The EU has implemented the first of a round of formal trade retaliations against the US following significant efforts from Union leaders to negotiate with the American administration, which opted to move forward with incendiary metal tariffs against the bloc last month.
Despite a longstanding, positive commerce relationship between the US and the EU, President Trump first provoked a trade spat between the two when he announced new steel and aluminium tariffs from all countries except members of the North American Free Trade Agreement (NAFTA), Mexico and Canada. Following initial backlash from several countries, including threats from the bloc and several other nations to retaliate in kind, he suspended tariffs for Argentina, Australia, Brazil, Canada, Mexico, the EU, and South Korea in order to hold negotiations. But one month of talks (including an additional month extension for the EU and NAFTA partners) was not enough for President Trump to reach what he deemed satisfactory arrangements.
As of June 1, steel and aluminium products from all 28 European Union member states are subject to a 10–25 percent duty when imported to the US.
The EU is the second-largest producer of steel in the world, and one of the largest sources of US steel imports. Not only do the tariffs defy “all logic and history” according to European Commission President Jean-Claude Juncker, but they could be in violation of World Trade Organization (WTO) rules.
In a swift response, the bloc filed a dispute with the WTO less than one week after the US implemented tariffs. Then, in late June, more a week earlier than expected, the bloc enacted the first round of tariffs from their three-year plan, which slaps 2.8 billion euros worth of US goods with 25 percent duties. These duties attempt to rebalance the EU-US trade relationship and prevent possible trade diversion from elsewhere, signalling Europe’s strength and unified commitment against unfair trade policies.
The Union made good on its threats to target products made in Republican states as Trump and other party leaders prepare for November’s midterm elections. Retaliations include tariffs on bourbon whiskey produced in Senate Majority Leader Mitch McConnell’s home state of Kentucky we well as agricultural and steel products in many key Republican constituencies. Breadbasket crops like corn, cotton, and tobacco were also on the list. These were specifically chosen to add maximum political pressure. Another choice, orange juice, is a key export for swing state Florida. The Commission has, however, taxed a slightly lower trade revenue than the 3.4-billion-dollar amount originally estimated.
The Trump team has said his tariffs won’t raise consumer prices, but retailers and producers aren’t as confident. The EU’s rebalancing duties certainly don’t help his case. Of the many US products that are now subject to 25 percent duties, the EU included Harley-Davidson motorcycles, which are manufactured in US House Speaker Paul Ryan’s home district. Since the taxes went into effect, Harley-Davidson has announced they’re shifting some production outside of the US.
EU tariffs were only enforced after receiving support from every member state. European Trade Commissioner Cecilia Malmstrom said “We did not want to be in this position…However, the unilateral and unjustified decision of the US to impose steel and aluminium tariffs on the EU means that we are left with no other choice.” She added that the EU response is “measured, proportionate, and fully in line with WTO rules,” and that the European taxes would be lifted if the US removed its tariffs. Economists have praised the EU’s modest retaliation, which highlights that the bloc would prefer trade conditions return to their previous, mutually favourable state.
Threats Turn to Auto Industry
Once the EU’s retaliations were announced, Trump tweeted that he would impose a 20 percent tariff on EU-assembled cars if they weren’t rescinded. “Build them here!” he wrote. Meanwhile, US Chamber of Commerce warns that such tariffs “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.”
Echoing Trade Commissioner Malmstrom, EU Commission Vice President Jyrki Katainen told French newspaper Le Monde that the bloc would “have no choice, again, but to react” if the US adds more tariffs. He said that the EU doesn’t want to fight over trade, especially “in public via Twitter,” and that the escalation should come to an end.
For reference, the EU currently imposes a 10 percent tariff on imported US cars. While Mr. Trump’s source of frustration seems to originate mainly from German automakers like BMW and Mercedes, his threatened sweeping tariffs would also affect other international automobile producers elsewhere in the Union, such as French car companies Peugeot and Renault.
Avoiding a Future Transatlantic Trade War
President Trump characterises the American tariffs as necessary to counter the global oversupply of steel and aluminium, repeatedly referencing national security. The European Commission argues that they are in fact, “safeguard measures” and protectionist in nature. Looking to the future, if the issue is not resolved before 2021, the Commission will apply a second round of sanctions, which adds 10–50 percent taxes on another 3.6 billion euros worth of American products. There is hope that the US will alter its trade policy, or the WTO will rule Mr. Trump’s actions illegal, before these additional measures have the chance to take effect.