Today, the United States upgrades its tariffs to European products of 25% on imports of steel and 10% on those of aluminum, as announced by US Secretary of Commerce Wilbur Ross. Canadians and Mexicans, other allies close to the United States and major trading partners, will be treated the same way. As an immediate reaction, the European Commission decided today to refer this matter to the World Trade Organization (WTO) in order to implement “rebalancing” counter-measures. Indeed, for the EU, these unilateral US tariffs are unjustified and in contradiction with the rules of the WTO. President of the Commission, Jean-Claude Juncker, has defined those measures as a “protectionism pure and simple”. However, the European response might take time. On 18thMay, the Commission already notified the WTO of a list of 332 US agricultural, industrial and steel products on which the EU would impose tariffs of 25% from 20thJune, which could rise to 50% from March 23rd, 2021.
Since March, the EU had been granted a provisional US tariff exemption. But as negotiations had not made enough progress according to the US Secretary of Commerce, its extension beyond June 1stwas not justified. However, the US decision seems arguable as Europe is not the source of global overcapacity in the two targeted sectors. Therefore, the US strategy is not to find a definitive settlement on steel and aluminum but to keep Europeans under constant pressure to finally get the US trade deficit back on track. The United States has sought to use the threat of trade restrictions as leverage to obtain concessions from the European Union.
Indeed, the impact would be far more important for the European economy, especially the German industry. According to the German Institute of Economic Research (IFO), 25% taxes on cars would push up the bill to 5 billion euros, that is 0.16% of German GDP.
European Union faces a dilemma on the arduous balance between defending its interests, without further damaging the transatlantic relationship. With the repudiation of the Iranian nuclear deal, its trouble with North Korean leader Kim Jong-un, Donald Trump multiplies the evidence of his unpredictability. This US decision also reflects its inability to compete, therefore jeopardizing its own industry.
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