On September 30, 2024, a ship carrying containers passed through the Upper Bay of New York, USA.
Caitlin Oakes | Reuters
Donald Trump’s victory in the U.S. election has Europe scrambling to figure out how to contain or respond to the most likely tariffs on U.S. exports if the president-elect takes office.
Ahead of last week’s decisive election victory, Trump had threatened to restart the trade war that began during his first term, campaigning that he would raise tariffs of 60-100% on Chinese goods and impose tariffs on all U.S. Imported products are subject to tariffs of 10% to 20%.
Trump views protectionist measures as a way to boost U.S. jobs and economic growth, but the policy will undoubtedly open a new front in trade tensions with the United States’ two largest trading partners, the European Union and China. Critics of the proposed tariffs say the policy could lead to higher prices for U.S. consumers.
While Trump’s reputation for unpredictability means his rhetoric sometimes fails to materialize on the policy front, analysts agree that the president-elect appears undeterred when it comes to trade tariffs, arguing that the word itself is “the world’s most “The most beautiful word on the world”.
That leaves Asia and Europe to quickly consider how to mitigate the future impact of export tariffs and whether to retaliate or try to negotiate an exit deal. Economists warn there is uncertainty over whether Trump’s tariffs on Europe will be “as damaging as feared,” as ING economists said in a note on Friday, or whether they will simply be ” A bargaining chip aimed at reaching a broader foreign policy agreement.”
Despite this, there have been calls in Europe for the EU to immediately prepare retaliatory measures. The director of the Ifo Center for International Economics in Germany called on Germany and the EU, which rely heavily on trade with the United States, especially in automobile exports, to “strengthen their positions through their own measures.”
“These include deeper integration of EU services markets and credible retaliatory measures against the United States,” Ifo’s Lisaandra Flach said last week. Proposed measures include the possible use of EU’s new ‘anti-coercion tool’ When the report says “a state refuses to eliminate coercion,” it provides the region with a wide range of possible countermeasures.
Countermeasures include the imposition of tariffs, restrictions on trade in services and trade-related intellectual property rights, and restrictions on foreign direct investment and public procurement access. Frach suggested that Germany and the EU could also strengthen cooperation with US states.
But economists also say the EU could try to use carrots rather than sticks with the United States, suggesting there are three other ways Europe can try to block, limit or completely avoid Trump’s potential tariff policies.
discount
Economists point out that as a starting position for the incoming Republican administration, European policymakers may aim to avoid tariffs entirely, proposing to increase some U.S. imports in exchange for U.S. exemptions from tariffs.
“This could include LNG (liquefied natural gas) and soybeans, both of which were part of the deal struck in July 2018 between Donald Trump and then-European Commission President Jean-Claude Juncker.” Capital Economics , said in a report on Friday.
US President Trump appears between US and EU flags.
Didier Le Brun | Photojournalism | Getty Images
Analysts at Eurasia Group led by Mujtaba Rahman commented that European Commission President Ursula von der Leyen may first pursue a “deal strategy” . This would allow the EU to target boosting US exports in key sectors such as agriculture, energy (liquefied natural gas) and defence.
“The EU is likely to commit to further expanding LNG imports from the United States, and von der Leyen is also likely to explore completing two agreements negotiated by the European Commission with President Joe Biden on a sustainable steel and aluminum global arrangement and an EU-U.S. critical minerals deal. EU Analysts at Asia Group pointed out that the two sides may also try to take more actions through the EU-US Trade and Technology Council, which would help promote cooperation on digital issues such as artificial intelligence and export controls.
geopolitical agreement
Separately, Cunningham said the two sides could reach a “broader geopolitical agreement to try to head off the threat of tariffs.”
“For example, the EU could commit to buying more defense equipment from the United States to continue supporting Ukraine – although it would find it difficult to agree on how to raise the funds, given the staunch opposition from many, including Germany, to increase EU unity. loan.
The deal could be a boon to European policymakers as they hope to limit the economic hit caused by a 10% U.S. tariff on European exports. “The key point is that while our working assumption is that a 10% U.S. tariff would only reduce euro area GDP by 0.2%, the result could be less if the EU succeeds in striking some sort of deal,” Cunningham said.
German Chancellor Angela Merkel discusses with U.S. President Donald Trump during the G7 summit in Canada on June 9, 2018.
Jesko Denzel | Federal Government | Getty Images
However, whether Europe can agree on how or whether to strike a deal with Trump is debatable. Carsten Brzeski, ING’s global head of macro, said in a post-election report last week that “Trump has hit Europe not only in times of economic weakness but also in times of political instability.
“During Trump’s first term, Macron and Merkel were a strong political axis. Today, France is in trouble and the German government has just collapsed. There are no solid fortresses,” he said. “It does cast doubt on Europe’s ability to respond appropriately to Trump,” he added.
Alliance against China?
Another possibility, Capital Economics’ Cunningham said, is that Europe could agree to align its China policy more closely with that of the United States.
That could mean further barriers to Chinese imports of electric vehicles and other technologies, as well as restrictions on foreign direct investment from China and restrictions on the export of high-tech products such as photolithography machines.
Capital Economics’ Cunningham acknowledged that the EU was “reluctant to significantly cut ties with China” but said policymakers could be forced to do so if faced with strong pressure from the United States.
Analysts at Eurasia Group agreed that the EU’s “most difficult policy response may be against China, as Trump’s return will make it more difficult for the EU to develop a third ‘decoupling’ strategy.”
“If Trump launches a trade war against China, the EU may benefit in the short term if U.S. attention is entirely focused on China rather than the EU. Beijing is also unlikely to strongly resist Brussels’ trade measures in confronting Trump, and the EU It may try to reach common goals with Washington in some areas, such as advanced chips,” analysts said.
“Ultimately, however, Trump may accelerate the EU’s structural toughening of its stance on China. This will pose the biggest challenge for Germany given that Chancellor Olaf Scholz is unwilling to even fully embrace the EU’s more moderate de-risking strategy .
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