How is the EU preparing for a trade conflict with the US?

It is not yet clear when US President Trump will address the EU with his customs policy. But Europe is already preparing and reacting with counter-threats – and offers.

Donald Trump has yet to carry out his threat to impose new tariffs on the EU. The US president initially attacked his neighbors.

A few days ago, he announced 25 percent import tariffs on goods from Canada and Mexico and initially delayed their implementation. But if they go into effect, European industry will also feel the consequences, says Bernd Lange, chairman of the European Parliament's trade committee.

In fact, German automakers and subcontractors produce in Mexico and Canada for the U.S. market. That's why VW's investment in a battery plant in Ontario, Canada, would no longer be profitable if U.S. tariffs were to increase by 25 percent, Lange explains.

Germany is particularly sensitive

The US is the most important trading partner for the German automotive industry. German manufacturers and suppliers create 140,000 jobs in the US. Production there is at a record high – for now. Because Trump has targeted German companies in particular. In his first term, he threatened to impose tariffs on vehicles, but he did not.

The US president is outraged by the huge trade deficit with Europe: the EU imports about 160 billion euros worth of goods from the US more than it receives from it. Trump calls this a "disgrace".

“Responding to customs policies with customs policies.”

According to the Kiel Institute for the World Economy, a transatlantic trade conflict would hit the EU much harder than the US. That's why the EU is resisting with offers and threats.

The EU reiterated its offer to explore areas of cooperation with the US government. This could include buying more liquefied natural gas (LNG) or reducing tariffs on car imports from the US. The EU currently applies a 10 percent tariff, while the tariff on cars imported into the US is just 2.5 percent.

In addition, the EU is reaffirming its supposed unity towards Washington. The EU said that in the event of a conflict, the European Commission, which is responsible for foreign trade issues, can respond quickly and in a targeted manner. This was also emphasized by several heads of state and government at Monday's informal summit in Brussels. German Chancellor Olaf Scholz said that the EU, as a strong economic area, can respond to customs policies with customs policies. That is what we must do and that is what we will do.

Customs tariffs as a tool of political pressure

Trump justified the tariffs announced against Mexico, Canada and China by saying that the countries in question were not doing enough to combat illegal migration and drug trafficking. In a January 20 memo to relevant US departments, Trump said that trade policy was an important element of national security.

The EU has been prepared for the possibility that the US president could use economic measures as leverage to achieve political goals. But Brussels considers itself better equipped this time than during Trump's first term to deal with a potential trade conflict with Washington.

Trade expert Lange points to a European Commission Task Force and a new law against austerity measures. This regulation allows the EU to quickly impose counter-tariffs, suspend patents and exclude third countries from public procurement.

The clock is ticking.

It's unclear when Trump will actually impose tariffs on Europe. But it could happen soon. The punitive tariffs he imposed seven years ago on steel and aluminum imports, including from the EU, have not been lifted.

Trump's predecessor, Joe Biden, suspended them until the end of the year. Currently, some steel and aluminum quotas are exempt from the additional tariffs. Trump is currently considering suspending them until early April at the latest.

Similarly, the reciprocal customs duties imposed in 2018 by the EU on Harley-Davidson motorcycles, Bourbon whiskey and jeans have only been suspended. However, the peace obligation expires at the end of March. So the clock is ticking./DW