Europe, US lurch closer toward trade war
PARIS (Reuters) – With Italy in political turmoil, oil prices on the rise and North Korea tensions back on the burner, the last thing the global economy needs is a big lurch toward a trade war to further cloud the outlook.
But that is exactly what the Trump administration faces if it does not extend temporary exemptions on steel and aluminum imports from Europe that expire on Thursday.
The Europeans have opportunities for last minute diplomacy when the Organization for Economic Cooperation and Development holds its annual ministerial council in Paris on Wednesday.
For his part, French President Emmanuel Macron is due to make the case for breathing new life into the international economic order in a speech before the organization at the council.
But there are few signs of a US appetite for that ahead of talks between US Commerce Secretary Wilbur Ross and EU trade chief Cecilia Malmström on the sidelines of the OECD meeting.
“The question is how can we accept a situation where the Americans manage their dialogue with a rival like China the same way as with their allies, without special treatment for being a US ally,” a French diplomat said.
Even before Trump raised the specter of import tariffs, trade flows faced an increasing number of restrictions as economies struggled to get back on their feet following the global financial crisis of 2008-2009.
G20 economies have put up 1,400 new trade restrictions over the last decade compared to only 200 liberalization measures during the same period, according to an OECD tally.
OECD chief Angel Gurria said some governments were blaming globalization, and by extension the broader multilateral trading system, rather than fixing bad policies that have failed to address voters’ concerns about jobs going overseas.
“Globalization does not have a face, globalization does not have a neck from which you can hang it – so you use a proxy; the closest proxy is multilateralism,” Gurria told journalists.
There is little prospect for a quick fix in the trade standoff between Washington and its allies after the Trump administration opened a new front on Wednesday by also threatening tariffs on auto imports.
US Treasury Secretary Steven Mnuchin will likely take flak over trade threats from his counterparts in other Group of Seven economies when they meet in the Canadian Rocky Mountains on Friday and Saturday.
The prospect of a trade war is a particular concern in Europe where the economy is already losing steam, complicating the European Central Bank’s return to more conventional monetary policy as rising oil prices drive inflation higher.
“In this context, the ECB now faces a classic stagflationary shock, with higher inflation and slower growth,” European economist and Oxford Economics Chief James Nixon said in a research note.
“Nevertheless, we continue to believe the ECB will end quantitative easing this year in order to avoid the risk of second-round effects, at a time when there is clear evidence of increasing labour shortages,” he added.