Trump Told by EU to Brace for Retaliation Over Metal Tariffs

(Bloomberg) -- The European Union mounted a last-ditch push to stop U.S. President Donald Trump from triggering tariffs on foreign steel and aluminum, vowing a “firm” response and warning of widespread damage from a trans-Atlantic trade war.

“I truly hope that this will not happen,” EU Trade Commissioner Cecilia Malmstrom told reporters on Wednesday in Brussels. “A trade war has no winners.”

The EU intends to hit a range of U.S. goods with punitive tariffs in retaliation for Trump's pledges to impose a 25 percent duty on foreign steel and a 10 percent levy on imported aluminum. His plan is based on a national-security argument that Malmstrom called “alarming” and “deeply unjust.”

In response to the White House's steel measure, the EU is targeting 2.8 billion euros ($3.5 billion) of imports of U.S. goods including Harley-Davidson Inc. motorcycles, Levi Strauss & Co. jeans and bourbon whiskey. In addition to such iconic brands, the American products that would face a tit-for-tat EU tariff of 25 percent range from steel bars and motor boats to t-shirts and orange juice.

‘America First'

The EU has grown increasingly exasperated with Trump's “America First” agenda, viewing it as a threat to the multilateral trade order that the U.S. played a leading role in building after the Second World War.

Trump has already frozen years of talks on a trans-Atlantic market-opening agreement, pulled out of a trans-Pacific trade accord and demanded changes to a 24-year-old commercial pact among the U.S., Canada and Mexico. That has left European policy makers unabashedly defending the liberal economic order that the EU stands for and pushing for free-trade deals from the Pacific rim to Latin America.

EU President Donald Tusk said he'll add global trade to the agenda of a March 22-23 European summit because of concerns about U.S. policy. Speaking in Luxembourg on Wednesday, five days after Trump defended his tariffs plan by saying “trade wars are good, and easy to win,” Tusk retorted: “The truth is quite the opposite: trade wars are bad, and easy to lose.”

Political voices across Europe have echoed critics in the U.S. urging Trump to drop his metal-tariffs plan, saying it would cause more economic harm than good and would fail to address the root problem of overcapacity in China.

“Trade promotes prosperity if it's based on exchange, on working together,” Brigitte Zypries, Germany's outgoing economy minister, said in a statement. “The current signals from the U.S. fill me with concern.”

While steel may be important for Trump's voter base, the industry has political importance of its own to the EU, which was born out of the European Coal and Steel Community in the 1950s. The European industry also continues to have economic clout, generating annual sales of around 170 billion euros, accounting for more than 1 percent of EU gross domestic product and directly providing over 300,000 jobs.

Steel Exports

Trump's metal-tariffs plan would affect EU steel exports valued at 5.3 billion euros and aluminum exports worth 1.1 billion euros last year.

“It will put thousands of European jobs in jeopardy and it has to be met by a firm and proportionate response,” Malmstrom said. “This would be damaging to trans-Atlantic relations but potentially also to a global rules-based trading system.”

The plan has sparked opposition within Trump's Republican Party, prompted the resignation of his top economic adviser -- Gary Cohn -- and created the risk of retaliation across the globe. It has also opened the door to a slew of complaints to the World Trade Organization, which has never ruled on a dispute involving trade restrictions justified on national-security grounds.

Beyond imposing retaliatory tariffs on U.S. goods, the EU is weighing filing a WTO case against the Trump administration in cooperation with other countries and introducing “safeguard” measures to prevent steel shipments from other parts of the world to America from being diverted to the European market and flooding it.

Malmstrom expressed confidence that Europe would win any WTO verdict. She said the EU would have a “very strong” legal argument against American metal tariffs based on national-security considerations because Europe is a defense ally of the U.S. and European steel exports to the country are overwhelmingly for non-military uses.

“Politically it is hard to understand, but I think also legally it will be very hard for the Americans to make that case,” Malmstrom said.

Last week, the European Steel Association said only around 3 percent of EU exports of the metal to the U.S. go for national security, Trump's goal is purely protectionist and the WTO may have trouble handling any complaints.

“This whole issue can blow up the WTO,” Axel Eggert, director general of the industry group, also known as Eurofer, said on March 2. “This is not about national security. This is about propping up a U.S. industry that isn't viable.”

--With assistance from Nikos Chrysoloras Patrick Donahue Marine Strauss and Stephanie Bodoni

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net.

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Jones Hayden

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