U.S. Seeks ‘Reset’ in Transatlantic Ties as Tariff Threat Looms

(Bloomberg) --

U.S. Secretary of State Michael Pompeo will seek to put relations with the European Union on a fresh footing when he meets the bloc’s new leadership in Brussels this week, after the two sides failed to build on a fragile trade truce struck last year.

The prospect of punitive tariffs targeting European cars later this year adds to a series of disputes ranging from Middle East policy to 5G networks and climate change, which have strained the world’s most powerful political alliance. The U.S. and the EU have sought to strike a new accord to diffuse trade tensions, though very little headway has been made amid disagreements over whether agriculture should be included in the talks.

The goal of Pompeo’s meetings with Charles Michel and Ursula von der Leyen -- presidents-elect of the European Council and European Commission, respectively, is to “reset the relationship, turn the page and create an atmosphere where we can actually have some productive work together,” said Gordon Sondland, U.S. envoy to the EU.

“We’ve reached impasses on a lot of things and sometimes when you reach impasses you need to turn the page and start over and with fresh leadership,” Sondland said in an interview Monday.

Pompeo is also scheduled to meet EU Parliament President David Sassoli and Josep Borrell, who has been nominated to be the EU’s foreign policy chief.

President Donald Trump and outgoing Commission President Jean-Claude Juncker reached a political agreement in July 2018 to negotiate a slash in industrial tariffs between the two regions and suspend a U.S. threat to impose tariffs on European auto exports. Scant progress has been made in discussions, with the U.S. focusing more of its attention on the trade war with China.

The EU has identified 35 billion euros ($38 billion) of U.S. goods it would hit with retaliatory tariffs should Trump follow through with his autos threat. A 25% U.S. levy on foreign cars would add 10,000 euros to the sticker price of EU vehicles imported into the country, according to the Brussels-based commission.

‘Horrific’ Barriers

A reset would mark a significant change in relations between the two regions, with Trump repeatedly hectoring the bloc over its trade practices. The U.S. president previously called on the EU to drop its “massive” and “horrific” barriers on U.S. products and told reporters at the Group of Seven meeting in Biarritz, France, this month that the EU is “very tough to make deals” with.

Sondland said an improved relationship would help out in other areas, such as the disagreement over how to bring Iran back into the international fold.

“We’ve been clear with respect to Iran that we have a different strategy and tactic than that of the EU toward bringing Iran into compliance,” Sondland said. “The less we argue about our strategy and tactics, and the more we discuss the outcome, I think the more productive these outcomes will be.”

Low-Hanging Fruit

“The message to be conveyed is there are things we can do to relieve the tension fairly quickly, which is going to require some flexibility on the part of the EU in essentially opening up some of the markets that aren’t currently open or as open as they should be to American manufacturers,” Sondland said. This “will allow some of the low-hanging fruit to be picked by both sides so that we can get some quick agreements on some of the easier issues.”

While Sondland signaled “cautious optimism” that progress may be achieved to avert a fully fledged transatlantic trade war, he warned that tariffs targeting European cars may still be in the cards. “Tariffs are still very much a tool in president Trump’s tool kit in order to bring about some significant changes in our trade imbalance,” he said.

Trump is due to decide by November whether punitive levies against European autos are warranted on national security grounds. “The deadline is still the deadline,” Sondland said. “But again what we’re trying to do is not start a trade fight, we’re trying to resolve the problems.”

--With assistance from Bryce Baschuk and Viktoria Dendrinou.

To contact the reporters on this story: Nikos Chrysoloras in Brussels at nchrysoloras@bloomberg.net;Richard Bravo in Brussels at rbravo5@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Iain Rogers, Raymond Colitt

©2019 Bloomberg L.P.