Trade War Risk Alive as EU Talks Tough on Trump's Tariffs

(Bloomberg) -- European Union Trade Commissioner Cecilia Malmstrom said the U.S. has offered no signal it’ll prolong a waiver for the bloc from controversial metal tariffs, highlighting the persistent risk of a trans-Atlantic trade war.

Malmstrom said she’s still pressing U.S. Commerce Secretary Wilbur Ross for a permanent EU exemption from the levies on foreign steel and aluminum that President Donald Trump imposed last month on national-security grounds. He granted a waiver to the 28-nation bloc until May 1 and left open the possibility of a longer exclusion.

“I think the decision will be taken by the president personally,” Malmstrom said in an interview on Wednesday in Strasbourg, France. “Secretary Ross will make a recommendation and I hope he will recommend that we are excluded.”

The trans-Atlantic trade tensions come on top of U.S. commercial disputes with China and threaten to worsen the outlook for a world economy in its strongest upswing since 2011. The International Monetary Fund warned earlier this month that the global commercial order risked being “torn apart” by trade wars.

Trade War Risk Alive as EU Talks Tough on Trump's Tariffs

The EU, with 500 million consumers, is the world’s biggest trading bloc and its top two commercial partners are the U.S. and China. French President Emmanuel Macron and German Chancellor Angela Merkel are due to hold separate talks with Trump in Washington next week.

Malmstrom repeated that an EU failure to gain a longer exemption from the U.S. metal-import levies would lead to a tit-for-tat response by the bloc on 2.8 billion euros ($3.5 billion) of imports of American goods including Harley-Davidson Inc. motorcycles, Levi Strauss & Co. jeans and bourbon whiskey. She also repeated that, without a permanent exclusion, the EU would file a complaint to the World Trade Organization against the Trump administration.

In addition to the EU, the U.S. gave Canada, Mexico, Brazil, Argentina, Australia and South Korea five-week waivers from the tariffs of 25 percent on steel and 10 percent on aluminum. An exemption beyond May 1 for the whole group of countries will depend on the status of “discussions of satisfactory long-term alternative means to address the threatened impairment to U.S. national security,” the White House said on March 22.

“We’re all lumped together and that makes it so unpredictable,” Malmstrom said on Wednesday.

She said the EU is demanding an unconditional permanent waiver and, only if that is granted, would the bloc be willing to address other U.S. concerns about trans-Atlantic economic ties.

“There’s a lot of things that we could discuss,” Malmstrom said. “We will not engage in doing that in a more comprehensive way until we know that we have a permanent exemption.”

TTIP on Ice

Years of EU-U.S. negotiations to expand the world’s biggest economic relationship through a Trans-Atlantic Trade and Investment Partnership -- or TTIP -- have been frozen since Trump entered the White House in January 2017 with an “America First” agenda that has shunned multilateral commercial initiatives.

“Taking TTIP out of the freezer is not on the table,” Malmstrom said.

In that context, the EU faces political and legal constraints in addressing particular U.S. concerns about, for example, the bloc’s standard 10 percent tariff on cars -- higher than a 2.5 percent American duty on auto imports. The EU isn’t allowed under global-trade rules to reduce its levy on American cars unless the bloc either does so for WTO members as a whole or reaches a bilateral accord with the U.S. that covers “substantially all” two-way trade.

While the U.S. “keeps bringing the car issue up” and “that’s their focus,” Malmstrom said, “they have understood that we cannot just take the tariff away.”

The EU and U.S. could eventually focus on “low-hanging fruits in TTIP,” including areas of regulatory cooperation, as part of a “smaller” agreement, said Malmstrom. The bloc will refrain from starting such deliberations with Washington before receiving a permanent exclusion from the U.S. metal tariffs, which are “pure protectionism,” she insisted.

“We are not going to enter into any more permanent discussion or even scoping until we know that we are exempt,” Malmstrom said. “And that’s it.”

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