Trump's trade war

Europe fights back on steel, aluminum and cars

Italy Harley Davidson
These modern gladiators may have problems finding a new chariot. Source: AP

When Europe’s top bureaucrat responded to President Donald Trump’s angry promise on steel and aluminum tariffs, his choice of words could have come from the American president himself, a man known for lobbing his own shallow pejoratives.

“Stupid” is what Jean-Claude Juncker, the president of the European Commission, called Mr. Trump’s vow to impose tariffs of 25 percent on steel and 10 percent on aluminum imported into the United States. “We can also do stupid. We also have to be this stupid,” Mr. Juncker said.

He was speaking in Hamburg, Germany, home to the third-largest container port in Europe and a linchpin of the Continent’s import and export businesses. There, Mr. Juncker outlined the European Union’s proposed responses to Mr. Trump’s provocation: First, it would impose its own tariffs on iconic American products, including motorcycles, whiskey and oranges.

These products were not chosen arbitrarily. They all come from politically germane districts: Harley-Davidson motorcycles are assembled by constituents of Paul D. Ryan, the speaker of the House of Representatives; whiskey, or more precisely Kentucky bourbon, is distilled in the home state of Mitch McConnell, the Senate majority leader; and oranges are from Florida, an important swing state come election season.

No one can afford a trade war.

Unable to make its case through conventional channels, the European Union was forced to take a more circuitous route: By targeting the goods and putting pressure on the voters who make them, it hoped to influence the politicians who represent them—and who can ostensibly steer American trade policy.

Over the weekend, Mr. Trump shot back, threatening to slap an import tariffs on European cars. “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US. They make it impossible for our cars (and more) to sell there,” the president tweeted from his Mar-a-Lago golf resort.

The tweet was evidence of the president’s willingness to double down when confronted by trade allies on his protectionist move. In 2017, Mr. Trump had referred to Germany as “bad, very bad” for its millions of cars sold in the US. The war of words between Mr. Trump and the EU could lead to some serious pressure on the German carmarkers. Their stock prices are feeling it already. BMW stock was down more than 2 percent by the end of trading on Germany’s blue-chip DAX index. Daimler’s shares and the preferred shares of VW also dipped, both down by more than 1 percent.

A trade war between the US and Europe, said Bernhard Mattes, head of the German car lobby organization VDA, “has to be avoided at all costs,” adding that both sides only stand to lose.

05 p08 Steel import-export balance-01

European companies export around €5.5 billion ($6.8 billion) worth of steel to the US, making the bloc one of the country’s most important suppliers. A new tariff, however, would mainly hit German manufacturers, who make up for €1.7 billion of that larger total and could be completely pushed out of the market, according to the German Steel Federation.

In all, the European Union is prepared to retaliate against €2.8 billion worth of American trade—the same amount of European steel and aluminum that would be affected by Mr. Trump’s threatened import tariffs. One-third of that would hit agricultural products, while the remaining two-thirds would be split between steel and aluminum and other goods.

Punitive tariffs are only one point of Europe’s three-pronged response. The bloc could also move to shield European metal workers from a surge in cheap imports. It may even bring a case against the US at the World Trade Organization. Neither of these options would be without consequences.

“No one can afford a trade war,” European Commission Vice President Jyrki Katainen told Handelsblatt in an interview. But he added: “We have no other option. If more government subsidized dumping products force their way into Europe, we’ll have to protect our interests.”

If Europe imposes its own protective tariffs to guard against an influx of Chinese or Korean steel, it could become the target of retaliatory measures from Beijing or Seoul.“Europe would then be fighting a battle on two fronts,” Mr. Katainen said.

When it comes to cheap steel flooding global markets, the European and American perspectives don’t diverge that widely. Brussels shares Washington’s reservations about government subsidies in countries like China, but Mr. Katainen and other European politicians have noted the bloc would prefer to address the issue through the WTO. The Trump administration, for its part, has shown no such willingness and has even gone so far as to undermine the integrity of that organization by blocking the appointment of new judges.

Furthermore, even if the European Union did make a formal complaint against the US at the WTO, there is no guarantee the Trump administration would respect the outcome. This could further weaken the organization and endanger the very rule-based trade system upon which Europe relies (and would very much like to continue relying).

“The situation has worried us for some time,” Mr. Katainen said. “The new measures only make things worse.”

Handelsblatt editors Lukas Bay, Til Hoppe, Moritz Koch, Annett Meiritz, Torsten Riecke, Klaus Stratmann, Kevin Knitterschneidt and Sah Hua collaborated on this story. To contact the authors: riecke@handelsblattgroup.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!