Saturday

26th May 2018

Opinion

German underspend on defence to blame for Trump tariffs

  • Germany's repeated failure to meet the Nato two percent defence spending threshold is partly to blame for the US tariffs on steel and aluminium (Photo: consilium.europa.eu)

President Trump's recent imposition of unilateral tariffs on steel and aluminium imports is extremely reckless and most likely illegal under WTO law.

The fault for any potential global trade conflagration would be mainly his. But this does not absolve the European Union from maturity and strategic thinking.

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The United States has been Europe's only major reliable ally for at least a century. We rely on the US for protection from most dire threats. Competing centres of power already pose major geopolitical challenges and wait to pounce on any conflict between EU and US.

US would be weakened without Europe, but would survive. Without US, EU in its current form would cease to exist.

In this light, the EU's immediate response to president Trump's announcement on tariffs has been counter-productive, emotional, and lacking in strategic thinking.

Canada and Mexico have since secured an exemption, while Australia appears to get one soon.

EU made bad situation worse

Instead, the EU response has resulted in Trump twice threatening EU with additional restrictions on cars should the situation escalate. No other country has been so threatened. We made a bad situation worse.

Reorganisation of international affairs and trade was president Trump's campaign promise. He pulled out of the Trans-Pacific Partnership & Paris Climate Agreement, threatened NAFTA, and blocked the WTO Appellate Body.

Trump won his campaign in states where increasing mechanisation, new technologies and imports decimated manufacturing. He is fighting globalisation and WTO's inability to stop China's state capitalism.

Steel tariffs are not about the EU, they are about US politics. Any real solution to them will also come from US politics.

Trump's target is Chinese steel and aluminium overcapacity. He is isolating the US from global effects of Chinese distortions.

The US commerce secretary observed recently that Chinese exports to third countries dislodge domestic demand, resulting in exports to US, adding: "Too much time has been spent just talking about steel overcapacity, very little time has been spent doing anything about it. We are taking the leadership […] to deal with this chronic overcapacity problem."

While the EU may dislike the approach taken by the US, China is a major challenge for EU industry.

Instead of a distracting trade confrontation with America, the EU should minimise its effects focusing on the real target: Chinese distortions.

The EU leadership generally dismisses president Trump. But US citizens, not EU elites, elect US leaders.

We owe Trump the respect we give the United States. Trump's 'Section 232' action is taken pursuant to a statutory mandate from US Congress.

Until Congress intervenes, which it may, we must deal with tariffs as US policy, not some flaky whim of one unstable despot.

In this context, EU retaliation list is shameful. As a US special prosecutor accuses Russia of orchestrating an attack on US election system by stocking political polarisation, EU – supposedly 'an ally' – attacks key electorates to obtain a political result?

The EU claims it is not the enemy. But the US claims that the destruction of US steel industry by imports – not the EU – threatens US security.

Let us imagine the unthinkable. World War III: missiles, bombing raids, submarines, torpedoes. Will Japan or Germany reliably supply the US with steel or aluminium?

When the US is responsible for world order, it is not up to us – given that we rely on US defence to guarantee our own safety – to question what US needs for its defence.

Security relationship

President Trump foresees future exemptions for countries that have a "security relationship" with US if they address in other ways the impairment to US security resulting from imports.

In the past, he complained of EU countries' insufficient military spending, overburdening the US, allowing these countries to focus on their domestic spending priorities.

Defence funding does not go to transport infrastructure, education, research, and other things impacting the competitiveness of economy.

Linking military spending to trade competitiveness, even if far-fetched, is not entirely wrong. Treating the tariff dispute strictly as a trade issue is therefore unlikely to satisfy the US.

In addition, the EU institutions will not be fully impartial. The European Commission has exclusive competence on trade issues, but plays a limited role on defence.

Focus on defence spending would deprive the commission of a central role in the dispute, empowering national governments, whose US security relationship and military spending levels vary.

The UK government would need no help from the commission to get out of the duties, while Germany would probably need all the help it can get.

This is the crux of the problem. Germany, the EU giant, is the country most endangered by Trump's tariffs and rhetoric.

It is the largest EU exporter of steel and aluminium to US, has the largest surplus with the US and spends too little on defence.

Two other exporters, UK meets its share, while France is almost there. But Germany, Netherlands and Spain are below the two percent NATO threshold.

While Germany alone could most likely resolve this issue through direct talks with the United States, it and the commission want to keep the dispute as a strictly trade issue, pulling the entire EU into the spat.

Trump's latest tweets suggest this approach is unlikely to yield good results.

There is no doubt that Trump's action is hostile, ill-conceived, internally inconsistent and most likely illegal.

But as it cannot be quickly reversed without escalating into a major confrontation, the key question is whether the EU – keeping its focus on Chinese distortions, revamping the WTO and geopolitical stability of the global order – should not exercise strategic patience hoping that the next occupier of the White House will be less hostile and stand down.

Tomasz Wlostowski is a Brussels-based dual-trained US & EU attorney practicing regulatory and international trade law

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