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March 19, 2018


Four days to avert a trade war

It is a week of frantic diplomatic activity to ward off a potential trade war. US tariffs on steel and aluminium are due to take effect on Friday. Germany's new economics minister, Peter Altmeier, has arrived in Washington for talks with Wilbur Ross, the US commerce secretary. Altmeier's interview in Handelsblatt this morning tells us only one thing - that the German government has no strategy beyond a wish not to escalate the conflict. 

Not to dig when you are in a hole seems a sensible short-term strategy to us. This is not a trade war the EU can ever win, as Wolfgang Munchau points out in his FT column. If the EU were to put up a big fight over this, with a long list of sanctions on Friday, the US would immediately respond with a tariff on car imports. It would be the equivalent of the Fool's Mate in chess, Munchau argues. Donald Trump is right in his assertion that trade wars are easy to win - if your opponent is sufficiently desperate and addicted to the export of manufactured goods, like Germany is. When we said that a current account surplus of 8% (or probably higher) is not sustainable, it was not meant as a statement of right or wrong. Unsustainable means that it will end at some point - through either adjustment or force. 

Spiegel magazine had a story over the weekend that there is a glimmer of hope. It was one of those short Spiegel news stories, something they picked up from a single source, but not quite worthy of a full-length article. The story says the US will make three specific demands as a pre-condition for exempting the EU from the steel and aluminium tariffs. The first is that the EU caps streel output at 2017 levels. The story did not reveal the metric, whether in volume or value. The second is that the EU take anti-dumping measures against China, and agrees to co-operate with the US in questions of international trade policy. And, to top it all, the Europeans will have to deliver proof that they are on the way to meeting their Nato commitments on defence spending. The latter is an impossible demand to meet since no such proof can exist. The German grand coalition, for example, is making no efforts to increase defence spending. The priority of the new finance minister, Olaf Scholz, is to maintain the fiscal surplus.

We assume that the Spiegel reporters talked to somebody in the US administration, but at this point we cannot know whether this story is a correct reflection of what is going to happen, if only because the Trump administration is itself internally divided on the policy. 

Also to watch out for this week are the talks between Ce­ci­lia Malm­ström, the European trade commissioner, and Ro­bert Lighthizer, the US trade representative. The G20 meeting of finance ministers is preparing for an empty statement on the importance of free global trade. FAZ noted in its coverage of the story that the Hamburg declaration of the last G20 summit, which included a pledge against protectionism, did not stop Trump imposing the steel tariffs. 

Our other stories

We also have stories on why targeting China alone won't solve Trump's trade deficit problem; on the need for Germany to spell out its position on eurozone reform; on how positions on the Skripal affair correlate with longstanding positions on Russia; on Spain remaining alone in the excessive deficit procedure; on central bank digital currencies; on the risks to a clean exit from the Greek programme; and on whether the Commons can force an extension of the Article 50 process.

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