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EU between desire for retaliation and calm

June 1, 2018

The EU doesn't want to just put up with Donald Trump's higher import tariffs and is mulling retaliatory measures. But German firms, in particular, fear that no one would profit from an escalation of the situation.

Scrabble pieces forming the words trade war europe USA
Image: picture-alliance/dpa

The European Commission is hopping mad, and it's ready to fight back. For its president, Jean-Claude Juncker, the higher US tariffs are "protectionism, simple as that." The US, he says, leaves the EU with no other choice than to initiate a WTO case. However, a ruling by the world trade body is likely to take months.

Also, US President Donald Trump has already signaled his country would withdraw from the World Trade Organization, should it side with the EU in its ruling. In other words, Europeans shouldn't pin too much hope on the WTO.

Juncker said the EU executive would come up with an adequate response nonetheless, as retaliatory measures such as higher EU import duties on US products had been prepared ahead of the US decision. Among the American items to be targeted would be ships and other products made with steel, whiskey, peanut butter, Harley-Davidsons and Levi's jeans worth €2.8 billion ($3.27 billion).

That's far less than the EU steel and aluminum exports to the US — worth €6.4 billion annually — that are affected by the Trump administration's decision. EU countertariffs could only be implemented after June 20, and it's unclear whether they will come at all. The bloc's member states will have to come to a joint decision, but positions currently differ widely.

Cars waiting to be loaded for shipment
Higher US tariffs on cars would be a blow to Germany's auto industryImage: Getty Images

Some EU states not affected at all

The managing director of the Federation of German Wholesale, Foreign Trade and Services (BGA), Gerhard Handke, told Reuters that not all EU member countries were affected by the higher tariffs to the same extent. He said there are nations that do not export steel or aluminum to the US at all. Handke argues that those nations are not interested in retaliation.

By contrast, Germany is hit hardest. "Against this background, keeping the EU's ranks closed despite different national interests among the 27 members will be a tall order," Handke commented.

Instead of coming up with comprehensive realiatory mesasures, he suggests the EU keep negotiating with the US.  He fears that otherwise there may be a devastating, psychologically induced impact on the market alongside the damage that businesses stand to incur.

The head of Germany's steel and metalworking industry group WSM, Christian Vietmeyer, doesn't beat about the bush. "Any EU response that could lead to a further escalation and more trade barriers would do even more damage — Brussels should stay calm," he said.

German carmaker Volkswagen agrees that a spiral of sanctions and countersanctions would see no winners in the end. Donald Trump has already threatened to impose higher import tariffs on cars, which would deal a serious blow to Europe's powerhouse.

Trade war or not?

Bernd Lange, who heads the European Parliament's INTA trade committee, is trying to combine a certain readiness to compromise with what he believes is the need to counter Trump's latest move with determination and resolve.

"Trump is attempting to blackmail us, and that's why we have to initiate an adequate response without provoking further escalation," he told German public radio. He suggested the EU should also raise import tariffs, but not to the same extent as the Trump administration. And that's what will most likely happen next.

Lange criticized German Economy Minister Peter Altmaier, who he said wanted to strike a deal with Donald Trump at all costs. "But no, we shouldn't negotiate a dirty deal under duress."

Altmaier himself said people should remain level-headed. He told German public broadcaster ARD he hoped a process of contemplation would kick in in the US given that many goods would become more expensive there with the imposition of higher import duties. The minister added that people should not be fooled by Trump's threats toward German carmakers, calling on Europeans to stand and act together. He also suggested possibly teaming up with Canada and Mexico, which have already announced countermeasures.

But not everyone is willing to stay calm and treat the trade spat as a purely economic conflict. French President Emmanuel Macron took a look back in history. "Economic nationalism leads to war, and that's exactly what happened in the 1930s," he said. Gabriel Felbermayr, the director of the ifo Center for International Economics, sees "a Cold War in EU-US trade relations" on the horizon.

EU foreign policy chief Federica Mogherini doesn't want to use the word "war" when speaking about EU-US relations. It's true that the EU has to defend its interests, she says, "but we're not at war with anyone."

German carmakers and EU fear US tariffs

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