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How a trade war with Europe might play out

The Week UK logo The Week UK 5/11/2022
Liz Truss Getty Images © Getty Images Liz Truss Getty Images

Tensions with the bloc threaten to trigger tariffs and the end of the free trade deal

Fears of a trade war between the UK and Europe are growing after EU leaders warned against unilaterally changing the Northern Ireland Protocol.

Tensions rose further yesterday when Liz Truss told Brussels that its proposed solutions to the problems with the protocol would “take us backwards”.

The foreign secretary spoke out after Belgium’s Prime Minister Alexander De Croo and Germany’s Chancellor Olaf Scholz warned of serious consequences if London changes the protocol, which effectively created a checks border in the Irish Sea to avoid a land border in Ireland. De Croo warned: “Don’t touch this.”

What would a trade war mean?

Trade wars generally involve tariffs or quota restrictions imposed by countries or blocs to damage each other’s trade.

In a trade war with the EU, UK exports could be hit by tariffs imposed by Brussels, which could even terminate the free trade deal agreed after Brexit.

Treasury officials told the Financial Times that a trade war could worsen the cost-of-living crisis, particularly if measures were imposed during the conflict in Ukraine.

“If you have a trade war, that will have an impact on the economy, especially when you have an actual war going on in Europe,” said an unnamed official. 

Insiders said the threat was causing concern at the Treasury that prices could be pushed up further.

Such concerns are a key reason why Rishi Sunak has “always had a problem with unilateral action” on the protocol, sources told The Telegraph.

Food industry bosses are also anxious about the effect that a trade war could have on supermarket prices.

A spokesman for the British Meat Processors Association told the The Independent that if the EU imposed tariffs on UK food exports and London responded in kind, “we will have a major problem”.

But following months of growing tension over the protocol, such a trade war could be “a serious possibility”, warned Catherine Barnard, professor of EU law at Trinity College, Cambridge. Anand Menon, director of the UK in a Changing Europe initiative, agreed that “trade retaliation is certainly something [the EU] will consider”.

A pragmatic future?

Fears were tempered last month when European diplomats reportedly said that the EU would be patient in order to avoid boosting Boris Johnson’s popularity with pro-Brexit Conservative MPs.

“We don’t want to become part of a Tory leadership contest,” a diplomat told the Financial Times. The unnamed source added that the bloc doesn’t want to “make life impossible for a future Tory leader”.

The bloc hoped Johnson would be ousted and a more pragmatic relationship could be established with his successor, the diplomat reportedly said.

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