While the US-China trade talks have dominated headlines in the financial press this week, the Wall Street Journal on Tuesday published details from the Trump administration’s ongoing trade negotiations with the European Union, which increasingly look like they, too, have arrived at an impasse.
According to WSJ, Trump is pushing the EU to reduce steel and aluminum exports to the US by about 10%, according to several high-ranking EU officials who have apparently chafed at the administration’s demands. Officials have gone so far as to declare the measures illegal under World Trade Organization rules.
Negotiations are unfolding rapidly as the EU seeks to extend its temporary exemption from steel and aluminum tariffs that the Trump administration has said will expire June 1.
The Trump proposal has offered two avenues for arriving at the US’s desired result. One is a quota fixed at 90% of US imports from the EU in 2017. The other would impose tariffs on a certain quota of imports with the aim of achieving the same 10% reduction, according to Poland’s Entrepreneurship and Technology Minister Jadwiga Emilewicz, who added that EU governments discussed the matter on Tuesday. However, the exact scope and details of the quotas have not yet been made clear.
“We are under the impression that somehow they want to limit steel imports to the U.S.,” European Trade Commissioner Cecilia Malmstrom said of continuing negotiations with Washington before briefing EU governments.
“Aluminum as well,” she said, without providing details.
European Trade Commissioner Cecilia Malmstrom has reportedly been in regular contact with Commerce Secretary Wilbur Ross ever since the US surprised the world by announcing its steel and aluminum tariffs back in March. Still, despite their close cooperation, Malmstrom said that deciphering Trump’s wants and needs has been by far the most frustrating aspect of the negotiations.
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When it comes to setting a benchmark for their discussions with Trump, European countries have interpreted South Korea’s trade concessions as a cautionary tale. Seoul agreed to cap its US steel exports at 70% of their average from the past three years – a decision that created daunting problems for Korean steelmakers.
Seoul agreed to cap its U.S. steel exports at 70% of the average export total over the past three years. That created a daunting task for South Korean steelmakers, the third-largest supplier to the U.S., which filled their annual quota in nine out of 54 categories in the first four months of 2018. Quarterly limits imposed by the Trump administration pose another challenge, with any steel exports exceeding the cap facing delays, redirection or destruction.
“The devil is in the details,” an EU official said. “There is more to a quota than catches the eye, it’s about how you manage it.”
European officials have asked Trump not to punish US allies for a global steel glut precipitated by Chinese overproduction. The EU has readied countermeasures, including €2.8 billion ($3.3 billion) in levies against US goods, should the US reject the trade bloc’s offers to accept US import quotas and lower some EU trade barriers in exchange for receiving a permanent waiver on steel and aluminum tariffs. European officials have also scoffed at the US’s justification of tariffs on national security grounds, claiming this approach violates WTO rules.
European officials have repeatedly called on Mr. Trump not to punish U.S. allies for the global steel glut driven by overproduction in China. The president’s national security justification for steel and aluminum tariffs amounts to illegal protectionism under WTO rules, according to the EU. The bloc also balks at the notion that its exports threaten the U.S.. Twenty two of the EU’s 28 members are also in North Atlantic Treaty Organization allies.
“We are allies, but we are not vassals,” French State Secretary Jean-Baptiste LeMoyne said Tuesday at the Brussels gathering, adding the EU was prepared to counter the Trump administration if it doesn’t grant an unlimited waiver to the bloc.
“We want to avoid a trade war,” German Economic Affairs and Energy Minister Peter Altmanier said Tuesday in Brussels. “It’s important to come to an agreement that is in the interest of both sides.”
Overall, Trump’s trade relationship with China has continued to deteriorate despite a “trade truce” touted by Treasury Secretary Steven Mnuchin over the weekend. And what’s worse, NAFTA negotiations have apparently stalled, ratcheting up the likelihood that Congress won’t be able to ratify a new agreement until next year at the earliest.
Given these problems, preserving a strong trade relationship with the European Union is looking increasingly important – particularly where markets are concerned.