The EU bowed to the inevitable on Wednesday (12 March) by firing a volley of returning fire on US imports after president Donald Trump formally started his much anticipated global trade war.
The EU Commission will impose tit-for-tat tariffs on US exports after the Trump administration confirmed 25-percent import tariffs on EU steel and aluminium that will target goods worth $28bn. [€25.7bn]
Harley-Davidson motorcycles, Jack Daniels and Levis jeans will be among the iconic US products that get more expensive.
The EU executive says that, while disappointed, it has little choice but to respond in kind.
On Wednesday morning, commission president Ursula von der Leyen repeated that “tariffs are taxes” and would hurt business and consumers.
“In a world of uncertainties, we should not burden our economies,” she said, but defended the EU’s response as “strong and proportionate”.
For his part, EU trade commissioner Maros Sefcovic expressed “deep regret” at the US tariffs, adding that EU-US trade relations were ”well balanced”.
Though Trump administration’s tariffs will apply globally, China, India and Canada are likely to be the main losers from them, with the EU as collateral damage. Sefcovic said on Wednesday that US officials had made clear that the EU was not the problem during talks with Trump’s top economic officials in Washington last month.
But with the US administration pursuing “unjustified and damaging” tariffs, the EU had no choice but to respond in kind, said the trade commissioner.
The UK had hoped to be exempted following warm words between Trump and UK prime minister Keir Starmer — who has sought to use London’s post-Brexit status to position himself as a bridge between the US and Europe.
Starmer said on Wednesday that he was “disappointed” but has ruled out retaliatory measures for the moment, with officials in London saying that they hope to broker a trade deal with the Trump administration.
Few expected the EU to turn the other cheek to US tariffs.
Commission trade officials told reporters on Wednesday that their response is about trying “to show strength” while leaving the door open for a negotiated compromise. However, they have not ruled out taking a case to the World Trade Organization, accusing the US of breaking the ‘non-discrimination’ principle that is enshrined in the WTO’s rules and are “going to keep our options open”.
There is a precedent since Washington and Brussels had a minor trade battle during Trump’s first term. In 2017, the US imposed tariffs on steel and other goods worth $6.3bn, with the commission responding with duties of the same value.
On the campaign trail ahead of his victory in last November’s US presidential election, Trump promised an ‘America First’ trade policy that would hit countries with tariffs that Trump believes are treating the US unfairly.
“What was $6.3bn back in 2017 is no longer $6.3bn today”, said a commission official on Wednesday, pointing to the UK’s exit from the EU and lower EU goods exports to the US.
"We cast the net a little bit wider,” said the official, who added that the EU measures will eventually target goods worth around €22.5bn after consultations with businesses and national governments. The official noted that the EU’s measures could “in principle...go all the way up to €26bn.”
The commission is also looking to specifically target US exports from states dominated by Trump’s Republican party in a bid to “try to ensure that there is understanding and pressure within the American system.”
Precisely what new products will be targeted by the EU tariffs is not yet clear, though the commission says that some wood products from Georgia, Virginia and Alabama will be targeted. The commission will present a proposal to EU governments later this month following consultations on a 99-page document of products published on Wednesday. A further announcement will be made on 2 April.
The timeline for what comes next is reasonably clear. The EU measures start on 1 April and will fully apply from 13 April. The US tariffs came into force on Wednesday (12 March). Washington has set up a review mechanism in May when its businesses will be able to suggest to the US government to add new products.
The early lesson of US tariffs on Canada and Mexico is that Trump sees trade duties as a weapon to force countries to change their policies on migration control and drug trafficking.
In the EU’s case, Trump is known to be exercised by the EU’s 10-percent duties on US vehicles which are significantly higher than the US duties on EU cars and, he says, result in too few American cars being driven on Europe’s roads.
However, the commission insists that it will not be intimidated.
“These tariffs are unfair. They're unproductive, and it's also not very productive to now start negotiating about removing the tariffs,” said the official.
“What we are looking for in negotiations is a productive discussion about creating value to what is the largest trade and investment relationship in the world, which is the transatlantic relationship,” said that the official, who noted that the EU has trade agreements with 76 countries around the world, while the US has 20 such trade agreements.
Should the tariffs remain in place for a lengthy period there is little question that they will do significant economic damage.
Economists believe that the EU’s €800bn ‘ReArm’ project to massively increase defence spending and military capacity following the US’s veiled threats not to protect Nato's eastern border could prompt an industrial boom across the bloc.
Others have warned that the US could face a recession of up to three percent over the coming year. Trump has said that the American economy faces a “period of transition”.
However, European Central Bank president Christine Lagarde warned on Wednesday that “maintaining stability in a new era will be a formidable task”.
“Trade fragmentation and higher defence spending in a capacity-constrained sector could in principle push up inflation,” said Lagarde.
“Yet US tariffs could also lower demand for EU exports and redirect excess capacity from China into Europe, which could push inflation down.”
Canadian officials have briefed that they will impose levies worth close to $20bn on US goods, while China has promised to take “all necessary measures” in response.
“There's no reason and justification to put tariffs on the European Union,” a commission trade official told reporters on Wednesday. “We're an ally. We're not an adversary.”
That may have been true in the past but is, for the moment, no longer.
Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.
Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.