EU is pushing back against Trump’s ‘bullying’ to renegotiate trade deals to favour the US
At the start of this month, US President Donald Trump announced he would impose import tariffs on steel and aluminium.
Many domestic industries and businesses seemed bewildered, and expressed concern that this would artificially inflate prices for such a key raw material.
And in the ensuing fortnight, America’s trading allies overseas desperately – and fruitlessly – sought clarity from the Trump government about the applicability of these tariffs, and the process for winning possible exemptions.
I spent much of that period in Brussels, where the prospect of a 25 per cent tariff on European-produced steel had prompted an admixture of consternation, confusion and ultimately frustration among executives, national ministers and European Union policymakers.
The bloc’s trade commissioner Cecilia Malmstrom posited that the proposals amounted to “threats” and “bullying” and ultimately flew to Washington to argue with her American counterparts that the US pretext for imposing the tariffs – national security – was without merit given the depth and strength of the transatlantic alliance.
It soon became clear to European officials that there was no formalised path to winning exemption, besides aggressive, public push-back and a certain amount of horse-trading behind closed doors. Eventually, the European Commission’s arguments seemed to pay off, and at the very last minute EU steel exports were exempt, alongside those from Argentina, Australia, Brazil, Canada, Mexico and South Korea. This meant that as of Friday morning about two-thirds of the world’s steel production could still land at America’s ports without facing any fresh duties. It was unclear what impact such a comparatively minor measure of protection for domestic production could in turn have on American firms that Mr Trump had long championed.
US Steel, for instance, had envisaged the creation of 500 new jobs soon after the initial tariffs were announced, claiming it would by late summer allow it to reopen a blast furnace and part of a shuttered steel-making plant in Illinois. If domestic prices for steel did not improve significantly, the margin arguments for that capital investment might vanish.
However, in a typically “Trumpian” move designed to retain White House leverage (compare the regularly reoccurring threat to decertify Iran’s compliance with the Obama-era nuclear pact every six months), even the exemptions for allies were announced as temporary, with a May 1 expiration date.
Over the weekend the South Koreans seemingly judged they had bigger fish to fry, given Washington’s apparent willingness to engage in talks with Pyongyang to end the North’s nuclear weapons programme. And so Seoul – the world’s third-largest exporter of steel to the United States – has agreed to reduce those exports by 30 per cent, essentially agreeing to a quota in return for an indefinite exemption from tariffs.
Mr Trump had previously critiqued a US trade deal with South Korea. Now it seems he has managed to force through alterations to the agreement known as Korus, including improved albeit largely hypothetical access for US car makers to South Korean consumers, after threatening tariffs that many trade experts believe fall foul of WTO rules.
For a multilateral system this of course constitutes a bad precedent, and even the South Korean trade minister said he foresees further trade risks so long as Mr Trump remains in power.
All of this will be instructive for Europe, where leaders such as Emmanuel Macron, the French president, have said the American government would not force the trading bloc back to the table to renegotiate trade agreements through blackmail.
Mr Macron, Germany’s Angela Merkel and Ms Malmstrom have all said Europe would be more than happy to participate in trade-related discussions with Washington that are conducted in good faith, and in accordance with WTO rules.
But the bloc would not do so – in the words of Mr Macron last week in Brussels – “with a gun pointed at our head”.
But, given Mr Trump’s previous criticism of the trade “imbalance” between the US and Europe, and his focus on the behaviour of, for instance, German car makers, we should not be surprised if US Trade Representative Robert Lighthizer and US Commerce Secretary Wilbur Ross seek to reopen discussions about specific European export products.
China, which now faces more than $60 billion of separate US tariffs and has finally announced its own response to the steel tariffs, is clearly an entirely separate story, and perhaps the one that market participants will follow most closely of all.
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European leaders have said the American government would not force the trading bloc back to the table through blackmail