tit for tat

As EU plans retaliatory tariffs on US, Germany fears the fallout

Going nowhere fast. Source: Reuters

The European Union will impose retaliatory tariffs on €2.8 billion ($3.3 billion) of US products ranging from Harley-Davidson motorcycles to bourbon whiskey starting July 1. The move comes after President Donald Trump last week ended the exemption for the EU for his punitive tariffs on steel and aluminum imports.

The EU action parallels those by Mexico and Canada, which also now are subject to the higher tariffs. Compared to American goods exports exceeding $140 billion a month, the planned retaliatory tariffs are pinpricks. But they will hit individual exporters hard and are designed to bring political pressure on key US lawmakers. Harley-Davidson motorcycles are manufactured in House Speaker Paul Ryan’s district, while Senate Majority Leader Mitch McConnell’s home state of Kentucky is the main producer of bourbon.

The escalating trade tensions are likely to dominate the G7 summit meeting this weekend in Canada. The American’s are isolated in the face of universal condemnation from other participants for its unilateral actions, which they view as illegal under international law. The EU has also filed a complaint with the World Trade Organization, seeking further retaliation.

“We must be extremely careful not to slip into a spiral of protectionism.”

Joachim Pfeiffer, economic spokesman, CDU

In her first question-and-answer session in German parliament, Chancellor Angela Merkel acknowledged that there would be “contentious discussions” at the summit but said it would useless to paper over divisions.

Ms. Merkel is feeling the pressure, too. The head of the influential machinery-makers’ association VDMA, Carl Martin Welcker, urged the government to push harder in favor of free trade. “German trade policy today does not do sufficient justice to the importance of exports for the German economy and thus to the prosperity of our country,” he said.

Europe’s trade commissioner, Cecilia Malmström, coordinated the response with national governments. She did not specify whether the tariffs would be imposed all at once, or step by step. If the WTO finds in favor of the EU with its complaint, further tariffs on €3.6 billion of imports could be levied starting in 2021.

The worry among German politicians and business leaders is that Mr. Trump will retaliate in turn and the dispute will escalate into a full-fledged trade war. “We must be extremely careful not to slip into a spiral of protectionism with ever new punitive measures and countermeasures,” Joachim Pfeiffer, the economic policy spokesman for Ms. Merkel’s Christian Democrats in parliament, told Handelsblatt.

Looming over the trans-Atlantic debate like a sword of Damocles is Mr. Trump’s threat to impose a punitive 25 percent tariff on automobile imports. This would hit German industry particularly hard as the country’s automakers exported nearly 500,000 vehicles to the US last year. Ms. Malmström warned last week that such a step would do “enormous damage” to the European economy.

European officials said they wanted to keep open the lines of communication with Washington. However, Ms. Malmström emphasized the EU is not ready to discuss specific trade relief, such as the lower EU tariffs on imports of US motor vehicles.

Dana Heide covers economic affairs for Handelsblatt in Berlin. Till Hoppe is a Brussels correspondent. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the authors: dheide@handelsblatt.com and hoppe@handelsblatt.com.

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