US stops short of cliff edge as Trump steps back on tariff plans | Business| Economy and finance news from a German perspective | DW | 22.03.2018
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US stops short of cliff edge as Trump steps back on tariff plans

The EU spent a tense week cajoling the US to step back from slapping tariffs on EU imports. Exemptions were finally granted at the last minute, saving face and avoiding a trade war, for now.

US Trade Representative Robert Lighthizer told US lawmakers on Thursday that the EU would be exempted from planned import tariffs on steel and aluminium, ending a week of intense speculation that some feared could trigger the first round in a trade war between the US and EU.

Trump ordered the imposition of duties on imported EU steel and aluminum last week and threatened to levy a tax on European cars if the EU did not remove what he called its "horrific" tariffs.

The measures — a 25-percent tariff on steel imports and a 10-percent tariff on aluminum imports — were set to enter force on Friday. Only Canada, Mexico and Australia had been granted exemptions.

Read more: Germany, the US and non-free trade

German Chancellor Angela Merkel and US President Donald Trump at the G20 Summit meeting July 7, 2017 in Hamburg (picture-alliance/ZumaPress)

German Chancellor Angela Merkel and US President Donald Trump at the G20 Summit meeting July 7, 2017, in Hamburg

In this together

European Trade Commissioner Cecilia Malmstroem and US Commerce Secretary Wilbur Ross said on Wednesday evening they would keep talking until they found a "mutually acceptable outcome" to the ongoing row over proposed US trade tariffs on EU products.

Malmstroem — who also met Lighthizer this week — said dialogue with the US had been "intense."

The root cause of the problems for steel and aluminum, she added, was overcapacity, a topic on which she noted the EU, US and Japan are cooperating.

"The EU shares the concern of overcapacity in the steel sector," Kinga Malinowska, the European Commission's Press Officer for Trade, told DW.

"The EU is not contributing to global overcapacity, but is facing the problems associated with it, just as the US is. The proposed US measures are not the right way to deal with this," she said. "We continue to be of the view that the EU should be exempted from the US measures on steel and aluminum without preconditions," she went on, adding that there was no justification for the US' measures on grounds of national security.

Existing EU and US tariffs

Existing EU and US tariffs

The European Commission has proposed that, if tariffs are imposed, the bloc should challenge them at the World Trade Organization, consider measures to prevent metal flooding into Europe and impose import duties on US products to "rebalance" EU-US trade.

The EU has already published a list of goods it could target, including sweet corn, peanut butter, orange juice, cranberries, bourbon, cigars, chewing tobacco, makeup, jeans, flat-rolled steel, leather shoes, sailboats and motorcycles.

Chancellor Angela Merkel said in Berlin on Wednesday that she could not rule out the use of "unequivocal countermeasures" by the EU and said Trump's planned tariffs were "unlawful" and "damaging." 

Trade war fears 

Since Trump's announcement,fears of a global trade war hadrisen, with both Europe and China and some US trade groups slamming the planned US tariffs on steel and aluminum imports. The German Ifo Institute warned, for example, of the risk of protectionism spreading to other sectors and countries as a result.

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The US going it alone

Ross told the World Economic Forum in January the US wanted to rejig world trade, but not go down the path of trade war. "We don't intend to abrogate leadership, but leading is different from being a sucker," he said.

"But," he went on, "we need to rethink global trading practices. The world has changed. What was perfectly appropriate in 1945 is singularly inappropriate now. There's no longer a need to subsidize China or Japan or Europe with our money." 

Ross has called for reduction in the US' $146-billion (€131-billion) trans-Atlantic trade deficit in goods, which is second only to the US $347-billion deficit with China.

German Chancellor Angela Merkel at the BMW auto assembly plant in Leipzig (Getty Images/S. Gallup)

German Chancellor Angela Merkel at the BMW auto assembly plant in Leipzig

Right intentions, wrong paths

Some in the EU agree that things could be improved. But, they say, not by raising tariffs and certainly not by doing so unilaterally.

"The EU is by no means the paradise for free traders she likes to think she is and this is especially true in comparison to the US," Felbermayr said. 

"So Trump is not entirely wrong when he complains about 'massive tariffs' on US products. But at the same time — albeit on a smaller scale — this complaint also applies to the trade hurdles of the US," Felbermayr said.

He cited tariffs on EU imports of US motorcycles at 6 percent, cars at 10 percent and grapes at 20 percent. "On the other hand, US tariffs are lower on average, but there are also tariff peaks in some products in the US," he said, adding that US exports to the EU in 2015 were burdened with $5.7 billion in tariffs, while much larger EU exports to the US resulted in around $7.1 billion in annual customs payments.

The port of Hamburg is one of Europe's busiest (Imago/Hoch Zwei Stock/Angerer)

The port of Hamburg is one of Europe's busiest

Hitting Germany where it hurts

The issue is also of particular concern in Germany, where the economy is driven by exports of automobiles and machinery. German exports took up a whopping 46 percent of annual economic output in 2016, with the figure for the US at 12 percent, according to World Bank data.

Germany would be the worst hit EU member, having to pay new tariffs on steel and aluminum exports of $1.7 billion a year. Germany's total exports of steel and aluminum to the US amount to $3.1 billion in 2016, while total EU exports were about $6.5 billion.

"Trump's actions seem quite arbitrary," Felbermayr added, noting that the largest steel and aluminum exporter to the US is Canada, with exports of about $14.8 billion a year, of which, according to Trump, $10.1 billion would be affected. "But Canada is to be exempted, as well as Mexico, whose steel and aluminum exports are significantly higher than Germany's,” he added. 

"The good news for Germany and Europe is that the tariff-affected portion of the steel and aluminum industry, which has a 4.3 percent US export share, is not particularly dependent on the US," Felbermayr added.

"In the final analysis, the planned tariffs would affect around 1.6 percent of total EU exports to the US. From a German perspective, only 1.5 percent of exports would be touched. If the affected exports are compared with the total export volume of Germany and the EU across all importers, the share of affected exports is reduced to less than 0.15 percent," he said.

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TTIPing point

Several players are pushing for a revival of the stalled free trade agreement, known as the Transatlantic Trade and Investment Partnership (TTIP) as a way to resolve the row.

European Council President Donald Tusk last week, for example, urged Trump to "make trade not war."

"When the president complains of too many tariffs between the EU and the US I can understand him. We are not happy either," Tusk, who chairs summits of EU leaders, said. "That is the reason why a few years ago we started trade negotiations with the US. We should go back to these talks now," he said.

"Resuming TTIP talks could help to reduce tensions between the US and EU over trade," Linda Yueh, Adjunct Professor of Economics at the London Business School, told DW.

"TTIP has the potential to reduce tariffs and also open up the EU and US markets more consistently by liberalizing trade in the services sector, which is the biggest part of both the American and European economies. The challenge will be to convince President Trump that imposing tariffs adds a tax to trade while a free trade agreement such as TTIP could actually level the playing field."

Germany's trans-Atlantic coordinator Juergen Hardt has also pushed for a quick resumption of negotiations on TTIP.

"An ambitious trans-Atlantic free trade agreement is a project that could revive our relations and would be of great benefit to both sides of the Atlantic," Hardt told DW.

"In my view it should go beyond the single issue of trade, like TTIP. It should cover topics currently important to both sides, like jobs and growth. That would probably help to increase acceptance," he said.

TTIP was launched under the Obama administration in 2013 but stalled in 2016 amid political opposition in the EU. One of Trump's first acts in office was to pull the US out of the Trans-Pacific Partnership with Japan and 10 other economies, but the administration has not yet done the same with TTIP, despite the president's public criticism of it.

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