Trading fire with tariffs
In response to President Donald Trump’s steel and aluminum tariffs, the European Union retaliated with trade tariffs of its own.
On Friday, the EU imposed €2.8 billion ($3.2 billion) worth of tariffs on a diverse array of U.S. goods ranging from agricultural to industrial products. Most notable is the escalation of the metal tariffs dispute, as Europeans imposed an equal 25% tariff on steel, but a 25% tariff on aluminum, when the U.S. imposed a 10% rate.
And their retaliation is extensive, affecting products like Harley-Davidson motorcycles, jeans, bourbon and fruits and cereals—to name just a few—on the list of hundreds provided to the World Trade Organization (WTO).
Europe responds to tariffs
According to Daniel Rosario, spokesperson for Cecilia Malmström, the European trade commissioner, their hands were forced after the Trump administration denied them a permanent exemption from the recent round of tariffs, like that given to South Korea.
“We didn’t want to be in this position,” said Rosario, adding that, “if the U.S. backtracks on its tariffs, we will remove our duties too.”
The EU went a step further than the Trump administration, as the tariffs on American products can be extended to €6.4 billion in the next three years. European exports account for 15.6% of total world trade—and it’s the second largest exporter in the world after China.
What about China?
The EU finds the new U.S. tariffs confounding, as it shares the same view on Chinese trade as the United States. The two countries are in ongoing trilateral negotiations with Japan, in an effort to get China to better conform to WTO rules and to strengthen the international trade system.
“It’s clear that some of the big problems we face nowadays, for instance overcapacity in the steel sector, intellectual protection and foreign technology transfers, have their origins in China,” said Rosario. “The EU and the United States have an interest in working together to try to solve these problems.”
Rosario believes the U.S. tariffs should not be aimed at them. “It’s not by imposing tariffs against each other that we will solve a problem that has its origin somewhere else.”
EU officials attack tariffs as unjust and harmful
The European Commission, EU’s executive body, threw the ball back in Trump’s court 20 days after metal tariffs were imposed against the 27-nation bloc (excludes Britain, which is in the process of leaving the European Union). These tariffs affected over €6 billion in EU metal exports.
On the same day EU’s trade retaliation went into effect, President Donald Trump tweeted a possible further escalation.
Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!— Donald J. Trump (@realDonaldTrump) June 23, 2018
U.S. Steel Sources via U.S. International Trade Authority (USTIA)
- South Korea
- South Korea
The EU says it will respond to what it sees as unjust practices by the United States. Rosario believes that American citizens, once they feel the pain of tariffs, may oppose further escalation.
“It’s hurting European companies, European producers and we expect also that people in the United States may help everyone see eye to eye in this and see that there’s an easier way to solve this problem: by removing these unilateral tariffs imposed by the United States,” said Rosario.
Three-pronged approach at the WTO
But the retaliation is just one aspect of a three-pronged approach undertaken by the EU. The first came in late March, when the European Commission began a safeguard investigation through the WTO to challenge the “national security” standing of U.S. tariffs.
The second came early June, when the European Commission kicked off a WTO legal process to offset disruptions in the European market caused by the tariffs. Jean-Claude Juncker, president of the European Commission, summed up the conflict:
This is protectionism, pure and simple. Over the past months we have continuously engaged with the U.S. at all possible levels to jointly address the problem of overcapacity in the steel sector. Overcapacity remains at the heart of the problem and the EU is not the source of but on the contrary equally hurt by it.
The third step was just exercised, the adoption of retaliatory tariffs on the United States with the approval of the WTO.
The European Union is an unwilling foe in a looming trade war, but unwilling doesn’t mean weak. The commission’s criteria for imposing tariffs is to minimize the impact on its 508 million citizens, but maximize the pain for Americans. Choosing to impose tariffs on iconic American products like Kentucky bourbon, Levi’s jeans and Harley-Davidson motorcycles was not random.
Although U.S.-EU relations are tense, it hasn’t stopped the Europeans from moving ahead with bilateral trade negotiations to bolster economic liberalism worldwide. New talks for a trade agreement with Australia were announced the day before retaliatory tariffs against the U.S. went into effect.