EU imposes retaliatory tariffs on US goods in trade war escalation

The European Union has announced that retaliatory tariffs on $2.8 billion worth of US goods have come into force in a renewed attack against President Trump’s trading policy.

Of the various goods listed, tariffs have been levied on products such as Harley Davidson motorcycles, orange juice, and bourbon whiskey.

In a statement to the Irish Parliament, European Commission President, Jean-Claude Juncker stated that the duties imposed on the EU by the US go “against all logic and history”. He added: “we will do what we have to do to rebalance and safeguard the EU”.

Additionally, EU Trade Commissioner Cecilia Malmstrom said this week that the 28-nation bloc was “left with no other choice” but to impose tariffs of its own after the “unilateral and unjustified decision of the US.”

Despite the reluctance of UK international trade secretary, Liam Fox, to support the EU’s proposed measures, the European Commission confirmed that it had the “full support” of the 28 member states to act.

What is the purpose of tariffs?

Essentially, tariffs are a tax on products that are made abroad.

By taxing foreign items imported into a country, consumers are less likely to purchase them as they become more expensive. Thus, the rationale behind the policy is to encourage consumers to buy cheaper local products instead- boosting the country’s economy and protecting a domestic industry.

How did this begin?

The economic conflict began when the White House announced tariffs of 25% on steel imported to the US, predominately from China.

Accusing Beijing of “stealing intellectual property”, President Trump expressed his desire to cut the trade deficit with China- citing reports of unfair trading practices.

Shortly after the announcement, India, South Korea, Canida, and Mexico responded with their own tariffs on US goods:

  • India will raise taxes on 29 products imported from the US
  • Canada announced retaliatory tariffs on C$16.6bn worth of US exports w/b 1 July.
  • Mexico imposed tariffs on £3bn worth of US exports two weeks ago.

Together with these tariffs, the EU’s response is now the latest development in the trading conflict, with financial markets fearing severe consequences to the global economy.

Analysis from Oliver Murphy- Editor

It is unsurprising that this latest announcement has intensified fears of a full-blown trade war. With Donald Trump first announcing steel tariffs on imported aluminum, the European Union’s response with a tit-for-tat escalation risks seriously damaging the economies of both- not to mention the impact on the consumer.

Indeed, Rick Helfenbein, president and chief executive officer of the American Apparel & Footwear Association, says the average family of four in the US will pay at least an extra $500 a year to buy consumer products affected by the tariffs.

Britain has remained silent throughout this escalation. This is unsurprising. With our formal cessation from the EU just around the corner, Downing Street will be wary of joining this trade spat given the keenness to secure a trading arrangement with the US post-Brexit.

At present, there is no signal that Trump plans to step-back from his protectionist policy. Indeed, the President reckons trade wars are “good” and “easy to win”, and his current tactics are proving popular with his supporters in the ‘rust belt’. Ironically, many in the EU share Trump’s concerns about unfair competition from China. Yet, by imposing tariffs they are merely alienating each other and this is only counterproductive in the pursuit of a fairer free trade system.

Of greater significance, however, is the damage inflicted upon the image of the US presidency. Presidential credibility is one of the most important factors to the functioning of the international system. Yet, Trump’s actions and the subsequent EU response have eroded this. There is still time to avert a trade war, but even so, the faith in US leadership has been seriously damaged.

 

 

 

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