vicious circle

EU imposes tit-for-tat steel tariffs, threatens retaliation for US car levies

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The EU isn’t rolling over. Source: Getty Images

A trade row between Brussels and Washington is growing after the European Union responded in kind to US tariffs on Europe’s steel and aluminum.

Additionally, the European Commission said on Thursday it is preparing further measures to retaliate against the United States if President Donald Trump imposes a levy on European cars and auto parts.

The latest announcement came as EU countermeasures on steel came into force. The Commission set a combined quota and tariff to prevent steel that the US is no longer importing from flooding European markets instead. The quotas cap the amount of steel that can be imported to the average of imports over the past three years for 23 steel product categories. Once the defined threshold is exceeded, a 25-percent tariff kicks in.

European Trade Commissioner Cecilia Malmström said in a statement that the EU had “no choice” given the threat of serious damage to European steelmakers and workers, but that otherwise, EU markets would remain open. “The US tariffs on steel products are causing trade diversion,” she said.

In its announcement on Wednesday, the Commission paved the way for the measure, emphasizing that the EU steel industry was in a fragile situation and vulnerable to a further increase in imports. Its statement noted that in addition, US tariffs reduce European steelmakers’ capacity to sell in the US, further increasing their vulnerability.

But this latest measure is unlikely to hurt the US, because it exports relatively little steel to Europe. That’s why the bloc had already imposed tariffs on €2.8 billion of US imports, including Jack Daniels bourbon and Harley Davidson motorbikes, on July 1.

And the spat could turn nasty if Washington extends its current tariffs, on EU steel and aluminum, to cover European cars and car parts as well, as Mr. Trump has threatened.

Juncker’s trash talk

If Washington does impose duties on cars, Ms. Malmström said the Commission was preparing a list of countermeasures. Speaking at a conference in Brussels, she added that she hoped an EU visit to Washington next week could help ease tensions.

“We are preparing together with our member states a list of rebalancing measures there as well,” the Trade Commissioner said. “And we have made that clear to our American partners.” Ms. Malmström added the US car sector was healthy and wasn’t calling for tariffs.

The EU’s backup plans include slapping import duties on €8.5 billion worth of US coal, pharmaceutical and chemical products, according to WirtschaftsWoche, a sister publication of Handelsblatt. That’s far more than the tariffs imposed so far by the bloc. The German publication stated that Brussels’ list of countermeasures could be ready by next month.

As the spat threatens to spiral, it marks a significant deterioration in trans-Atlantic trade relations. And it comes days after Mr. Trump called the EU a “foe” during his visit to the region. On Wednesday, European Commission President Jean-Claude Juncker said that Brussels wasn’t inclined to turn the other cheek. “We reacted to unilateral measures taken by the US administration and we’ll respond tit-for-tat to any provocation that comes our way,” he told reporters.

Mr. Juncker and Ms. Malmström travel to Washington to visit Mr. Trump on July 25. There, they will try to defuse the tensions that are gathering. But in the meantime, Brussels will be developing its countermeasures. “EU member states will decide their future strategy at the end of next week,” an EU diplomat told WirtschaftsWoche.

Bad for business

As the European steel tariffs came into force on Thursday, critics called the move counterproductive. “Safeguard tariffs do not make any sense in economic terms,” said Gabriel Felbermayr, director of the Ifo economics institute. “They reflect the strength of the steel industry’s lobby and will do more harm than good.”

According to his institute, no data confirms that Washington’s tariffs on European steel and aluminum, applied on June 1, triggered a flood of steel imports from third countries. Ifo also said the move weakens the WTO and the anti-Trump alliance, while enabling other countries to impose tariffs and thus generating a fresh round of protectionism. The victims, in Ifo’s analysis, are businesses which use steel, and consumers, because tariffs drive up the price of steel and aluminum.

This criticism was echoed by a lobby for European carmakers — the European Automobile Manufacturers Association. “These measures will be damaging to our competitiveness, as they will lead to steel price increases in the EU market, where prices are already very high,” said ACEA head Erik Jonnaert.

However, unsurprisingly, the European steel industry welcomes Brussels’ tariffs. “In this difficult situation, it’s good that the EU is showing it’s ready to protect its industry from the consequences of protectionism,” said Hans Jürgen Kerkhoff, President of the German Steel Federation.

The steel tariff is a temporary measure, to run a maximum of 200 days. Ms. Malmström said the Commission would continue to monitor the market situation. She promised a final decision “at the beginning of next year.”

Jean-Michel Hauteville is an editor with Handelsblatt Global. To reach the author: hauteville@handelsblatt.com.

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