Countries espousing free trade in response to U.S. trade war threats should just drop all their own tariffs to zero — but they won't, St. Louis Federal Reserve Bank President James Bullard told CNBC on Monday. "The positioning here is that the other countries are all free trade and the U.S. is not. If that's really what we're saying then just drop all tariffs and all nontariff barriers. Go down to zero. That would be better outcome for the whole world," Bullard told CNBC's "Squawk Box Europe." "Why is that not going happen? Because they're protecting their industries, that's why it's not going to happen. So, they're protectionist." Markets have been on edge ever since President Donald Trump launched a trade conflict with China and allies in the EU, Canada and Mexico over what he deemed an unfair trade deficit between America and its trading partners. The U.S. and other countries have so far slapped new tariffs on $85 billion worth of goods, with Washington and Beijing threatening more. Chinese officials, in response to Trump's moves, have called for compliance with World Trade Organization rules and opposition to protectionism. But a look at Chinese policies shows that the country has long engaged in protectionism of its own industries, Bullard said.

Beijing heavily subsidizes domestic industries, creating an uneven playing field for global competition, and has strict foreign ownership limits on most sectors. It does not allow foreign investors equal access to its industries, and engages in practices like forced technology transfers, which require international businesses operating in China to share their technology and operate without adequate protection of their intellectual property. U.S. and other foreign businesses operating on the ground have long called for reforms in these areas. Perhaps spurred by the tariff pressure, Beijing has pledged to quicken the pace of its reforms to open up its economy and ease limits to foreign investment.

Europe always imposed greater tariffs on the US