EU Faces a €28 Billion Hit from New Wave of US Tariffs on Steel and Aluminum
In what is shaping up to be a significant escalation of the US-EU trade conflict, the European Union (EU) is bracing for an estimated €28 billion ($29.3 billion) in exports to be affected by the steel and aluminum tariffs imposed by US President Donald Trump. These tariffs represent a major expansion of the trade war that first began in 2018, when the US slapped tariffs on European steel and aluminum, citing national security concerns. The potential tariffs could include derivative products, further magnifying their impact on the EU’s economy.
The current round of tariffs, which could take effect as early as March 12, is part of Trump's strategy to rewrite global trade rules and to impose reciprocal tariffs on countries that are seen as barriers to US trade interests. This latest escalation promises to be far more extensive than the previous tariffs that targeted European metals in 2018. According to sources familiar with the EU’s position, the new tariffs could hit the EU's export sectors with a volume four times larger than the previous wave of tariffs.
The Origins of the Trade Dispute
The roots of this ongoing trade conflict trace back to 2018 when the US imposed 25% tariffs on steel and 10% tariffs on aluminum imports from the EU, claiming these metals posed a national security risk. The EU officials strongly rejected the notion that their exports could be a threat to US national security, considering their alliance in NATO and their historical trade relations. Despite this, the US proceeded with its measures, leading to a retaliatory response from the European Union.
In response, the EU targeted specific US products with tariffs, including politically sensitive items such as Harley-Davidson motorcycles, Levi Strauss jeans, and a range of agricultural goods and apparel. These retaliatory tariffs aimed to inflict economic pain on certain regions in the US that were seen as critical to Trump’s support base, making the tariffs a tool of both economic and political leverage.
The Recent Escalation: What’s at Stake?
The EU trade chief, Maros Sefcovic, debriefed European ambassadors on the situation after his recent trip to Washington, where he met with US counterparts to discuss the ongoing trade tensions. While Sefcovic stated that the details of the new tariffs were still fluid, it was clear that the stakes were higher than ever before. Trump's proposal includes no exemptions for certain products, unlike the previous tariff rounds where some steel and aluminum products were granted exceptions. This makes the upcoming tariffs potentially more disruptive for EU exporters.
As Trump’s tariffs could affect a wide array of EU products beyond just steel and aluminum, the scope of the potential trade damage is vast, encompassing various sectors like agriculture, apparel, and consumer goods. The estimated value of €28 billion would represent a substantial economic loss for the EU, which would likely result in job losses and disruption to industries already reeling from the COVID-19 pandemic.
The EU’s Retaliation Strategy: Countermeasures and Trade Negotiations
In response to the new wave of tariffs, the European Commission has stated that it will react swiftly and proportionally. While the Commission did not offer further details, there have been hints that it could reactivate suspended tariffs on certain US products, with an emphasis on targeting goods and sectors that would cause the most economic disruption in the US. These tariffs could include products that are politically sensitive within the US, ensuring that the EU’s response would have a direct impact on US manufacturers.
In addition to this, Sefcovic used his meetings in Washington to open channels of communication with the US officials, hoping to ease tensions before tariffs are applied. The EU’s offer to lower tariffs on industrial goods such as cars was seen as an attempt to strike a deal that could avert a full-scale trade clash. Trump’s longstanding demand for lower tariffs on cars from the EU was an area of negotiation, with Sefcovic hoping to avoid further escalation.
Despite these diplomatic efforts, the trade atmosphere remains tense, and the EU is preparing for the worst-case scenario, where the US tariffs will take effect and the EU will need to retaliate with its own set of measures.
Looking Ahead: The EU’s Trade Strategy and Response
The European Union is determined to respond to US trade aggression in a way that minimizes harm to its industries while maximizing the economic pressure on the US. Sefcovic’s meeting in Washington has set the stage for potential negotiations, though no formal agreements have been made yet. The EU’s readiness to reintroduce tariffs, if necessary, means that both sides could be heading for another long, contentious trade battle.
Additionally, trade relations between the US and the EU will be under close scrutiny as these new tariffs take shape. The political ramifications of this dispute are not limited to economics alone but also to international relations, with the EU seeking to protect its trade interests and prevent the imposition of new trade barriers that could negatively affect its industries.
Key Takeaways:
• Massive Economic Impact: The EU estimates that the new US steel and aluminum tariffs could affect up to €28 billion ($29.3 billion) in exports, a major escalation from previous rounds of tariffs.
• Scope of Tariffs: This new wave of tariffs will include derivative products, potentially hitting sectors beyond just steel and aluminum, including agriculture, consumer goods, and apparel.
• Diplomatic Efforts: EU Trade Chief Maros Sefcovic recently visited Washington to meet with US counterparts and offered to negotiate a deal to reduce tariffs on industrial goods such as cars, a key demand of Donald Trump.
• Retaliation Plans: The EU has prepared to reactivate suspended tariffs, targeting sensitive US sectors and ensuring that its retaliation causes significant economic damage to the US, particularly in key political constituencies.
• Ongoing Trade Tensions: The potential imposition of 25% tariffs on steel and 10% tariffs on aluminum could lead to a new phase in the trade war between the EU and the US, with both sides preparing for further escalation.
• Political Ramifications: The trade conflict has implications beyond economics, impacting the US-EU relations and the global trade landscape, as both sides aim to assert their dominance in international markets.
