Potential tariffs on imported goods could instigate a new phase of international trade disputes.

In the rapidly changing global landscape, three major economic powers - the United States, United Kingdom, and Europe - are navigating new territories in terms of foreign policy and economic strategies.

In the United States, President Trump's administration has pledged to lower taxes for Americans while raising tariffs, a move that economists predict could lead to inflation in the short term but potentially benefit the US economy in the long run. This approach, however, contrasts with the US's relatively closed economy, where trade comprises only 27% of its GDP in 2023.

Across the Atlantic, the United Kingdom's national government has shown a divergence from the EU-wide policy regarding tariffs on Chinese electric vehicles. This deviation signals a shift in the UK's approach, with the newly elected Labour government expressing no interest in imposing tariffs on these vehicles. The Labour government, seen as more pro-EU than the outgoing Tories, seems to be more willing to listen to business leaders' advice than their European counterparts.

Meanwhile, Europe has taken a firmer stance against Chinese tech companies. Germany announced a ban on the use of critical components made by Chinese companies Huawei and ZTE in the country's 5G infrastructure. However, this ban, estimated to cost BT £500 million, has not significantly improved Germany's 5G availability, as the country does not make it into the top 15 countries in terms of 5G availability due to the ban.

Inflation has been a common theme in both the US and the UK. In Britain, inflation has been hitting the Bank of England's target of 2% since May, largely due to a sharp reversal in goods and energy inflation. If the Bank of England refuses to match US interest rates in response to higher inflation, sterling could fall and generate inflationary pressure in Britain.

In his essay "The Case for Progressive Realism", Labour's foreign secretary, David Lammy, argues that Britain must recognize China's importance to the British economy. Lammy advocates for a strategy that challenges, competes against, and cooperates with China as appropriate. This approach seems to be at odds with the Trump administration's plan to devalue the dollar, which could lead to high inflation moving forward.

If the US starts to view Trump's tariffs as a component of Western foreign policy aimed at hobbling China, it may apply pressure on Britain to follow suit. However, the Labour government's pro-EU stance and willingness to engage with China could potentially buffer Britain from such pressure.

These shifts in policy and approach underscore the dynamic nature of global economics and foreign policy, as these three economic powers navigate their roles in an increasingly interconnected world.

Potential tariffs on imported goods could instigate a new phase of international trade disputes.