Thursday

23rd May 2019

EU seeks unity as trade war with US begins

  • EU leaders search for a strategy, as Trump undermines the rule-based multilateral system (Photo: European Commission)

The EU said on Thursday (31 May) it would retaliate against steel and aluminium tariffs imposed by US president Donald Trump, in what could be the opening shots of a transatlantic trade war.

European officials had been in contact with Washington in recent days to try secure a permanent and unconditional exemption from the tariffs that the US had threatened to impose.

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The US did it citing national security concerns, which one EU official said was an illegal argument.

But Trump, as part of his "America first" policy, decided to impose the full 25 percent tariff on steel anyway and a 10 percent one on aluminium from 1 June.

"Today is a bad day for world trade. We did everything to avoid this outcome," trade commissioner Cecilia Malmstroem said in a statement after the US decision.

"The EU's response will be proportionate and in accordance with WTO rules. We will now trigger a dispute settlement case at the WTO, since these US measures clearly go against agreed international rules," she added, referring to the World Trade Organisation.

Washington's continued blocking of appointments to fill the empty seats in the WTO's appellate body, tasked with managing disagreements between trading nations, could hamper efforts to sort out the issue there, however.

During the negotiations, in exchange for the permanent exemption, the EU had offered to talk about improving reciprocal market access for the US for industrial products, cars, public procurement, and energy, as the US is keen to sell liquified gas to the EU.

But this was not enough for Trump.

"We had frank and direct exchanges with the US. There is no acrimony, but a deadlock," a source in the French government said, adding that the EU was left with "no other solution" than to retaliate.

The EU has said before that it would respond with duties worth up to €2.8bn on American imports, such as Harley Davidson bikes and bourbon whiskey, which were put on a list it published of products to be hit.

According to officials, the rebalancing measures will only kick in a few weeks later, when the EU is able to calculate the damage done by the US tariffs.

The bloc is also planning measures to protect the EU market from trade diversion caused by the US tariffs, for instance Chinese steel products being redirected to the European market.

Chinese steel overcapacity and state subsidies have been at the heart of the issue and the EU has been calling on Washington to use the existing global bodies to deal with the problem.

Beijing has said that it has cut production already and aims to cut 150 million tonnes of excess capacity by 2020.

"This is protectionism, pure and simple," European Commission president Jean-Claude Juncker said in a statement on the US measures.

"By targeting those who are not responsible for overcapacities, the US is playing into the hands of those who are responsible for the problem," he added.

End of multilateralism?

The EU has been struggling with how to handle an erratic Trump, who has no respect for the post-WW2, rules-based multilateral system.

The US president previously criticised the EU and hailed the UK's decision to leave the bloc and withdrew from the Paris climate accord and Iran nuclear deal.

EU leaders have been scrambling to find a united strategy to deal with Trump, particularly on the looming trade war.

France had opposed the EU's move to offer talks to the US, worried about giving in to Trump's aggressive policy, while Germany was more open to mollifying the US administration, as its industry is more exposed to the US tariffs.

EU officials noted that the division between Europe's two largest economies was not the real problem, however.

"[It is] the incapacity to find the right answer rather than division between two camps," said one official on condition of anonymity.

On Thursday, France and Germany issued a joint statement in support of the commission's actions.

"We regret the unilateral decisions by the United States," they said, promising that France and Germany will work closely together.

"We have no other solution. It is important that the European reaction is as coordinate as possible," said the French source.

Earlier this week in Brussels, German economy minister Peter Altmaier, while arguing for a constructive solution with the US, gave voice to the shock may European officials felt at the US's treatment of its European allies.

"We share the same values, we have much more in common than issues that divide us," he said, adding: "This is quite emotional, but it is my personal conviction that we have a lot to lose, and this does not refer to steel and aluminium in the first place," he said.

EU pessimistic on permanent US trade exemption

EU trade chief said the US will impose tariffs or "other limiting measures" on 1 June, as the EU's offer to start limited trade talks is probably not enough for the protectionist Trump presidency.

EU rejects US trade 'gun to the head'

EU leaders demanded a permanent exemption from US tariffs on steel and aluminium - and ruled out any bilateral trade talks within the 1 May deadline set by Donald Trump.

Sofia summit: EU leaders search for a Trump strategy

"With friends like that, who needs enemies?" European Council Donald Tusk asked on Wednesday, as EU leaders were trying to come up with a reply to the US president's questioning of the transatlantic relationship.

Trump's new envoy to Germany under fire

Richard Grenell, the US ambassador to Germany, said he wants to empower other conservatives in Europe, sparking calls for his resignation.

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