EU stance on tariffs needs another look
Does something that’s right become wrong simply because the wrong person says it? Of course not. Although, since last Thursday, you’d be forgiven for getting exactly that impression.
The whole of western Europe, where Donald Trump has had few friends ever since he first took office, is in uproar again over this supposedly aggressive White House troublemaker. This time, it’s because Trump celebrated on Twitter — where else? — what he described as a "nice victory" over the oh-so-mean EU.
Not Trump’s victory
Actually, the "victory" had nothing to do with Trump. Rather, it was a decision by the World Trade Organization (WTO) in the United States’ favor in a case initiated by the US government 15 years ago. Back then, the president’s name was George W. Bush, and — like all of his predecessors and all of his successors in office — he was annoyed about state subsidies for the European aircraft manufacturer Airbus.
Who would deny that the Airbus concern would not exist without state funding? But the same is true for Boeing in the US — which is why the Europeans lodged a similar counterclaim with the WTO. They too have already won their case; they are just waiting for the penalty to be announced.
Then we shall see whether the Europeans really are that much more open to free trade, as they always like to present themselves. Because, of course, the WTO will also grant the EU the right to impose so-called "retaliatory tariffs" on the United States. And what’s the betting that the EU will take full advantage of the scope it’s offered?
Read more: EU mulling response to US tariffs
US may take a tougher line
That’s something the US government doesn’t intend to do: The WTO is allowing the US, as compensation for the European Airbus subsidies, to impose tariffs of up to 100% on goods from the EU to the value of almost €7 billion ($7.68 billion). Trump, however, has announced that he will impose a duty of just 10% on aircraft parts (the thing that triggered the row!), and tariffs of only 25% on a wide range of goods from cheese, wine, and olives, to screwdrivers and soldering tweezers.
But that’s not what a trade war looks like. The dimension of the argument is apparent from the simple fact that the EU exports goods worth more than €40 billion to the US every month! For all the drama in support of Spanish wine producers or olive farmers, a shopping basket of €7 billion per year(!) really doesn’t have much impact.
Protectionist EU
The real customs battles are fought on very different fields. The Europeans impose a customs duty of 10% on American cars, while the Americans only impose 2.5%. Chemical products are subject to almost 5% duty on entering the EU; the American tariff is only just under 3%. The EU collects an 18% markup on foodstuffs, the US a mere 8%. The list could go on and on.
What are you so afraid of, Europe? Are our industry and agriculture so weak and our products so bad that we have to protect them from stronger US competition by imposing classic protectionist tariffs? Who in Europe seriously prefers an American cheese to a French one? And would the majority of people in Germany really drive a Chrysler or a Cadillac instead of a VW or a BMW if the US models were just 10% cheaper? Well, quite.
Read more: WTO lowers trade growth forecast
Who do tariffs really hurt?
So on the key point, Donald Trump is right: The EU treats the United States, its trade partner, considerably worse than it is treated in return. In terms of the transatlantic relationship, not only is that not smart, it is, above all, paternalistic toward consumers. Because they — not the exporters — are the first victims of tariffs like these. Their choices are limited by the politically intended forcing-up of prices.
At least Peter Altmaier, the German Minister for Economic Affairs, seems to have understood this: He’s been musing in public about a complete waiver of tariffs on cars from the US. And Donald Trump must be hoping that his voters don’t have too great a passion for Italian pecorino cheese, as it’ll soon be getting more expensive. Otherwise the current customs row could still come back to haunt him at re-election time. And that’s something the majority of Europeans would be extremely happy to see.