Europe Is Running Out of Options to Hold Back Trump’s Aggression

(Bloomberg) --

As Donald Trump heads to a showdown with China’s Xi Jinping and the costs of his trade war start to become clear, the European Union is baffled by his determination to open a second front.

The U.S.’s estranged allies may not follow the logic of Trump’s offensive but they have become reconciled to persistent attacks from Washington, EU officials said. As Trump ramps up his effort to win a second term in 2020, they expect no letup. They are even getting used to fighting back.

“Should Trump get serious about his threats, we’re prepared,” Cecilia Malmstrom, the EU’s trade commissioner, told Germany’s Der Spiegel magazine this week. “Our list of counter measures is set.”

If talks at the Group of 20 meeting in Osaka and in the coming weeks fail to head off U.S. tariffs on Europe’s car industry, EU officials are confident that their response will be sharp enough to hit the president where it hurts.

Earlier levies on Harley Davidson motorcycles and bourbon whiskey specifically targeted Trump’s political base. Other measures against U.S. tech firms prompted members of Congress to write asking Brussels to back off, according to one official familiar with the contacts.

The problem is that Europeans can do little else.

The EU can hold its own in a trade dispute, but its locker is empty when it comes to hard-power tools needed at the sharp end of geopolitics. That means the EU has limited leverage to shape the U.S. agenda in hotspots like Syria, the Persian Gulf, or the South China Sea.

Natural Allies

Part of the struggle for EU leaders is that they feel they would be natural allies with the Trump administration against China, one official said. They share many of his grievances over Chinese practices, even if they’d favor a more diplomatic approach to Beijing.

Trump’s attacks on China over unfair trade and investment practices and of the rise of Huawei Technologies Co. in ultra-fast telecommunications networks echo European reservations. But instead of forging a united front against the communist government in Beijing, Trump has taken the Europeans to task over an even longer list of complaints that go beyond trade to defense spending and energy.

“Europe treats us worse than China,” he said in an interview with Fox News Wednesday, reeling off a familiar list of complaints about German defense spending a new gas pipeline to Russia.

So will Europe be the target of his next trade offensive?

“Oh yeah,” the president said.

Car Tariffs

The EU remains in the dark about whether Trump will actually follow through on a threat to hit European cars and auto parts with tariffs based on national-security grounds.

That would mean the end of the fragile truce struck last July in the wake of American duties on European steel and aluminum which provoked an EU response targeting firms in Trump’s heartland states like Kentucky and Wisconsin.

While the European official said that the EU believes some key figures within the Trump administration will argue against automotive tariffs, other factors suggest the threat remains real. In May, Trump said he shared the conclusion of a Commerce Department report that foreign automotive goods undermine U.S. national security and called for “reducing imports.”

Even Europe’s economic power is limited when it tries to shape events outside of plain vanilla trade issues.

Iran is the most glaring example.

Trump’s unilateral withdrawal from the 2015 nuclear accord has thrown a decade of diplomatic work into turmoil.

European capitals responded with an investment vehicle designed to circumvent U.S. sanctions and preserve some of the economic benefits of the deal for Tehran. But the dominance of the dollar and the threat of retribution from Washington means that no company has dared to use it.

EU leaders have been lamenting the limitations of their toolkit for years. But they are still left appealing to their common interests with that U.S., and that approach that has so far fallen on deaf ears.

“We’ll once again make an attempt and discuss the issue of multilateral cooperation,” German Chancellor Angela Merkel told lawmakers in Berlin Wednesday as she prepared to deal with Trump in Osaka.

--With assistance from Birgit Jennen.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net;Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Chad Thomas

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