THE planned retaliation by the European Union (EU) against Donald Trump’s proposed tariffs is a warning that there could be a global trade war.
The President’s proposes 25 per cent tariffs on steel products, 10 per cent on aluminium products and potential levies on German and French autos
The question is the motivation. First, his election promise to blue collar workers that he would act to protect their industries. Second, he is postponing action against Canada, a major aluminium exporter and is also excusing Mexico. They in turn must renegotiate the regional Nafta trade accord. Third, the President wants China to stop dumping steel and other products.
Mr Trump’s plans could well backfire. With the exception of Israel’s Benjamin Netanyahu, leaders dislike Mr Trump. The US is this becoming isolated.
The European Union plans to hit back by imposing levies totalling 2.8 billion euros ($3.5 billion) on US agriculture, steel and industrial products, an official disclosed. American products that would be hit by tariffs would include iconic brands such as Harley-Davidson motorcycles, Levi’s jeans and bourbon whiskey, orange juice and peanut butter. The goods would be chosen carefully to match the potential export slide from US tariffs, an EU official said; the tariffs on these products could be as high as 25 per cent, in line with Trump’s proposed tariffs.
A revamped Pacific trade pact also aims to counter Mr Trump’s protectionism. A year ago the US withdrew from the pact. The remaining 11 states will sign a new trade accord on Thursday. It is now called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
France’s Finance Minister Bruno Le Maire said he plans to hold talks with his German and British counterparts to discuss ways to respond to Mr Trump’s unilateral measure.
“The US must know that if these unilateral decisions were to be maintained and confirmed, they would lead to a strong, coordinated and united answer from the European Union,” Mr Le Maire said.
European Commission President Jean-Claude Juncker said: “It’s actually a stupid process that we must do this, but we have to. We can also do stupid.”
The EU is also concerned that there could be a flood of diverted steel products from Asia and elsewhere into Europe. EU officials indicated that they would then restrict these imports to protect German and other European companies.
European steel association Eurofer said that the US was the destination of about 15 per cent of Europe’s steel exports in 2017. US steel, by comparison, made up only 1 per cent of EU steel imports.
French President Emmanuel Macron urged the EU to react “quickly and proportionally” through the WTO.
British Prime Minister Theresa May also voiced her concerns.
The EU has said it would implement the tariffs if and when Mr Trump imposes his threatened measures.
WTO fears recession and nations will take legal action
Roberto Azevedo, director-general of the World Trade Organization (WTO), has urged President Trump not impose the tariffs.
“An eye for an eye will leave us all blind, and the world in deep recession,” he told WTO members. “We must make every effort to avoid the fall of the first domino.”
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When George W. Bush imposed tariffs ranging from 8 per cent to 30 per cent on steel imports in 2002, the EU listed potential levies on US goods totalling US$2.2 billion. The EU, Japan and others then filed a WTO complaint against the US tariffs and won. Mr Bush removed the tariffs the following year, after the WTO ruling.
China’s potential response
Credit Suisse said in a report: “China’s response is central to the risk of an all-out trade war. There is no doubt that China could choose to retaliate via more specific measures if the US escalates matters further.
“Potential retaliation could be US soybean and corn imports. Beijing could also call off talks on the US$250 billion in commercial deals – including the US$37 billion purchase of Boeing planes.”
Mr Trump has claimed: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.
“For example, when we are down US$100 billion with a certain country and they get cute, don’t trade anymore. We win big. It’s easy!”
© copyright Neil Behrmann
This article was first published in The Business Times, Singapore
Neil Behrmann is London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, will be published in coming weeks. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner.