trade war Trump pulls back from the brink

The EU will continue to be excluded from punitive US tariffs on steel and aluminum, with experts calling on the EU to open trade talks with Washington.
Trade is one of the hottest issues in Trump's presidency.

The US on Tuesday said it would continue to exempt the EU from punitive tariffs on steel and aluminum after an initial exemption expired April 30. The extension gives EU officials an opportunity to push the US for a permanent deal that both sides see as fair.

“I personally think we should make an offer, a clear one, to create a basis for negotiations,” German economy minister Peter Altmaier said on Deutschlandfunk ahead of the US decision. Many have called for the EU and the US to rethink their economic relationship and level a playing field that includes uneven tariffs on everything from cars to agricultural products.

The EU on Monday hinted that it had already decided on retaliatory tariffs but refused to divulge details. The EU's trade commissioner, Cecilia Malmström, said the EU had prepared a three-tier response, including an appeal to the World Trade Organization (WTO), and the imposition of tariffs on selected American imports, including whiskey and motorbikes.

In talks with Ms. Malmström, US Commerce Secretary Wilbur Ross has demanded that the European Union and other affected countries impose voluntary reductions in steel and aluminum exports to the United States. “We are asking of everyone: quotas if not tariffs,” Mr. Ross said this weekend.

The German business community, fearful of the economic impact of a trade war, is strongly in favor of new talks.

The EU says quotas are unacceptable, claiming that WTO rules do not allow them. More generally, the European Commission wants to preserve the rules of the international trading system. They fear that Mr. Trump’s administration wants to further weaken the WTO, in order to assert American interests in bilateral deals.

Last week’s visits to Washington by Ms. Merkel and Mr. Macron seem to have changed little. Ms. Merkel spent three hours in talks with Mr. Trump on Friday, emerging to announce: “The president will decide, that is very clear.” Mr. Trump grinned.

In talks with the EU, Mr. Ross has demanded that the 28-nation trading bloc present detailed guidelines for trade talks by the May 1 deadline. In principle, Ms. Malmström is prepared to hold talks on reciprocal tariff reductions, but refuses to have substantive talks until Mr. Trump’s threatened tariffs are permanently removed from the table. The US announcement late on Monday extended the exemption from tariffs by a month, to June 1. Mexico and Canada also got a one-month extension, while Washington said it had reached agreements in principle with Argentina, Australia and Brazil.

The German business community, fearful of the economic impact of a trade war, is strongly in favor of new talks. But there is considerable support for Ms. Malmström’s insistence on not rewarding American bullying. Speaking to Handelsblatt, Volker Treier, head of foreign trade at the Association of German Chambers of Industry and Commerce (DIHK), said starting talks with threats would create a dangerous precedent.

Ms. Malmström is insisting on a new mandate for any new talks.

To conform to WTO rules, any new trade deal between the United States and the EU has to cover around 90 percent of tariff lines, including both industry and agriculture. In return for lowering tariffs, the EU is likely to demand the opening of US public tenders to European firms.

However, talks would take months to prepare, and the European Commission would require a new mandate from the EU’s 28 member states. An existing mandate, granted to negotiate the TTIP trade deal with the Obama administration, would not cover new talks. The TTIP, which stands for the Transatlantic Trade and Investment Partnership, has been on ice since mid-2017.

Ms. Malmström is insisting on a new mandate for any new talks. But while Berlin is keen to quickly begin negotiations, there is less enthusiasm in other European capitals. There are fears that new talks could stir up the kind of popular protest seen during the TTIP negotiations, particularly in France, Austria and Germany. With European parliament elections due in May 2019, few parliamentarians will be keen to reopen the Pandora’s Box of trans-Atlantic trade.

In Germany, any new talks could present particular problems for the center-left Social Democrats, which forms part of Ms. Merkel’s coalition government, but whose rank-and-file were opposed to the TTIP.

No surprise then, that the SPD was trying to manage expectations this weekend. “Talks toward an EU-US trade deal only make sense if they are in keeping with the social, environmental and consumer protection standards outlined in the coalition agreement,” Bernd Westphal, the SPD parlimentary spokesperson on trade, told Handelsblatt. That would be a very tall order.

Till Hoppe is a Handelsblatt foreign correspondent, based in Berlin. Thomas Sigmund is bureau chief in Berlin, where he directs political coverage. Klaus Stratmann covers energy policy and politics for Handelsblatt in Berlin. To contact the authors: [email protected], [email protected], [email protected]