Trump plays a game of chicken with EU on trade. By Shawn Donnan in The Financial Times

Trump plays a game of chicken with EU on trade

There is no clear outline for a deal to avoid a transatlantic clash over tariffs

Shawn Donnan in Washington 6 hours ago

Original article here

By extending until June 1 the EU’s exemption from new US steel and aluminium tariffs, Donald Trump is trying to keep the pressure on Brussels to find a way out of what some fear could devolve into a transatlantic trade war.

That does not make a deal any more likely.

US and EU officials have so far failed to find a formula for a deal and confess that one appears distant.

Officials on both sides also say privately that the biggest hurdle may be Mr Trump, even after recent charm offensives from France’s Emmanuel Macron and Germany’s Angela Merkel.

Addressing supporters in Michigan on Saturday, Mr Trump again railed against the EU and what he sees as the trade barriers it has erected to keep out US goods, and particularly cars.

“It is very hard for us to sell stuff into the European Union,” he said, pointing to Ms Merkel’s visit the day before.

“It was put there to take advantage of the United States, Ok? . . . Not any more.

We told them that yesterday . . . Those days are over.” Trump administration officials liken their trade push to how the US has handled North Korea.

Mr Trump’s bombast and his push for tougher sanctions drove Pyongyang to negotiations and the cusp of a historic deal, they contend.

In trade he is trying to do the same, whether it be with China, the EU, or Canada and Mexico, the US partners in the North American Free Trade Agreement.

Whether the approach will work with either the EU, which has already prepared a list of US products it will target in retaliation, ranging from bourbon to motorcycles, or China, which also has its own tariffs prepared, is unclear.

The US remains the world’s largest economy and that gives it heft.

But both China and the EU are formidable trading powers that each have their own domestic constituencies to keep happy.

Trump delays steel tariff deadline for allies With the EU, the administration has focused on getting Brussels to agree to quotas for reduced steel and aluminium exports to the US as well as a broader trade agreement that would reduce tariffs for industrial goods.

The latter is aimed largely at the car market and reducing the gap between the 2.5 per cent tariff the US charges on imported passenger vehicles and the 10 per cent equivalent duty in the EU.

European officials contend the comparison is unfair as the US has higher tariffs on light trucks.

But Mr Trump has seized on the difference and US officials say privately that any deal would have to address that difference, even as they recognise that for the EU any such move would have to be part of a broader negotiation.

Wilbur Ross, the US commerce secretary, said on Tuesday that the main objective for the Trump administration remained protecting the US steel and aluminium industries, which it has argued were facing a threat from imports that was putting US national security at risk.

But he added that “we have made enough progress so far that it is worth investing another 30 days in the process”.

“It is a work in progress,” he told a Milken Institute conference in California.

“We don’t have the definitive solution as we sit here.” Mary Lovely, a Syracuse University economist and trade expert, said it was unlikely that the EU and US would be able to reach a full trade agreement, even on only industrial tariffs, in the next month.

But Mr Trump has shown in the past that he is willing to accept even minor concessions as a win, she pointed out, and that might provide hope to the EU.

“It really depends on the Europeans and how far they are willing to go in this game of chicken,” she said.

“If they really stick to their guns the Trump administration may accept some kind of sop given to them . . . We might get a deal.

But [for the US] it’s not going to be much of a deal.” EU officials are, however, also wary of the broader consequences of any deal with the Trump administration.

Agreeing to quotas on steel or aluminium exports would be equivalent to embracing the sort of “voluntary export restraints” used heavily by the Reagan administration in the 1980s and now banned under World Trade Organization rules.

As a result, European officials say they see agreeing to anything like them as a bigger threat to the global trading system.

“I think [Wilbur Ross has] gotten the message from all sides out of Europe [that quotas are not an option],” said one EU official.

“That is the one thing that we are all united on at this point.” But other experts argue such quotas may provide the least-bad option for avoiding a transatlantic trade war.

Claude Barfield of the conservative American Enterprise Institute in Washington said that while economists saw quotas as “worse than tariffs”, the voluntary export restraints agreed during the Reagan administration ended up being only temporary.

“Of the bad options VERs are not the worst,” he said.

“The virtue of VERs is that you can put them on and take them off almost immediately.” Copyright The Financial Times Limited 2018.

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