As Trump plays with fire, EU should lead on global trade

Frankly Speaking

Picture of Shada Islam
Shada Islam

Managing Director at New Horizons Project

There’s nothing like a trade war – or even the possibility of one – to get the juices flowing: tit for tat tariffs, restrictions on imports and tough talk of retaliation and sanctions. All those shrill headlines and endless to and fro of tantalising tweets. What more could a red-blooded leader ask for?

US President Donald Trump may believe that “trade wars are good and easy to win” but his plans to slap tariffs on steel and aluminium imports have triggered strong fears of a bruising global trade war.

The initial 10 and 25% tariffs on aluminium and steel may “go up or down, depending on the country, and I’ll have a right to drop out countries or add countries”, says the President. No surprise then that governments are desperately scrambling to secure exemptions and special favours.

For the moment, Canada and Mexico are safe. Will EU and Japanese exporters also get off the hook? And will Britain, as a “special partner” try and go it alone? India is seething despite the recent Delhi-Washington honeymoon. South Korea has warned that the US move could impact on efforts to secure a landmark nuclear deal with North Korea. And all eyes are on China, the country whose steel over-capacity appears to be the real reason for the President’s ire.

The EU and national European governments must continue to press Washington on the folly of the tariffs

But beware: the US President can wax and wane on the tariffs, changing his mind as he wishes. China may be the enemy today, but friend and partner tomorrow. Ditto for Europe. Good mates one day, rivals another. If Europeans complain too much, levies could be slapped on their exports of cars. Life is complicated.

The EU’s response so far has been per usual. EU Trade Commissioner Cecilia Malmström has warned of EU countermeasures to include tariffs on US oranges, tobacco, bourbon and motorcycles. There could be EU duties or quotas on imports of steel and aluminium to prevent metal shipments being diverted from the US to Europe. The tariff hike could be challenged at the World Trade Organisation (WTO). And of course, there are efforts to try and get exemptions for European exporters.

The EU is right to prepare for a fight. But a global steel war is in no one’s interest. Transatlantic relations, although volatile at the moment, need to be kept on an even keel. And as underlined by Seoul, given the current geopolitical disorder, confrontation over trade can have dangerous spill overs.

The EU and national European governments must continue to press Washington on the folly of the tariffs. But this is also the moment for a more proactive EU drive to bolster the increasingly fragile global trading system.

The G20 meeting in Buenos Aires this week offered a first opportunity for strong collective commitment to counter economic protectionism and dissuade the US from imposing the planned tariffs. German Chancellor Angela Merkel’s telephone conversation with Chinese President Xi Jinping on reinforcing multilateral trade cooperation and working on solutions for excess steel capacity is a welcome move. This time, however, Beijing must make sure it actually walks its anti-protectionist talk.

As America retreats, the world is moving on ‒ the EU can take the lead in maintaining the global trade system

Here’s the thing: Washington is no longer the only show in town. Across the world, countries are taking trade initiatives which sidestep the US. Japan’s recent success in securing the Trans-Pacific Partnership trade accord despite US withdrawal from the deal is an encouraging sign of Tokyo’s leadership on trade. Asian countries are pressing ahead with the less ambitious but still-important Regional Comprehensive Economic Partnership (RCEP).

The EU-Japan free trade agreement is almost done. An EU-Mercosur trade agreement is equally important. Efforts should also be made to reopen difficult trade talks with India. And Malmström is right to underline that an EU-ASEAN free trade agreement would send a “strong signal to the world” of Europe-Asia commitment to trade liberalisation.

The EU should also work with like-minded partners to shore up the WTO’s dispute settlement system following Washington’s decision to block the appointment of judges, a move which would bring the appellate body to a standstill next year.

Significantly, fears that the US offensive on dispute settlement could wreck the multilateral trading system, have prompted several WTO members to look for an appropriate alternative mechanism for settling disputes.

Trump could get his trade war in the end. Encouragingly, however, as America retreats, the world is moving on. The EU can take the lead in maintaining the global trade system. The US may not want to play ball but many other countries are ready to do so.

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