Trade War Gets Serious

Germany fears protectionist spiral as US follows through with steel tariffs

Steel workers return to work at U.S. Steel Granite City Works after a two-year idle in Granite City, Illinois
These American steel workers might get more business, but at what cost? Source: Reuters

It may not have been a surprise, but the response was nevertheless swift: German political and business leaders reacted with alarm to the United States government’s decision to impose tariffs on European steel and aluminum imports from midnight Thursday.

“The United States decision is fundamentally wrong and extremely dangerous. We are at risk of a protectionist spiral,” said Joachim Pfeiffer, economic spokesperson for the Christian Democratic Union (CDU), Angela Merkel’s center-right party. Achim Post, a spokesperson for the center-left Social Democrats, the CDU’s coalition partner, called the US move a “body blow for free and fair trade.”

Business leaders also responded with dismay. Ingo Kramer, president of the Confederation of German Employers’ Associations, said the European Union must show a “decisive, united and strong reaction.” The EU should seize the opportunity to assert itself as a firm supporter of free trade, he said.

On a visit to the Ukraine, German Foreign Minister Heiko Maas said escalation was in no-one’s interest, but EU counter-measures were unavoidable. Chancellor Angela Merkel’s spokesperson Steffen Seibert made clear the tariffs were not compatible with WTO rules and would be challenged. Germany, meanwhile, would continue to stand up for free trade around the world, he said.

“We will not be blackmailed.”

Cecilia Malmstöm, EU trade commissioner

Earlier Thursday, the US Secretary of Commerce announced that the US would impose tariffs from midnight on steel and aluminum imports from the European Union, Mexico and Canada. He said he hoped negotiations would continue to find solutions to outstanding trade issues.

Since President Donald Trump announced possible tariffs in March, the European Union has said it is willing to hold talks to settle points of disagreement, but would not negotiate under threat of sanctions. It has demanded permanent exemption from any new tariffs.

The United States has repeatedly suggested that the EU should impose voluntary export quotas on steel and aluminum production. The EU has refused, saying these measures would be in breach of World Trade Organization (WTO) regulations.

Crisis talks to avert an open trade war continued until the last minute before the announcement. Mr. Ross and Celia Malmström, the EU trade commissioner, discussed the situation Wednesday in Paris, but failed to come to agreement.  Ms. Malmström repeatedly emphasized the determination of the 28-nation trading bloc. “We will not be blackmailed, and we will not negotiate with a gun to our heads,” she said.

Before the latest developments, the EU confirmed that its response would be threefold. It plans to immediately draw up a list of US products for retaliatory measures, including yachts, whiskey, orange juice and jeans.

In addition, the EU will take a case against the United States to the WTO’s dispute resolution mechanism. It believes the new tariffs are in clear breach of WTO rules and rejects US claims that they are necessary on national security grounds.

Finally, the EU will examine measures to protect its own steel industry against the dumping of cheap steel by other countries now also excluded from the US market, including Russia and Turkey.

According to the German steel industry association, the European market could see an increase of up to 50 percent in steel imports. WTO rules allow for short-term protectionist measures against spikes in imports. The EU plans to take final decisions on its response by the end of June.

Various Handelsblatt correspondents contributed to this story. Brían Hanrahan adapted the story for Handelsblatt Global. To contact the authors: cermak@handelsblatt.com

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