We will be the losers in a trade war with America

If the EU were proposing a tax on Boeing planes they'd be getting real. This list is simply petty

A few pounds on a pair of Levi's? Double the price of Florida orange juice? Price increases on bras, ballpoint pens and ski suits?

There is an air of unreality about the prospect of a trade war between Europe and America. It is encapsulated by the list of items on which the European Union is expected to impose duties after the World Trade Organisation ruling that America has broken its free trade rules.

Aren't most of supposedly American jeans now made in China or Thailand nowadays? There are plenty of other places that grow oranges, or indeed make bras and ski suits. If the EU were proposing to put a tax on Boeing planes, then they would be getting real. This list simply sounds petty.

What worries me is that it is probably meant to sound petty - to reflect the element of needle that now exists in relations between Europe and America. Things we really need from the US, such as the Windows operating system in our computers, will not be taxed. Things we don't need, but happen to be produced in politically sensitive states, will be. In trade wars, as in the real sort, the aim is to inflict as much damage as possible to the enemy with the least to yourself.

To say this is not to apportion blame to Europe, rather to point out that we have more to lose in this than does America. True, the US has behaved pretty disgracefully in imposing restrictions on steel imports, which the WTO has quite rightly condemned. But in retaliating, Europe has to be careful that it does not twist US sentiment against its products. Germany seems to have managed to overcome any anti-European sentiment post-Iraq, but France seems to be suffering. And countries tend to end up hurting themselves more than the enemy when they restrict imports.

Take Japan. Many nations have trade barriers of some sort, usually using some spurious safety grounds, but Japan has turned this into an art. My personal favourite was its banning of the import of US skis. Its argument was that Japanese snow conditions were different to American, so skiers needed special Japanese-made products. I was told that by a senior Japanese official with a completely straight face.

But much good have import controls done Japan. The country is showing some growth in the past few months but has spent most of the past decade mired in recession. Restriction of imports reinforced an anti-consumer culture, which condemned the country to slow growth. Meanwhile America has experienced an extraordinary consumer-led boom, with the US consumer becoming the main engine of growth in the world. Despite the latent protectionism in America, the fact remains that it is a vast market for imports, and its consumer is benefiting from the cheap imports from the rest of the world.

We benefit too from our open attitude, both in the variety of goods available and in our growth performance. A British supermarket has a much wider range of items from a wider range of countries than, say, a French or an American one. Try buying US wine in France, or vice versa, even before the latest spat over Iraq. I think it is probably for cultural and historical reasons that Britain has become such an open market. But at any rate, while we are now the third largest importer in the world after the US and Germany, this penchant to import has not stopped us being the fastest-growing large economy in Europe. In fact the two go together: if you grow faster than your neighbours you are liable to increase your imports more rapidly than your exports.

So to be an open economy is to be a successful one. The trouble is that a lot of people don't really believe it, for they see the costs of free trade - the loss of jobs to China or India - while not really appreciating the benefits in the form of cheaper goods. We assume that general freedom of trade is normal because that has been the situation for the past generation. But actually that freedom has been hard won. After the Second World War there were huge tariffs on imports, quotas and other restrictions on trade. It took more than half a century of gradual chipping away at those restrictions to create the present liberal trade environment.

So what matters is not our having to pay more for orange juice. It is the danger that a world of multilateralism - with free trade with everyone - should slither into a world of antagonistic trading blocs. Europe versus America would be bad news for America, but worse for Europe. European countries cannot become richer simply by exporting to each other. The sad truth is that they need the US more than the US needs them.

The main reason for this is that the US market is and will continue to grow faster than the European one. Different patterns of demography and migration will see to that. The US can increase its trade by exporting more to countries such as China and India. That is what it has to do. Realistically it is not going to get a much larger share of the EU market than it has at the moment. The EU, on the other hand, while also having to focus on China and India, can hope to increase its exports to the US. America is now Germany's largest export market, passing France; it is also Britain's largest export market, larger than Germany.

Looking ahead, two things can happen. One would be for the WTO rules to be accepted. On this present issue, the US would back down - or at least some face-saving formula would be established enabling it to avoid EU sanctions. Trade will gradually become even freer, spreading to agriculture (about time) and to services. The world will not only continue to become more prosperous, but in addition that prosperity will spread to poorer countries that have been excluded. The new giants of world trade, China and India, will fit into this multilateral framework.

The alternative path would be more messy. This spat will get worse, with the US retaliating against the EU retaliation, which in turn will bring in further restrictions. Consumer attitudes will harden, with people trying to buy from countries that are politically friendly - or seen to be friendly - instead of selecting the best.

The WTO framework would not disappear overnight but it would gradually be replaced with a world of bilateral trading agreements. NAFTA would sign a string of agreements with different countries in the western hemisphere, maybe dropping the N. The EU would do the same, signing up new members including Russia. The Asian nations would also band together into a more explicit trading bloc - which would be the fastest-growing of the three. Then the three main blocs would negotiate agreements between each other, have their spats, their retaliation, their consumer boycotts and so on.

That would not be a total disaster. Trade would not stop suddenly. But economic growth would be slower and small countries without much clout, particularly in Africa, would find themselves even more on the fringe than they do now. And the trading bloc world would be less stable than the multilateral one.

So the issue is not really about Florida orange juice, nor even about steel. It is about structure and attitudes. For more than half a century the people who believe in co-operation have usually won the argument. There is a danger now that the people who believe in confrontation are going to win. If they do it is bad news for all of us, but particularly bad news for Europe.