Time for TRUST - Economic NATO

Canada, Europe and Mexico are again under a barrage of tariff attacks from the USA. Soon other countries - Taiwan, South Korea, Japan and others - might face the same predicament as during the first Trump term.

History shows that bullies recognize only power. Try appeasement and you will receive even more offence. Liberal democracies respecting  the rule of law which are at risk of being targeted by Trump’s regime, should take more lessons from past and present experience. While  the current response of putting immediate tariffs on US products is better than nothing, it is certainly not sufficient. Fragmentary and uncoordinated response exposes each single country to further retaliatory measures. Last month Trump threatened Canada with stunning 50% tariffs if it did not pull back from Ontario’s 25% tariffs on electricity exports. What can and should be done?

The solution lies in drawing from experience of the most successful defensive alliance in history - NATO. Key to NATO’s strength lies in its deterrent power built into Article V.  The European Union should initiate a process of setting TRUST - Tariff Response Union to Support Trade. Its fundamental principle should be simple. If any TRUST member were to be targeted by unprovoked tariffs from a third country, all TRUST members would respond jointly and in kind. The only tariffs excluded from such defence response would be those imposed by a non-member in response to tariffs first set by a member. This carve out would preserve  the trade and industrial autonomy of each TRUST member, while ensuring others are not on the hook to pay the price of such policies.

Most importantly TRUST would not require any new trade agreement, tariff union, harmonisation of trade measures and standards etc., as, in the same way, NATO did not require eradication of national sovereignty or independence of military policies in member states. Reference tariff levels would be those on January 1, 2025. Any upward deviation from those levels would be considered unfair and predatory.

The core of TRUST would be set by the EU, UK, Canada, South Korea, Japan and Australia. Jointly they represent almost 10% of world’s population and 33% of global GDP. That would give TRUST a critical mass to play in geo-economic competition and discourage trade aggression from others.

In second stage, TRUST should offer umbrella protection on the same terms to willing countries in Latin America, Africa and South East Asia. In a world where Russia, China and USA want to restore “spheres of influence” such  a move by the EU and others should offer them a pause for thought.

The EU and most other potential members currently  lack military power comparable to that of the US & China. However, they have economic weight, impossible to be ignored if applied in unison. The importance and strength lies in having a guarantee that retaliation to trade attack would be automatic, predictable and certain. TRUST would lower the risk for any of the members of being hit by third-country tariffs. Rather than constituting a cost, it would lower the uncertainty, hence lowering  the cost of doing business for member-countries.

The transparency of such a mechanism should establish a good deterrent and prove that spheres of influence advocated by Putin, Xi Jiping and Trump can be created also by Europe in the backyards of “grand powers”. It is time to reestablish trust in trade. It is time for TRUST.

* Image source: https://www.bbc.com/news/articles/c0qnd2x1nn3o