Europeans on tenterhooks amid fears of outbreak of a trade war

By: | Issue #669 | at 10:00 AM | Channel(s): International Trade  

Reporting from Frankfurt, Germany, AJOT correspondent Manik Mehta writes Europeans are unhappy with the Trump Administration’s moves on steel and aluminum, a policy being referred to as the “theater of the absurd” by an Austrian industrialist. Is this the prelude to a trade war?

Even before President Donald Trump’s May 8th announcement of U.S. withdrawal from the Iran nuclear deal – the Joint Comprehensive Plan of Action (JCPOA), as it is officially called – a somber mood had already descended upon the European allies, many of whom had a foretaste of this angst and anxiety in 2017 when Trump talked about reviewing trading ties with many countries around the world.

Europe’s leaders, joined by corporate executives and industry pundits, dread the nightmare of a trade war which could disrupt the established trade structures as we have known them for decades.

Two European leaders – Emmanuel Macron of France and Angela Merkel of Germany – recently visited Washington to persuade U.S. President Donald Trump to abandon his threat of imposing tariffs on European steel and aluminum. However, Macron and Merkel are not the only ones worried about the tariffs; discussion on the continent has reached what one Austrian industrialist called the “theater of the absurd”, with some suggesting retaliatory tariffs against U.S. products.

Europeans Making a List and Checking it Twice

Europeans are compiling an “unofficial list” of U.S. products that could face tariffs; the Austrian Association for Food Products is preparing itself for any possible spillover of the retaliatory action on the food products sector; such a development would attract retaliatory tariffs against U.S. agricultural products such as cranberries and orange juice concentrate, with European consumers ending up paying higher prices.

Austria is worried that steel tariffs would hurt the nation’s steel industry. Although such an eventuality would affect “only a handful” of companies, including the two big ones, Voestalpine and Amag, things could become critical if the tariffs were extended to other products.

In recent comments to the media, Wolfgang Eder, chairman of Voestalpine, Austria’s steel and technology concern, has been speaking about the effects of U.S. protectionist policies. Although Voestalpine itself is well-cushioned, to a large extent, against the import tariffs, thanks to its presence in 49 sites in the U.S., Eder sees long-term problems for the global trade.

Wolfgang Eder, Voestalpine chairman
Wolfgang Eder, Voestalpine chairman

President Donald Trump has further extended the waiver of steel and aluminum tariffs on European products until June 1; Europeans see this as a last opportunity to reach a long-term sustainable solution together with the U.S.

Eder has also been expressing concern over the future of free trade in an era of rising nationalism, populism and protectionism.

A trade war triggered by President Trump’s tariff imposition would result in a “flood of steel” in Europe, he warned.

Voestalpine may be well-cushioned against tariffs thanks to its large presence in the U.S. where it achieved a turnover of Euro 1.2 billion last year; nevertheless, it could end up paying tariffs on imports into the U.S. of some of its steel products valued at a maximum of Euro 400 million if tariffs are indeed imposed. Jetzt teilen Voestalpine employs about 3000 workers in the U.S. where it has invested some US$ 1.4 billion in the past years.

The President of American Chamber of Commerce (AmCham) in Germany, Frank Sportolari, in conversations with the German media, has been calling for revisiting the customs tariff structure between the U.S. and EU, considering that it dates back to the 1950s.

Impacts

A trade war could have a crippling effect on European car manufacturers. Germany’s automobile industry, for example, could be badly hit. If the U.S. imposed tariffs on European cars, German automobiles would bear the brunt because of their popularity with American motorists. On the other hand, German motorists hardly drive U.S.-made cars.

German companies supply, among other things, cars, machinery and pharma products to the U.S. If Trump imposed a 25% tariff on cars, as he warned in March, this could cause a 50% decline in German car exports to the U.S., according to a UniCredit bank research study.

But it is difficult to assess the effects of tariffs on global trade because the supply chain networks are spread across several countries. Some car manufacturers have their plants in the U.S., although many of the requisite parts and components such as seats, wheels or air-conditioners are produced in other parts of the world. Protectionism will hit not only finished products but also parts and raw materials, particularly in the case of cars.

German Economics Minister Peter Altmaier has been asking both the U.S. and the EU to exercise caution and not unleash a trade war triggered by the imposition of tariffs. In an interview with the German television channel ARD, Altmaier recently said that this should be avoided by both sides. Higher tariffs would hit the companies and consumers on both sides.

German Economics Minister Peter Altmaier
German Economics Minister Peter Altmaier

Altmaier warned that trade disputes were more than just the issue of tariffs, and would affect the entire transatlantic relationship.

The chairman of the Foreign Relations Committee of the German Bundestag (parliament), Norbert Rottgen, said in the ARD television program “Bericht aus Berlin” the EU should “not resort to any measures which have the character of retaliation, but we should adhere to our conviction and to our position – namely, that all issues are to be regulated in an extensive trade agreement.”

EUnited We Stand?

Hans-Juergen Kerkhoff, the president of Germany’s Steel Association, urged the EU to take a “united stand” and warned in media interviews that there was already more steel piling up in the European market.

Commenting on President Trump’s extension of a month’s exemption from tariffs on European steel until June 1, Kerkhoff hoped that Europeans would be permanently exempted from the tariffs. The “America First” policy should not be carried on the back of Europe’s steel industry. But he also emphasized that an escalation of any kind should be avoided.

Kerkhoff said that his concern about an “import flood” resulting from the U.S. tariffs was not an exaggeration. Indeed, countries which can no longer supply to the U.S. because of tariffs, were shipping their steel to the European market which does not have such barriers. He cited the examples of Russia and Turkey whose exports into the EU, during the first quarter of the year, had surged by 139% and 76% respectively over the year-earlier period.

Steel imports into the EU during the first quarter of 2018 rose by 300,000 tons to 2.9 million tons, over the year-earlier period. At the recent “Tube” trade fair in Duesseldorf, German executives, insisting on remaining anonymous, told this correspondent that they were “deeply concerned” over what the U.S. President might do next.

“Let’s hope, things don’t get worse. It will affect both sides,” a supplier of steel parts to the U.S. said.

American Journal of Transportation