May 17, 2018
The EU's pathetically weak response to Donald Trump
It is really quite sad to see the lack of gumption by EU leaders when confronted with Donald Trump's threats. Germany has most to lose because of its extreme trade surpluses, and predictably wants dialogue. As Angela Merkel made clear in a speech yesterday, the fundamental tenet of German policy will be to protect the interests of industry in general, and of the car industry specifically. That clearly sets limits to the EU's ability to stand up to Donald Trump, and risks a major trade conflict. Yesterday's EU summit in Sofia agreed a broad strategy of the neither-here-nor-there kind to deal with Trump. The leaders managed to agree that they will not enter into a trade talks if the US applies tariffs to steel and aluminium from June 1, when the current and final exemption expires. But they did agree to offer talks on liquid gas imports, WTO reform, and on tariffs on European car imports, if the exemption remains beyond June 1.
The leaders also agreed the implausible strategy to prepare protection for European companies against secondary US sanctions to be slapped on EU companies dealing with Iran. But they gave no details on how this can be done. As we have explained before, this will not be sufficient as European companies and their banks will clearly not want to cut themselves off from the US markets and, in the case of the banks, from access to the dollar markets. As FAZ recently pointed out, the only companies willing and able to resist US pressure will be European importers of Persian carpets. Jean-Claude Juncker even mentioned the possibility of invoking the blocking statute. This is the ultimate bluff. The statute would allow the EU to impose sanctions on European companies that comply with US sanctions. In other words, it would give EU companies a choice between pest and cholera. Needless to say, this has not been agreed. Nor will it be. It is a sign of the helplessness and panic of EU leaders that they even talk about it.
The European Commission yesterday decided to inform the WTO about possible counter-sanctions in case the US ends the EU's exemption from the steel and aluminium tariffs. The formal notification is due on Friday.
The WTO, meanwhile, passed an important ruling declaring the Airbus subsidies by Germany, France, UK, and Spain, illegal. The US immediately reacted with a threat of sanctions unless the subsidies are removed immediately. The stage for the next trade conflict is set.