EU sounds trade-war alarm as Trump points gun 'at our head'

The European Union has warned about the costs of a trans-Atlantic trade war while bracing for one to erupt after the US signaled it will reject the bloc’s demand for an unconditional waiver from metals-import tariffs.

“A trade war is a losing game for everybody,” Belgian Finance Minister Johan Van Overtveldt told reporters in Sofia, Bulgaria, on Saturday. “We should be very careful about this, we should stay cool when we’re thinking about reactions but the basic point is that nobody wins in a trade war so we try to avoid it at all costs,” he said ahead of a meeting with his peers from the world’s largest trading bloc.

Donald Trump’s administration is asking Europe, Canada and other allies to accept quotas in exchange for an exemption from steel and aluminum tariffs that kick in May 1, when a temporary waiver expires. “We are asking of everyone: quotas if not tariffs,” Commerce Secretary Wilbur Ross said on Friday.

This puts the EU in the difficult position of either succumbing to US demands that could breach international commerce rules or face punitive tariffs. Forcing governments to limit shipments of goods violates World Trade Organization rules, which prohibit so-called voluntary export restraints.

The demand is also contrary to the entire trade philosophy of the 28-nation bloc, which is founded on the principle of the free movement of goods.

EU waiver

The White House last month temporarily shielded some trading partners including the EU from the duties, at 25% for imported steel and 10% for aluminum on the grounds of protecting national security. The president ordered US Trade Representative Robert Lighthizer to negotiate with countries seeking permanent exemptions.

While WTO rules foresee the possibility of countries taking emergency “safeguard” measures involving import quotas for specific goods, such steps are rare, must be temporary and can be legally challenged. The EU is demanding a permanent, unconditional waiver from the US tariffs.

Trump’s demands to curb steel and aluminum exports to 90% of the level of the previous two years are unacceptable, an EU government official said. The official, who asked not to be named as talks are ongoing, signaled the EU’s response would depend on the level of the quotas after which the punitive tariffs would kick in.

So far, South Korea is the only nation to be spared from the duties, after reaching a deal to revise its bilateral free-trade agreement with the US. To avoid the steel tariff, South Korea agreed to limit US shipments of the metal to about 2.7 million tons a year.

The country also agreed to double to 50 000 the number of U.S. cars that could be imported without meeting local safety standards. Such unilateral concessions could be legally challenged.

‘Make America great’

“In the short run it might help them solve their trade balance but in the long run it will worsen trade conditions,” Bulgarian Finance Minister Vladislav Goranov said in Sofia. “It will create conditions for - let’s not use tough words like trade war - but it will worsen the conditions and nobody will be a winner from that.”

“The tools they’re using to make America great again might result in certain mistakes because free world trade has proven to be the best solution for the development of the world so far,” Goranov said.

Meanwhile, the EU has made clear it won’t be intimidated. French President Emmanuel Macron said this month that “we won’t talk about anything while there’s a gun pointed at our head.”

German Chancellor Angela Merkel said she discussed trade disputes with Trump during talks at the White House on Friday and that she failed to win a public commitment to halt the tariffs.

“The president will decide, that’s clear,” Merkel told reporters at a news conference alongside Trump. “We spoke about the state of negotiations and our respective assessments. The decision lies with the president.”

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