Europe steeled for trade war threat underTrump 2.0

AFP | Brussels, Belgium                                           

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Europe is steeled for a potential trade war with Donald Trump after the tariff-loving Republican reclaimed the White House, but its leaders will need to bridge divisions if they hope to fight back.

On the campaign trail, Trump threatened a 10 to 20% across-the-board tariff on imports and took aim at the European Union as a “mini-China” he believes is taking advantage of the United States.

Across the Atlantic, officials have been watching with a sinking feeling of deja-vu. Back in 2018, during his first term, the volatile US leader had slapped tariffs on European steel and aluminium exports -- forcing the EU to respond with its own higher duties.

“To me ‘tariff ’ is a very beautiful word,” he repeated on the stump this year. As a result, Europe has been gaming out scenarios for months -- including a Trump win -- to ensure it its ready this time around, should he decide to unleash a new trade conflict with the bloc.

Although Brussels will seek to maintain good ties with its largest trading partner, “we shouldn’t be naive about what the future might hold for EU-US relations,” warned an EU diplomat. Diplomats and officials insist they stand united and have the tools to respond to any Trump measures -- but experts also point to divisions and a reticent Germany.

“Will Europeans remain united against Trump and be able to identify the common European interest? It will be complicated,” said Sylvie Matelly, head of the Institut Jacques Delors think tank. “European trade policy could be the first victim of the new president’s election.”

Getting Berlin -- which is fearful of Trump’s wrath -- on board with tough retaliatory action could prove especially difficult. “Trump is well aware that Germany sells a lot of cars to the United States and could curb any European reaction to Trump tariffs,” Matelly told AFP.

Just last month, Berlin broke with major partners in voting against higher tariffs on Chinese-made electric vehicles despite an EU probe concluding they benefitted unfairly from Beijing’s state subsidies and undercut European rivals.

The German opposition was not enough to stop the extra duties from kicking in, but was proof that Berlin’s line on trade defence differs from other EU states like France and Poland. French President Emmanuel Macron sought to remove any doubts about EU unity by promising following a call with German Chancellor Olaf Scholz to work together on “a more united, stronger, more sovereign Europe” in the wake of Trump’s victory.

Scholz himself, however, struck a different note in his congratulatory message to Trump, emphasising close transatlantic ties and telling him: “We’re better off together”. Unity message EU diplomats in Brussels sought to drive home the message of unity, while others insisted Europe was prepared. “These election results reinforce the fact that as the EU we need to focus on our strengths and interests and be clear-eyed about our objectives.

This requires unity and discipline from the EU and its member states,” one diplomat said. In the months before the election, the European Commission tasked a group of officials with preparing for either victory by either Trump or his Democratic rival Kamala Harris, in a bid to get ahead of any painful consequences. There was even talk of a list of US targets if Trump imposed higher tariffs.

“It is simple. If he imposes tariffs, w e will retaliate. But we have to treat Trump like any other US partner: engage and see if a positive agenda is possible,” another EU diplomat said. ‘Escalatory spiral’ Goldman Sachs predicts that 10-percent tariffs would lower growth in the 20-country euro area by around 1.0%, with Germany taking the brunt of the pain.

Others expect less of a hit: Aurelien Saussay of the London School of Economics wrote last month that he expected a “modest reduction” in gross domestic product of 0.11% in the 27-country European Union in a Trump tariff scenario. But in any event, analysts expect Brussels would be forced to retaliate to protect the bloc’s economy, already dealing with sluggish growth.

“If Trump imposes a 10-20% tariff on all EU exports to the US and potentially even higher ones in sectors like automotive, the EU will have to respond,” Niclas Poitiers of Bruegel think tank said. “This could lead to an escalatory spiral, but even in the best-case scenario EU-US trade would be severely affected,” he told AFP.