European Union and U.S. Allies Prepare for a Trade War

Is it worth it to lose trade allies in order to protect domestic producers? Trump administration’s protectionist view firmly favors the latter.

The Trump administration, with a series of protectionist trade measure, has received much contention and anger from many of its allies including Canada, the European Uni, n and Australia. The high levels of new tariffs against steel and aluminum have left many countries feeling challenged and threatened.

Despite the fact the United States have engaged in good relations with its allies for the past decades, President Trump seems to be single-handedly reversing these trade efforts and challenging the norms of international trade.

This measure was proposed to protect the domestic producers of steel and aluminum. However, it has had more repercussions than that as Trump administration has leveraged this tariffs in order to receive concessions with Europe, Mexico and Canada in hope to revise the North American Free Trade Agreement.

On May 1, the administration will need to decide whether to allow for exemptions to the tariffs or not and to whom these exemptions will be granted to. The European Union has expressed its disillusionment in the administration for reaching an agreement. Chancellor Angela Merkel of Germany and President Emmanuel Macron of France, in conversation with Prime Minister Theresa May of Britain, have discussed the possibility of retaliatory tariffs in order to put pressure on the United States to give the EU tariff exemptions.

This tariff has brought forth great uncertainty in the global picture of international trade. While some countries are confident that they will receive an exemption, others are not so sure if their previous good relation with President Trump will be able to give them an escape from the tariffs.

The most important decision will be on whether to grant the European Union exemptions or not, since Europe and the US together account for almost one-third of the world’s total trade. Essentially, President Trump, with his protectionist view, is challenging the trade framework that has been established since the war and putting free trade into uncertainty.

Among the goods that will be hit the hardest, German cars are one of the major commodities that will be greatly impacted by these tariffs. On the other hand, China might be the biggest beneficiary in this case, as Chinese cars would become much more competitive and be granted much more access to the European market because of the tariffs.

The European commissioner for trade, Cecilia Malmstrom, expressed her discontent towards the United States’ threatening measure and stated that “we are willing as always to discuss anything. But we are not negotiating anything under threat.”

In response to the Europe’s frustration, Trump reciprocated the feeling of reluctance of negating with the EU: “The Union is very tough for us. They have trade barriers that are unacceptable.” The Europe’s stance on this is clear and firm, as David O’Sullivan, the European Union ambassador to the United States commented that if EU does not receive exemptions, “we are back to the need to pursue this with the World Trade Organization, including the possibility of imposing rebalancing counter-tariffs on equivalent U.S. exports.”

While the EU hopes to counter US tariffs with retaliatory measures and tariffs, the strategy seems to be not working as President Trump remains firm in his protectionist stance.