European Union considers bitter pill to end Trump’s trade war

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Europe comes to the bitter realization that it will have to make a once unthinkable concession to end the trade war that US President Donald Trump sparked and which his successor Joe Biden is continuing.

Many Europeans had hoped that Biden would lift Trump’s steel and aluminum tariffs, but he did not, despite the fact that the tariffs were introduced in 2018 on the highly questionable justification that they were necessary to protect “national security”. Lowering the shield of Trump’s tariffs would expose Biden to setback from politically sensitive steelmaking communities like those in Ohio and Pennsylvania.

Under Trump, the EU accused Washington of bullying for trying to force Brussels to accept self-imposed export restrictions on steel and aluminum in order to end tariffs. But Europeans are now admitting that they may have to swallow a compromise under Biden that is uncomfortably similar to the one they so adamantly rejected under Trump.

“Everyone wants that to go away because it is a holdover from Trump and stands in the way of better relations between the EU and the US,” said an EU trade diplomat, summarizing the general mood of the peace complaints in Brussels. Behind the conciliatory tone is a new diplomatic format – the Trade and Tech Council – in which Washington and Brussels try to leave the antagonism of the Trump era behind to work together in areas such as robotics, microchips and artificial intelligence. Its first meeting took place on 09/29.

hit in the face

Under Trump, Brussels argued that only a complete removal of tariffs would satisfy the EU, claiming the tariffs were an illegal slap in the face of an ally. Former EU head of trade Cecilia Malmström called In 2018 the EU would “stand up to the tyrants”.

Her successor Valdis Dombrovskis, on the other hand, sounds a bit more pragmatic, as he is facing a race against time. If no solution is found by December 1, the EU’s retaliatory tariffs would double. That would damage transatlantic relations and potentially undermine the format of the Trade and Technology Council.

Brussels also understands the pressure Biden is facing from the steel industry, unions and part of his party, especially ahead of the upcoming midterm elections.

“Of course there are very difficult questions, especially what you can actually do – and here I speak a bit like an American – to keep your steel industry or your construction industry alive in the face of this overcapacity and not to punish the Europeans at the same time,” said Rupert Schlegelmilch, who is responsible for EU-US relations in the European Commission’s commercial department at a recent event.

An agreement would also pave the way for the US and EU to jointly respond to the steel surplus from China, which both governments have recognized as distorting global steel prices and undermining their domestic producers. It may even lead to a “Green Steel Alliance” where both sides work towards a greener steel industry.

Quota or no quota?

Summer is Dombrovskis made a first openingtelling the FT that a possible solution may not remove all obstacles. This was seen as an expectation management towards the steel-producing countries of the EU.

During his visit to Washington DC, Dombrovskis hinted at a more specific compromise scenario.

“We’re also looking at the agreements made by the US, including Canada and Mexico. And certainly, perhaps elements from these agreements that can also be useful in the EU case. So, in essence, it’s not something we would not like to look at. Of course we have to assess each situation for ourselves, ”he told reporters.

In the 2019 Canadian and Mexican cases, the US has I Agree suspend tariffs on steel and aluminum in exchange for having its trading partners monitor imports. If imports rise above historical levels, the US can reintroduce tariffs.

In theory, these are not export restrictions because there are no immediate tariffs or quotas, but in practice it is a form of restriction and self-discipline as the US retaliates once imports reach a certain level.

By even mentioning the Mexico and Canada option, Brussels is trying to avoid the fate of Brazil, South Korea and Argentina, which have received permanent tariff exemptions in exchange for accepting quotas for exports of steel and aluminum.

Washington initially offered Brussels a kind of tariff quota, according to Bloomberg. People with knowledge of the negotiations confirmed this step to POLITICO. This allows countries to export a certain limit on a product and impose higher tariffs on products above that threshold.

This system is much stricter than the surveillance system. But in both scenarios there is a limit to what the EU can export to the US in order to avoid tariffs.

Lighthizer’s ghost

With that in mind, the spirit of Robert Lighthizer, the US trade representative under Trump, still haunts EU-US trade relations.

Lighthizer’s legacy will be remembered primarily for his high-risk battle plan to smash China. But his trade war was broader and tied to his obsession with America’s yawning deficit. The aim was to revive the strong arms tactics he used as a deputy USTR against Japan in the 1980s to get allies like Mexico, Canada, Japan and the EU to restrict their own exports.

The idea of ​​such voluntary export restrictions, which are a form of self-censorship of trade, is a clear red line for the EU. Dombrovskis repeated in Washington that he wanted a solution that complied with the rules of the World Trade Organization (WTO). Voluntary export restrictions are prohibited by the WTO agreement on protective measures and are therefore a no-go for Brussels.

A form of surveillance that allows the EU controlled access to the US market with certain restrictions does not violate WTO rules, but it is a step in the same direction.

Interests of the steel industry

For Dombrovskis, such a compromise makes sense in the broader scheme of transatlantic relations. But will the EU states, especially those who are furious, and the steel industry that harasses them accept such a compromise?

Much is at stake: EU industry directly employs 330,000 people, and when you include indirect and induced jobs in other sectors, it creates, according to a. 2.6 million jobs Commission report.

European Aluminum said in a statement that it is “very concerned about the prospect of an agreement that replaces one trade-distorting measure, a tariff, with another distortion such as a quota or tariff quota”. The steel lobby Eurofer either wants an exemption from the 232 national security tariffs or a similar stabilization mechanism in the EU.

Steel producing countries have reversed decisions before. Dombrovskis, for example, was original against an extension of Steel fuses imposed in response to American tariffs, but eventually extended the import restrictions.

Officially, the line of the steel-producing countries is clear: All tariffs must be abolished.

But when negotiations are in progress, don’t show your hand. When pressured, diplomats prepare for all scenarios, even for tariff quotas. Everything will depend on the end result and how high the thresholds will be. For example, the limits in the US’s initial offer were not attractive enough for Brussels.

However, there is political will to reach an agreement, said several EU trade diplomats. The diplomat first cited in this article added: “There is great motivation to solve this, but the solution must be satisfactory.”

Leonie Kijewski, Sarah Anne Aarup and Steven Overly contributed to the coverage.

This article is part of POLITICSPro Trade’s premium policy service. From transatlantic trade wars to the UK’s future trade relations with the EU and the rest of the world, Pro Trade gives you the insight you need to plan your next move. E-mail [email protected] for a free trial.

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