, saddled with an underwhelming leader in Kemi Badenoch and seemingly unable to formulate a coherent response to the challenge from Nigel Farage’s Reform party to its right. But at least one prominent Tory seems to have successfully rehabilitated his reputation, despite having been one of the most senior members of the government that crashed to a record defeat in last year’s election on a tide of public contempt.

According to Matthew Parris in The Times, Jeremy Hunt was the “surprise hit” at this year’s Buxton International Festival:

I was among a huge audience for an interview not only about the former chancellor’s new book (Can We Be Great Again? — dubbed by one wag Can We Be a Bit Better Again?) but also about his life in politics. Modest, experienced, obviously capable, gently funny and courteous even about Liz Truss, whose economic mess he rescued us from, we may forget that though still quite young, Hunt has been culture secretary and health secretary, as well as foreign secretary and chancellor.

I have nothing against Jeremy Hunt personally, who on the occasions that I have met him I also found courteous and personable. But I find this tendency to gloss over the details of his time in office, particularly as chancellor, frustrating, not least because it has a bearing on the present. In recent months, he has been the subject of various flattering profiles in the media has he goes about promoting his book. The other day, I provoked a lively debate on BlueSky when I suggested that Robert Shrimsley, the FT’s UK reliably excellent UK politics columnist, had been too kind to Hunt in a column that had in fact been quite critical of him:

To my mind, the case against Hunt is not just that he failed to set out any credible plans to pay for his patently unaffordable tax cuts. It was that he spent two years hiding expenses and ducking spending decisions to construct the fictitious narrative that they were affordable. When Rishi Sunak was chancellor, he forced Boris Johnson to agree to a tax hike (raising national insurance contributions for employers, no less - the very tax that Rachel Reeves chose to raise to universal opprobrium) to pay for higher spending. But when Sunak became prime minister, the Tories simply stopped governing. Everything was subjugated to the cynical plan to set an electoral trap for Labour, with scant regard for the national interest.

Some will argue that Reeves and Labour should shoulder much of the blame for Britain’s current predicament for not opposing Hunt’s tax cuts at the time, and for boxing themselves in before the election in a way that made it hard to escape the trap. I disagree. As chief leader writer at The Times until a year before the election, I can say with confidence that the paper, which had supported Sunak’s tax hikes, and then backed Hunt’s tax cuts, would have eviscerated Labour if it had been foolish enough to say it would reverse them. The same is true of the rest of the right-wing media. Hunt was able to act with such cynical recklessness because much of the press was complicit in the Tory strategy.

But was I right to suggest that Hunt is Britain’s second worst chancellor in modern times after Kwasi Kwarteng, who delivered Liz Truss’s catastrophic mini-budget? Some contributors to the BlueSky debate argued that George Osborne was worse than Hunt because of the long-lasting negative consequences of his austerity policies. Others argued that Hunt should be considered worse than Kwarteng because the impact of the latter’s policies were so short-lived, given that they were swiftly reversed (by Hunt himself).

My view is that Osborne does not merit a place on this podium. He may have got the balance wrong between spending cuts and tax rises, and his cuts to investment spending were ill-judged, there is also no question that spending cuts were needed to reduce what was a massive deficit. What’s more, he believed in what he was doing, won a mandate for it, and subsequently won re-election with an increased majority. If it were not for Brexit, which knocked back the UK economy for a decade, his record might not have looked so bad in hindsight.

But I can find no such mitigation for Hunt who deliberately salted the earth, knowing that he would never have to bear responsibility for it and is now being allowed to present himself as a respectable elder statesman. For this reason, I am happy to defer to those who argue that this makes him a worse chancellor than Kwarteng, and thus the worst in modern times. But I am keen to know what readers think. Let me know in the comments.