June 1, 2018 / 10:09 AM / 3 months ago

Breakingviews - EU divisions are weak spot in U.S. trade fight

LONDON (Reuters Breakingviews) - Pity European Union Trade Commissioner Cecilia Malmstrom. The Swedish former political science lecturer is spearheading the bloc’s response to U.S. President Donald Trump’s tariffs on imported steel and aluminium. Her first step was decisive. Things will get harder if Trump raises the stakes.

French President Emmanuel Macron shakes hands with U.S. President Donald Trump at the conclusion of their joint news conference in the East Room of the White House in Washington, U.S., April 24, 2018. REUTERS/Jonathan Ernst

The EU hit back quickly on Thursday evening after its exemption from U.S. levies expired. Malmstrom said the commission and member states will impose “rebalancing measures” hitting 2.8 billion euros worth of U.S. goods, including Harley-Davidson motorcycles and bourbon whiskey.

Neither move amounts to much economically. Steel and aluminium exports to America represent 0.05 percent of EU GDP, according to ING, while the EU’s list covers little more than 1 percent of U.S. exports to the bloc. But the EU measures shrewdly target products made in states controlled by Republican leaders in Congress.

Europe’s difficulty is deciding what to do if the spat escalates. Trump has kicked off a process that could slap tariffs of up to 25 percent on imported cars. He told French President Emmanuel Macron he would pursue German carmakers until there are no more Mercedes-Benz cars rolling down New York’s Fifth Avenue, magazine Wirtschaftswoche reported.

Germany’s priority is to protect carmakers Volkswagen, Daimler and BMW, which have a collective market value of more than 200 billion euros. Evercore ISI analysts reckon a 25 percent U.S. import tariff would cost the trio about 4.5 billion euros. That’s equivalent to the annual salary of about 80,000 German industrial workers, based on figures provided by the Gesamtmetall employers’ association. Economic Minister Peter Altmaier has pushed to appease Trump by cutting the EU’s current 10 percent duty on imported automobiles, Handelsblatt reported in March.

The problem is Paris. Macron and French officials are opposed to concessions and refuse to talk “with a gun to our heads”, according to Reuters. That’s a respectable position, but it’s easier to be principled when another country’s corporate champions are on the line.

Countries in the shadow of an increasingly belligerent Russia, like Poland and the Baltics, are likely to oppose any measure that would threaten U.S. security guarantees. Malmstrom’s job of forging a united European trade-war strategy can only get harder.

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