‘A bad day for world trade’: EU retaliates to Trump’s tariffs

The European Union (EU) has retaliated to US President Donald Trump extending tariffs on steel and aluminium to the bloc, confirming it is launching a dispute settlement case and adding further taxes to US imports.

Trump’s tariffs, which will comprise 25% on steel and 10% on aluminium, were enacted at midnight (1 June) and hit EU exports valued at €6.4bn in 2017, as well as Canada and Mexico, after talks failed.

French President Emmanuel Macron is believed to have told Trump the move is “illegal” and that the EU would react “in a firm and proportionate manner”.

In response, the European Commission has confirmed it would be triggering a dispute settlement case at the World Trade Organisation and will impose “rebalancing measures and take any necessary steps to protect the EU market from trade diversion caused by these US restrictions”, according to a statement on its website on Thursday (31 May).

The EU’s measures will target an as far undisclosed list of US products “at a level that will reflect the damage caused by the new US trade restrictions on EU products”.

Commenting on the exchange, commissioner for trade Cecilia Malmström said: “Today is a bad day for world trade. We did everything to avoid this outcome.

“Over the last couple of months I have spoken at numerous occasions with the US Secretary of Commerce. I have argued for the EU and the US to engage in a positive transatlantic trade agenda, and for the EU to be fully, permanently and unconditionally exempted from these tariffs.

“Throughout these talks, the US has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU.

“This is not the way we do business, and certainly not between longstanding partners, friends and allies.”

Malmström added the EU’s response will be “proportionate and in accordance with WTO rules”, and the “US measures clearly go against agreed international rules”.

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Jean-Claude Juncker, president of the European Commission,  added that the US tariffs are “protectionism, pure and simple”.

He also explained “overcapacity remains at the heart of the problem” with regard to talks breaking down “and the EU is not the source of but on the contrary equally hurt by it”.

Juncker said: “The US now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties on a number of imports from the US.

“We will defend the Union’s interests, in full compliance with international trade law.”

At time of writing Mexico had also announced tariffs on American pork bellies, grapes, apples and flat steel.

Reaction

Hartwig Kos, co-head of multi-asset at SYZ Asset Management, said: “Donald Trump’s negotiation style is nothing short of bullying. In the spirit of his book The Art of the Deal, he keeps on pushing and pushing and pushing to get what he is after. That served him well in the 1980s when he built his property empire, but applying it to international affairs is a bit more difficult.

“The latest round of steel and aluminium tariffs against Canada, Mexico and Europe are nothing but that. Trump is displeased with the status quo NAFTA negotiations, and the German current account surplus has been a thorn in his side ever since he became President.

“The problem with this attitude is that international trade negotiations are different to dealing with a bunch of contractors. There are unintended consequences and feedback loops.

“Besides the retaliatory measures, tariffs have as much of an economic impact on the US economy as on the countries they are imposed on.

“Assuming that all US steel imports have a tariff of 25%, US steel companies will be able to raise their prices by 20% and still be competitive.

“The person that ends up paying, is the US consumer in the form of higher end prices. That is what tariffs actually are; hidden consumption taxes and nothing else.

“So unless he treads more lightly, Trump might, instead of “making America great again”, end up only making it greatly expensive for his electorate.”

SOURCE: Investmentweek.co.uk

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