EU promises ‘firm response’ if Donald Trump introduces tariffs

IMF chief Christine Lagarde warns of the economic impact of a trade war

 

The European Union warned US president Donald Trump of a “firm” response should he trigger tariffs on foreign steel and aluminium, highlighting the prospect of an imminent transatlantic trade war.

“This would be damaging to transatlantic relations but potentially also to a global rules-based trading system,” EU trade commissioner Cecilia Malmstrom told reporters on Wednesday in Brussels. “This is not the right move.”

The EU intends to hit a range of US goods with punitive tariffs in retaliation for Mr Trump’s pledges to impose a 25 per cent duty on foreign steel and a 10 per cent levy on imported aluminium. His plan is based on a national-security argument that Europe dismisses.

In response to the White House’s steel measure, the EU is targeting €2.8 billion ($3.5 billion) of imports of US goods including Harley-Davidson motorcycles, Levi Strauss jeans and bourbon whiskey.

Iconic brands

In addition to such iconic brands, the American products that would face a tit-for-tat EU tariff of 25 per cent range from steel bars and motor boats to t-shirts and orange juice.

The EU has grown increasingly exasperated with Mr Trump’s “America First” agenda, viewing it as a threat to the multilateral trade order that the US played a leading role in building after the second World War.

Trump has already frozen years of talks on a transatlantic market opening agreement, pulled out of a trans-Pacific trade accord and demanded changes to a 24-year-old commercial pact among the US, Canada and Mexico.

That has left European policymakers unabashedly defending the liberal economic order that the EU stands for and pushing for free-trade deals from the Pacific rim to Latin America.

Political voices across Europe have echoed critics in the US urging Mr Trump to drop his metal tariffs plan, saying it would cause more economic harm than good and fail to address the root problem of overcapacity in China.

“Trade promotes prosperity if it’s based on exchange, on working together,” Brigitte Zypries, Germany’s outgoing economy minister, said in a statement. “The current signals from the US fill me with concern.”

While steel may be important for Trump’s voter base, the industry has political importance of its own to the EU, which was born out of the European Coal and Steel Community in the 1950s.

The European industry also continues to have economic clout, generating annual sales of about €170 billion, accounting for more than 1 per cent of EU gross domestic product and directly providing over 300,000 jobs.

Mr Trump’s metal-tariffs plan would affect EU steel exports valued at €5.3 billion and aluminium exports worth €1.1 billion last year.

The plan has sparked opposition within Mr Trump’s Republican Party, prompted the resignation of his top economic adviser – Gary Cohn – and created the risk of retaliation across the globe.

It has also opened the door to a slew of complaints to the World Trade Organisation, which has never ruled on a dispute involving trade restrictions justified on national-security grounds.

Retaliatory tariffs

Beyond imposing retaliatory tariffs on US goods, the EU is weighing filing a WTO case against the Trump administration in co-operation with other countries and introducing “safeguard” measures to prevent steel shipments from other parts of the world to America from being diverted to the European market and flooding it.

Last week, the European Steel Association said only about 3 per cent of EU exports of the metal to the US go for national security, Mr Trump’s goal is purely protectionist, and the WTO may have trouble handling any complaints.

“This whole issue can blow up the WTO,” Axel Eggert, director general of the industry group, also known as Eurofer, said on March 2nd. “This is not about national security. This is about propping up a US industry that isn’t viable.”

Separately, International Monetary Fund chief Christine Lagarde warned that the economic impact of US import tariffs would be serious if other countries respond with their own barriers.

“The macro-economic impact would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe, and Germany in particular,” Ms Lagarde said on French radio RTL. – Bloomberg