How Europe Should Respond to Trump on Trade

(The Bloomberg View) -- European Commission President Jean-Claude Juncker cannot be looking forward to his meeting today with Donald Trump. He knows there’s little hope of making the U.S. president see sense on trade. (Trump confirmed on Twitter this week that “tariffs are the greatest.”) But Juncker can avoid making a bad situation worse, and with luck even suggest a way out of this mess.

The EU and the U.S. have been edging toward a trade war since Trump ordered tariffs on Europe’s exports of steel and aluminum in May. The EU responded with tariffs of 2.8 billion euros ($3.3 billion) on U.S. exports of goods including bourbon whiskey and Harley-Davidson motorcycles — a cautious reply that stopped well short of escalation. Trump is now threatening to widen the dispute with new tariffs on EU exports of cars — which amounted to more than $40 billion last year.

Trump says American manufacturers are being treated unfairly. The U.S. applies a 2.5 percent duty to cars imported from the EU, compared to an EU tariff of 10 percent on U.S. cars. More generally, he objects to the EU’s overall trade surplus with the U.S. — just over $100 billion in 2017. Last week he also lashed out at the European Central Bank, which he accused of manipulating the euro, and at the European Commission, over its $5 billion antitrust fine against Google.

Most of these charges are misconceived. The prevailing pattern of tariffs — with the U.S. imposing higher tariffs on some goods and the EU on others — is the result of earlier negotiations. The EU isn’t cheating. The overall trade balance reflects macroeconomic factors, not trade barriers. And the ECB is simply doing its job. Granted, the Fed is now raising rates while the ECB continues to keep them low, which serves to push the dollar higher — but that’s because Europe’s recovery started later and is weaker than the U.S. expansion even now. On Google, Trump may have a point — but bundling this issue with the others gets him nowhere.

Though Juncker won’t be able to persuade Trump of any of this, he shouldn’t adopt the U.S. president’s flawed thinking by threatening new and larger retaliation. Nor should he surrender: Rewarding Trump for his tariffs-are-great approach would only encourage more of the same. An all-out trade war with the U.S. would be enormously damaging and could put Europe’s fragile recovery at risk.

So what can he do? While refusing to negotiate under threat of new tariffs, Juncker should say that the EU shares Trump’s avowed aim of free and fair trade — and is ready to enter into new talks to devise a comprehensive free-trade agreement with the United States. Trump wants a level playing field? So does Europe, Juncker should say. Let the two sides start work on that forthwith. And there’s plenty more for them to cooperate on. Lower the regulatory barriers that interfere with U.S.-EU trade in goods and services; address chronic overcapacity in the global steel industry; modernize the World Trade Organization so it can act more quickly to resolve disputes.

Chances are, Trump won’t buy it. He’s no fan of the Transatlantic Trade and Investment Partnership, which pushed in this direction and stalled two years ago. But that was somebody else’s idea. The opportunity for rebranding might appeal, and senior members of the administration have said they’re open to the possibility of a new initiative. Trump could seize on this to claim that his strong-arm strategy is working — to promote the free and fair trade he says he wants. That would be a win for Trump, for the U.S., and for Europe as well.

Editorials are written by the Bloomberg View editorial board.

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