EU-US trade war? EU calls for logic while Trump’s administration is a loose cannon in a dangerous lose-lose situation for global prosperity

Visit by Jean-Claude Juncker, President of the EC, and Cecilia Malmström, Member of the EC, to the United States of America
Date: 25/07/2018. Location: Washington – White House. © European Union , 2018 Source: EC – Audiovisual Service Photo: Etienne Ansotte

The European Parliament (EP) voted yesterday for the kick-off of the negotiations with the US government in an attempt to eliminate the industrial goods tariffs and harmonise conformity assessment. These mandates need to be supported by the EU member states in order to bridge the current trade differences between the European Union and the United States.

However, the trade negotiations could be abruptly interrupted in case the Trump administration decides to impose new tariffs on the Old Continent and particularly on EU car imports. The latter is not too unlikely to happen based on a confidential U.S. Department of Commerce report addressed to the US President last Sunday.

Will Trump impose EU tariffs?

This favourable report appears to blink at Trump to increase tariffs on the car industry up to 25%. It is also underlined there that car imports are highly connected to national security justifying the necessity of further US actions.

Donald Trump is most certainly going to use his trade leverage to seize political momentum in turbulent US politics, as he has previously done so in the past with the steel and aluminium tariffs. It is high likely that the Trump administration is not going to be intimidated by the EU officials or keep the promises made to the president of the European Commission about not imposing additional import tariffs on European cars in the near future.

German concerns

The EU is expected to be impacted to a great extent if the White House materialises its threats. The bloc’s GDP growth will be much affected because the auto trade is exposed to  some 10% of EU-US transactions. There is no doubt that the country that is going to be mostly hit by this increase will be Germany. The most powerful EU economy is profoundly linked to its car industry’s figures. Germany’s government officials are much worried now about the US stance.

More specifically, Peter Altmaier, Federal Minister for Economic Affairs and Energy said at Deutschlandfunk radio that: “For some weeks and months now, we’re observing with concern that the U.S. is tightening its trade policies, that tensions are increasing. The impact can already be seen in the world economy, global growth has slowed. We are not yet where we want to be. We might have made one-third of the way and the most difficult part will be now.”

What is more, Altmaier stated that imported cars don’t impose any threat to the US national security and both parties should focus mostly on the reduction of car tariffs.

Will EU be forced to retaliate?

Europe is currently seeking for win-win trade deals with the United States. EP’s international trade committee vote of 21 in favour and 17 against the support of the beginning of negotiations is showing that there is, despite the reluctance of some political parties, a core will to promote the trade mandates proposed by the EC.

However, if Trump decides to enforce his Make America Great Again (MAGA) hard core policy, then the EU is going to immediately limit down its imports on US soya beans and liquid gas, as EC’s President Jean-Claude Juncker underligned. In detail, the president of the EC said to the Stuttgarter Zeitung paper in an interview: “Trump has given me his word that there will be no car tariffs for the time being. I believe him. However, should he renege on that commitment, we will no longer feel bound by our commitments to buy more US soya and liquid gas. However, I would very much regret that.”

Naturally, the US economy will be affected by the EU retaliation as the Old Continent has increased its US soya beans purchases by 112% over the period of July to December 2018, compared to the same period in 2017. Moreover, EU’s US liquefied natural gas (LNG) supplies have skyrocketed in October and November 2018 as well.

All in all, the EU seems to be determined to sit down with the US at the negotiating table and try to deliver fruitful trade agreements with the other side of the Atlantic. However, Trump’s administration might have an opposing view and has shown many times that it is capable of abruptly slamming the table and stopping negotiations. The MAGA administration might as well impose more tariffs if its imperialistic demands are not satisfied.

Subsequently, the EP is now expected to review the matter next month. Only after having the final mandate from the member states can the EC begin constructive negotiations with the US. The latter together with the fact that the White House has now only 90 days to respond to the US Department of Commerce’s report narrow down significantly the time window for both parties to conclude negotiations effectively and prevent another possible trade war, this time between the two sides of the Atlantic.

It is obscene to observe that in 2019 and after two world wars there are still political leaders out there that are unaware of the horrific dangers that lurk in trade wars. Surely, global prosperity has its limits and so does our planet but trade wars cannot expand the size of our planet, can they?

Playing the card of risky trade wars in 2019 is surely a reckless, irresponsible and unsustainable exercise viewed through the lens of any macro-economic, political and social perspective and theory.