With just days left until the May 1 deadline when a temporary trade waiver expires and the US steel and aluminum tariffs kick in, and after last-ditch attempts first by Emmanuel Macron and then Angela Merkel to win exemptions for Europe fell on deaf ears, the European Union is warning about the costs of an imminent trade war with the US while bracing for one to erupt in just three days after the White House signaled it will reject the bloc’s demand for an unconditional waiver from metals-import tariffs.
“A trade war is a losing game for everybody,” Belgian Finance Minister Johan Van Overtveldt told reporters in Sofia where Europe’s finance ministers have gathered. “We should stay cool when we’re thinking about reactions but the basic point is that nobody wins in a trade war so we try to avoid it at all costs.”
Well, Trump disagrees which is why his administration has given Europe, Canada and other allies an option: accept quotas in exchange for an exemption from the steel and aluminum tariffs that kick on Tuesday, when the temporary waiver expires. “We are asking of everyone: quotas if not tariffs,” Commerce Secretary Wilbur Ross said on Friday.
This, as Bloomberg points out, puts the EU in the difficult position of either succumbing to U.S. demands that could breach international commerce rules, or face punitive tariffs.
Forcing governments to limit shipments of goods violates World Trade Organization rules, which prohibit so-called voluntary export restraints. The demand is also contrary to the entire trade philosophy of the 28-nation bloc, which is founded on the principle of the free movement of goods.
Adding to the confusion, while WTO rules foresee the possibility of countries taking emergency “safeguard” measures involving import quotas for specific goods, such steps are rare, must be temporary and can be legally challenged. The EU is demanding a permanent, unconditional waiver from the U.S. tariffs.
Meanwhile, amid the impotent EU bluster, so far only South Korea has been formally spared from the duties, after reaching a deal last month to revise its bilateral free-trade agreement with the U.S.
Europe, on the other hand, refuses to reach a compromise, and according to a EU official, “Trump’s demands to curb steel and aluminum exports to 90 percent of the level of the previous two years are unacceptable.” The question then is whether Europe’s retaliatory move would be painful enough to deter Trump and lift the sanctions: the official said the EU’s response would depend on the level of the quotas after which the punitive tariffs would kick in; meanwhile the European Commission continues to “stress the bloc’s consistent call for an unconditional, permanent exclusion from the American metal levies.”
“In the short run it might help them solve their trade balance but in the long run it will worsen trade conditions,” Bulgarian Finance Minister Vladislav Goranov said in Sofia. “The tools they’re using to make America great again might result in certain mistakes because free world trade has proven to be the best solution for the development of the world so far.”
Around the time of his meeting, French President Emmanuel Macron made it clear that the EU is not afraid of an escalating trade war and will not be intimidated, saying “we won’t talk about anything while there’s a gun pointed at our head.”
He may change his opinion once Trump fires the first bullet.
Adding to Europe’s disappointment, during her visit to the White House on Friday, Angela Merkel said she discussed trade disputes with Trump and that she failed to win a public commitment to halt the tariffs.
Meanwhile, Merkel’s new bffs over in France are also hunkering down in preparation for a lengthy conflict. French economy minister Bruone Le Maire told his fellow European bureaucrats Sofia during a discussion on taxation: “One thing I learned from my week in the U.S. with President Macron: The Americans will only respect a show of strength.”
Coming from the French, that observation is as accurate as it is delightfully ironic.
And now the real question is who has the most to lose from the imminent Transatlantic trade war, and will surrender first.