Trump’s trade war splits the EU; Germany upset with Juncker’s “we can be stupid too”

Trilateral meeting between Cecilia Malmström, Member of the European Commission in charge of Trade, Hiroshige Seko, Japanese Minister for Economy, Trade and Industry (on the right) and Robert Lighthizer, US Trade Representative (on the left). Date: 10/03/2018. Location: Brussels- EC/Berlaymont. © European Union, 2018 / Source: EC- Audiovisual Service/Photo: Mauro Bottaro.

The US-EU trade war starts on 23 March, with the first shot fired by Washington at 12:01 a.m. (04.01 GMT). From what we know so far, from that minute onward the American customs authorities will impose extra tariffs on steel and aluminum imports, set by President Trump at 25% and 10% respectively. However, it seems that Washington is still discussing exemptions and has already excluded the inflows from Canada and Mexico. The European Union and Japan have joined efforts in asking for the same treatment and both underline their utmost security bondage with the US.

Incidentally, the White House sites security reasons for the new tariffs, saying the US needs to reinforce home production in both sectors for security reasons. On that ground, it will be rather difficult for the rest of the world to legally confront the tariffs using the World Trade Organization structures. In first reading, these tariffs and their rationalization do not violate the WTO rules. On the contrary, the retaliation measures prepared for example by the European Union and China will be more difficult to defend in the WTO panels.

Early effects

In any case, this unprecedented American step – under the unpredictable Trump policy lines – has already had its first upshots and they are quite crucial. For one thing, they revealed some deep division in the European Union. Berlin having to lose the most from a quid pro quo escalation, is seeking a less than proportional EU retaliation in Brussels in order to avoid more American tariffs. Trump has warned the European Union that in case Brussels retaliates, the US will impose more new tariffs on car imports from Europe, directly targeting Germany. In 2017 Germany had a trade surplus of €65 billion with the US. The next EU country with the second largest trade surplus with the US is Italy, with €2.6bn.

As a result, there are unprecedented reservations in Germany, about Brussels representing all the EU member states in the trade negotiations with the Americans. Not to forget though that according to the European Union Treaties, the EU order and practice postulates that the European Commission – where all member states are represented – is the only pertinent body to handle trade relations with the rest of the world. This is one of the founding principles of the entire EU edifice. Questioning it now is like questioning the very existence of the club.

Opposing Juncker

Still, there are strong voices raised in Germany opposing what the Commission President Jean-Claude Juncker said in response to President’s Donald Trump announcement of the imposition of the new tariffs on steel and aluminum imports. According to the reliable German business news group Handelsblatt, “German government officials were attempting to de-escalate the conflict. One official told Handelsblatt that officials found the threat of retaliation issued by EU Commission President Jean-Claude Juncker as ‘very direct,’ an implied criticism. They were especially upset when Mr. Juncker called the proposed tariffs ‘stupid,’ and added, “We can do stupid too.”

Again according to Handelsblatt, Holger Bingmann, president of the German Federation of Wholesale and Foreign Trade, said it would be a fatal mistake for Europe to hit back immediately. They should leave the role of provocateur to the White House, he added. “We are in favor of a clear response,” Mr. Bingmann told Handelsblatt, “But Europeans must avoid using the same measures as Mr. Trump.”

Handelsblatt itself, a newsgroup authentically echoing the interests of the German business sector, in its section related to the tariffs issue, carries prime articles suggesting refrain: ‘Trump may have a point about EU tariffs Ifo says’ and another title, ‘EU – German split over Trump tariffs’. This is very characteristic about the mood in Germany. Ifo is the largest and most prestigious German think tank, the official economic counsel of the Federal Government.

What about Britain?

Apart from Germany, Britain poses another grave problem for Brussels in the tariff negotiations with the US. In the face of it, Brussels legally and exclusively represents London’s trade interests, still twelve months away from Brexit. But the UK expects a special treatment from Washington. On top of that, according to the Brexiteers’ side governing the country, Britain is leaving the EU mainly in order to conclude her own trade agreements with the rest of the world. It’s utterly questionable then if the Commission can effectively represent the interest of the UK.

Brexiteer champion Liam Fox, the British Trade Minister, is currently in the US traveling between Washington and New York. He told Reuters he “was optimistic about a positive resolution to a tariff exemption (for Britain), despite the closest U.S. security ally’s dissatisfaction with the plan”. Beyond reasonable doubt then, Britain is negotiating for herself an exclusive trade relation with the US, probably even to the detriment of the European Union. This is something to be expected from a politician like Fox, who doesn’t hesitate to systematically undermine any attempt by his Prime Minister Theresa May to come closer to EU’s positions regarding the terms of the Brexit.

Undoubtedly this is a crazy crazy world. If Germany and France adopt even slightly different positions vis-à-vis this American war declaration, the European Union will be gravely hurt.

 

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