Rosa BalfourSenior fellow in the Europe Programme at the German Marshall Fund of the United States
Europe has quickly prepared countermeasures to respond to new U.S. tariffs on steel and aluminum imports, but it is not ready to manage the internal and international consequences of an escalation toward a trade war. This is not just a matter of rules and tariffs; geopolitical games are being played out, too—and the EU is not particularly adept at these.
Without claiming to prophesize the ultimate goals of U.S. trade policy, one clear target does appear to be Germany’s trade surplus. So Europeans will have to prepare to offer solidarity to a country whose trade policy has not been beneficial to several EU countries and whose industrial sector—which will be hardest hit by the tariffs—has been poisoning European air (for more, read about the Dieselgate scandal).
Solidarity is a must but it will not come easy. Externally, Washington seems determined to corner the EU over China’s global role. EU member states have different stakes in their relations with China and its investments in Europe, making it hard to devise short-term tactics. The longer-term game is complicated by what appears to be U.S. protectionist wrath: the transatlantic relationship remains the most important partnership, but what price are Europeans willing to pay to protect it?
Fraser CameronDirector of the EU-Asia Centre
Europe is ready for a trade war but should do everything possible to avoid one. With the departure of Gary Cohn, Trump’s chief economic advisor, there are few sensible voices on trade in the White House. The EU may be in for the long haul.
EU leaders—including Merkel, May, and Macron—need to agree a common line to take and stick to it. There is a risk that the Brits might try to secure an exemption from the new U.S. tariffs, which would be a blow to EU solidarity and weaken the chances of making Trump reverse his decision. It would also be bad politics in the context of the Brexit negotiations.
Much will rest on Macron’s shoulders during his state visit to the United States next month, as he probably has more influence over Trump than any other EU leader.
The EU also needs to secure the support of all like-minded countries to strengthen the WTO, especially the dispute settlement mechanism, which is under attack from Washington. Trump cannot be allowed to destroy the multilateral trading system.
Uri DadushSenior fellow at the OCP Policy Center and nonresident scholar at Bruegel
As the world’s most prominent example of international economic integration and a large exporter, the EU is an unwilling trade warrior. The challenge is how to respond to Trump’s extraordinary invocation of national security to protect the U.S. steel and aluminum industry against America’s allies, while keeping the peace. As we know from a sad history, it is difficult to keep the peace if your partner is determined to wage war. But the EU must try. If, after allowing time for negotiation, the United States will not exempt the EU from these tariffs, then a proportional and judiciously applied retaliation is the best course, combined with initiating a case at the WTO.
There are risks that the dispute will escalate. But the greater risk is that leaving Trump’s tariffs unanswered will only reinforce his position against the powerful constituencies within the United States that oppose his protectionism and will militate against his reappointment. Unfortunately, irrespective of how the EU responds, there is also a distinct possibility that Trump’s policies will lead to a temporary or permanent fracturing of the WTO. It is therefore also important that the EU prepare contingency plans for a WTO-163—that is, a WTO without the United States.
Patrick LeblondAssociate professor in the Graduate School of Public and International Affairs at the University of Ottawa
Yes, Europe is ready for a trade war with the United States. The EU cannot avoid responding to the Trump administration’s unjustified steel and aluminum tariffs. It has to stand by both industries and defend world trading rules.
First, Europe should use the fact that it is a major market for several U.S. export products and services to force the United States to negotiate an exemption for the EU as well as develop a joint plan for dealing with China, which is apparently Trump’s main target. The dialogue that began with the U.S. Trade Representative last week is thus good news. Second, if no exemption is forthcoming, the EU should take the United States to the WTO’s dispute resolution process. However, this process takes time—at least 18 months. If the negotiations under the WTO process do not lead anywhere, then the EU should impose retaliatory tariffs on a variety of targeted imported goods from the United States, to put political pressure on the Trump administration via Congress as the midterm electoral process gets under way.
In short, the EU should use all the tools of trade diplomacy to ultimately get the United States to negotiate an exemption, if not abandon the steel and aluminum tariffs altogether.
Moisés NaímDistinguished fellow at the Carnegie Endowment for International Peace
No nation, regardless of how strong its economy or how large its domestic market, can easily absorb an external shock caused by a major drop in its exports resulting from its trading partners’ protectionism.
But we are not there yet. The U.S. tariffs on steel and aluminum imports are more likely to spark a minor trade skirmish than an all-out trade war. Even its smallish overall impact is already being watered-down by exceptions and waivers.
It is important to keep in mind that this unilateral move by President Trump was not just against America’s trading partners, but also against his own domestic allies, and even parts of his senior staff. Gary Cohn, Trump’s top economic adviser, resigned; pro-trade Republicans in Congress are up in arms; the private sector is mobilizing armies of lobbyists; and the labor unions’ support has been invisible or anemic.
As in all conflicts, the main risks are overreaction and escalation. Europeans should protest, threaten retaliation, and fight for exceptions and other measures that dilute the impact of Trump’s tariffs. But those reactions have to be measured and contained.
When dealing with Trump it is important to remember that the noise and the bombast surrounding his policy pronouncements are prone to exceed their actual impact. In this particular case it is obvious that, so far, his anti-trade rhetoric is running far ahead of his trade policy.
Both Trump and the EU will do well to heed the warning of one of the world’s most powerful leaders: “No one can win a trade war.” That was Xi Jinping speaking in Davos in 2017.
Jonas Parello-PlesnerSenior fellow at the Hudson Institute
The EU isn’t seeking a trade war with the United States. If it did, both sides would lose. But the EU will be hit by Trump’s import taxes on steel and aluminum if an exemption isn’t negotiated. It should be.
The EU consists of U.S. allies with no detrimental effect on national security—which is the backdrop for the United States’ decision. Thus, let’s cross our fingers that EU Trade Commissioner Cecelia Malmström can squeeze out an exemption. Otherwise, unfortunately, the EU might have to hit back. It has already hinted at specific products like bourbon, peanut butter, and Harley-Davidsons. If pushed hard enough, the EU is also fundamentally about “EU First.”
If an exemption can be sorted, then Trump’s radical trade instincts could be channeled into a more productive trade-and-investment reckoning with China. In this endeavor, the United States and the EU, joined by like-minded partners, should come together in a coalition to “save free trade” from China’s norms-undermining practices, including market distortive overcapacity production, IPR-theft, heavy use of subsidies (which remain an unfulfilled WTO-accession commitment), export credits, and technology transfers. This is where the real fight for the soul of free trade should take place—and mainly inside the WTO. Not among allies.
Marietje SchaakeMember of the European Parliament
The EU is ready to protect our interests when needed, but the priority should be to avoid a trade war, or to even hint as much, especially with our strongest ally. In fact, the EU and United States should share the ambition of challenging unfair trade practices, such as steel dumping by China, as open societies and economies.
While we need to deal with overcapacity, the proposed U.S. tariffs are not the answer. Abusing the national security argument is especially misguided toward NATO allies. Americans and Europeans have built the WTO and the rules-based global system together. Trump can hardly expect China to adhere to the international rules he so publicly mocks and undermines.
Trade wars cannot be underestimated. They are not “easy to win” and only know losers. It is therefore tragic that tweets with fierce allegations fly so frivolously from President Trump’s account.
Divide-and-conquer tactics, including suggestions that individual EU member states will be invited to negotiate with Trump, are despicable. The EU acquis is clear; bilateral deals are not allowed.
European unity is essential to stand up to the erratic messages from Washington, politically and diplomatically where possible and with tariffs on U.S. goods when needed.
Christopher SmartSenior fellow in the Geoeconomics and Strategy Program at the Carnegie Endowment for International Peace
President Trump’s decision to impose tariffs on U.S. steel imports is both economically illiterate and geopolitically disastrous. And yet there may still be a bright side for Europe.
Adding costs to primary manufacturing inputs like steel and aluminum will ripple through the U.S. economy in damaging ways even before any European retaliation. Global uncertainty over potential escalation will deliver a second blow through dampened demand and financial market volatility.
Overall the damage to the transatlantic relationship may be limited given all the other areas of political and economic cooperation that endure, but this skirmish will have a winner and it may well be the European Union.
In the United States, industrial and regional interest groups are already hard at work trying to water down or delay the implementation of the president’s measures. In Europe, meanwhile, Trump has arguably done more to unify the factious continent than the Warsaw Pact. This may give DG Trade much greater leeway to choose how—and how long—to retaliate against the U.S. tariffs. If Washington launched this trade war, Brussels looks better placed to end it.
Federico SteinbergSenior analyst for International Economics at the Royal Elcano Institute
After Trump’s unjustifiable protectionist announcement, the EU had no choice but to stand by the rules-based multilateral trading system. It could have adopted a low profile to try to avoid the adverse economic impact of Trump’s steel and aluminum tariffs (which is what China seems to be doing so far). However, Europe felt the moral obligation to protect the system, in the conviction that if it was capable of stopping Trump’s mercantilist nationalism, others—including Canada, Japan, and South Korea, the Mercosur countries, Mexico, and even China—would join forces with it.
The EU hopes that a concerted effort by the major trading powers to protect the WTO system will suffice to defend the indispensable rules of globalization against the United States’ aggressive unilateralism. With this attitude, the EU underscores that it is a normative power, more inclined to act based on values and principles than just interests. It remains to be seen if the liberal international order can survive if the United States actively tries to destroy it—and whether the EU can become its new leader, at least in the economic sphere.
Stephen SzaboSenior fellow at the American Institute for Contemporary German Studies
Trump is right that the United States can survive a trade war better than most major players. The EU ran a €121 billion trade surplus with the United States in 2017. And, according to the latest World Bank data, exports make up 43 percent of the EU’s GDP in contrast to only 12 percent for the United States.
Europe should heed Donald Tusk’s advice that trade wars are very easy to lose. The current Trump tariffs will inflict only minimal damage on European countries. What Europe has to worry about is getting into an angry spiral with an unpredictable world leader that could spill over into the security policy area. Europe will also look a little ridiculous targeting Kentucky bourbon and Harley Davidsons to get at the leaders of the House and Senate, both of whom are opposing Trump’s tariffs.
There is no way of knowing how serious or long term these actions are. It is better for the EU to wait out this current storm before making any immediate moves and, in the meantime, continue expanding trade agreements in Asia and elsewhere.
Pierre VimontSenior fellow at Carnegie Europe
The EU has some experience of trade wars with former U.S. administrations. Confrontations over the airline industry and hormone-treated beef are two recent examples. Europe knows the rules of the game, and the speedy delivery by the Brussels bureaucracy of its draft retaliation measures after President Trump announced new import duties on steel and aluminum imports is testimony to the EU’s craftsmanship in this field. Yet, such manoeuvers are not all that different from children’s behavior when they play in the schoolyard.
Is this the right course for the EU to follow? Trump’s ill-conceived initiative is driven by his domestic political agenda. Its aim seems not only to protect the U.S. steel industry but also to launch a cumbersome offensive on all the controversial trade issues that Europeans and Americans have been discussing for a long time. By responding in the same manner, the EU risks triggering an escalation to higher import duties and additional precautionary restrictions that will impact trade across the world.
The EU’s interest is not to launch itself into a doomed-to-fail trade war, which will end—at best—in a zero-sum deadlock. Rather, it is to bring the debate back on to a more rationale track, through multilateral discussions in the WTO or by resuming the TTIP talks, where both sides can hopefully strike some mutually beneficial accord.
For Europe, the real challenge is not to take up the gauntlet from Trump’s controversial move. It is to convince the U.S. president there are more responsible ways to settle trade disputes.