President Trump believes that trade wars are winnable. The Chancellor of the Exchequer, Philip Hammond, disagrees.
“I don’t think that, in the end, trade wars produce a net benefit for anyone,” he told ITV News. “We’re all losers from a trade war”.
Overnight the United States imposed higher tariffs on $200 billion of Chinese goods. China says it intends to retaliate.
The tariffs are narrow and bilateral. The damage will be felt most keenly by the countries directly involved in the dispute.
The Bank of England has said previously that as only as small part of UK economic activity comes from exports that Britain should be largely unscathed.
But Philip Hammond argues the tariffs will hurt global economic growth and Britain is “exposed”.
He urged both sides to resume negotiations.
“We recognise some of the concerns the Americans have about some of China’s trading practices but we think the right way to resolve them is within the World Trade Organisation, ” the chancellor said.
Philip Hammond was speaking on the day we learned the British economy grew 0.5% since January - a performance he described as “robust” and “resilient”.
Economic growth has been driven by a sharp rise in the production output. Manufacturing growth expanded at its fastest pace in 30 years as companies stock-piled in preparation for a disorderly departure from the European Union at the end of March.
The boost is expected to be temporary. Indeed the early indications are it has already blown itself out. While growth over the quarter was positive, the British economy actually contracted slightly in March
There are reasons for the chancellor to feel bullish. The economy is throwing off jobs and pay growth has finally rebounded.
But some would argue the economy is not as resilient as he claims.
Business investment - while growing again - is weak in the face of Brexit uncertainty, exports have failed to respond to the weakness of the pound since the referendum. Once again, it would appear the economy is being largely powered by consumer spending.
Household debt levels are still below pre-financial crisis levels but there has been a rapid increase in unsecured borrowing and the proportion of income that households are saving has slumped. Credit lines can’t expand forever.