EU, USA and the trade conflict



For the time being, the European Union has been spared the great trade conflict with the United States. Following the "deal" between Jean-Claude Juncker, President of the European Commission, and US President Donald Trump, the threat of protective duties on cars and car parts from the EU is off the table. The protective duties on steel and aluminum will remain.

However, their consequences for the EU are manageable. This has nothing to do with Junker’s special negotiating skills. Trump is working to capacity with the escalating trade conflict with China. In addition, domestic political pressure on the president to refrain from imposing the threatened tariffs increased, also in view of the close interdependence of the European and American car industries. In the end, both sides agreed on a classic "no deal". Trump renounced his already unwanted car tariffs and the EU promised to buy more soybeans and liquefied petroleum gas from the United States in return - without making any concrete commitments. Imports of American soybeans are rising anyway due to the consequences of the trade dispute between the United States and China; the future of liquefied gas imports depends solely on the development of market prices.

The EU has been spared a tensile test. Contrary to all its demonstrative unity, it was always divided on how to react to Trump's attack on the German and European economies on the one hand and the international trade order on the other. The Federal Government, led by Economics Minister Peter Altmaier, relied on appeasement. It tried to appease the American President by unilaterally, and badly coordinated offers in the EU to reduce tariffs on American cars. The European Commission and the French government, however, were in confrontation. They argued that Trump understands the "flexibility" demanded by Germany in dealing with its threats as a weakness and will then only demand further concessions in transatlantic trade. They therefore relied on the imposition of counter duties on various American products in order to hit Trump's voters directly and thus drive up the cost of Trump. The public focus on brands important to Trump's supporters such as Harley-Davidson and products such as bourbon and peanut butter in the steel tariff dispute disguised how powerful the overall list of counter duties was.

The Commission also put forward another argument in favour of why the EU should impose high counter tariffs: the international trade regime. Since the tariffs on steel and cars imposed and threatened by Trump on the grounds of national security violated the rules of the World Trade Organisation (WTO), Europeans would also have to react vigorously to defend the Geneva organisation, which does not have its own means of reaction.

In the end, both approaches were wrong. The action of the federal government actually promised little success. It is hardly to be expected that Trump would have reacted with clemency to unilateral European concessions. The offered reduction of EU car tariffs would - if the tariffs had not been lowered for all other trading partners of the EU (India, China) - have also clearly violated the rules of the World Trade Organisation. Above all, however, the government, with its policy geared solely to the interests of the German car industry, has smashed some porcelain in Brussels. It is not without reason that trade policy is one of the few policy areas that fall fully within the competence of the EU. How else would the single market work? However, this also means that trade policy in the EU must always be preceded by a balance between the different European interests. The German government, cautiously put it, failed to do so.

But the Commission's course was also dangerous. Responding to tariffs with countervailing duties was, and is, of course, likely to escalate the conflict. That was not and is not in the interests of the American or European economy. Moreover, the argument that the imposition of counter duties is necessary to protect the international trade order is not misleading. The opposite is true. It is not said, for example, that the customs duties imposed by the Trump are in any way contrary to international trade rules. The fact that Trump justifies the duties with the protection of national security is clearly constructed and a very broad interpretation of the relevant World Trade Organisation exemption rules. Whether this is a violation of the rules would first have to be clarified before the WTO in Geneva. It is therefore also true that the EU and other countries have appealed to the WTO. The imposition of counter duties, on the other hand, is a delicate matter. The EU justifies this with the fact that the US tariffs are obviously purely protective duties, which allows countermeasures under WTO rules. However, as I have already said, it is not clear whether the WTO classifies US duties as purely protective duties - which is why the United States is also taking action against these counter duties in Geneva. It is conceivable, for example, that the WTO will eventually classify the EU's counter-tariffs as a violation of trade rules. The EU would have done its credibility as a defender of the multilateral trade order a disservice. The EU would therefore have been better to wait for a WTO ruling on US steel tariffs before imposing counter duties.

What does this mean for Germany and the EU in their dealings with Trump? After all, the transatlantic trade conflict can flare up again at any time. The American president remains unpredictable. Ultimately, there is only one thing left for the EU: to continue the trade policy it has pursued in recent years. In concrete terms, this means relying on the multilateral trade order and, because this is currently only possible to a limited extent, pushing ahead with bilateral free trade agreements. There was no shortage of interested partners even before the Trump era. But its trade policy also plays into the hands of Europeans. The EU's recently concluded largest free trade agreement with Japan would probably not have come about in this form without Trump. Concluding talks with the South American Mercosur states, Argentina, Brazil, Uruguay and Paraguay may be difficult. But with Australia and New Zealand, other interesting trading partners are already lining up. This will have no short-term effect on the conflict with Trump. In the medium term, however, the Americans will feel the negative consequences of Trump's trade policy - and this should encourage the American President to give in rather than all the steps taken by the Europeans - whether they curry favour or engage in confrontation.