How should Europe respond to Trump’s steel tariffs?

Mr. Trump is not the first U.S. president to introduce protectionist measures in America’s steel industry. In 2002, then-President George W. Bush imposed a series of import restrictions, including 30 percent main tariffs on certain steel products. But even then, more than 70% of steel imports were exempt from any protectionist measures. Instead, Trump is proposing measures that will affect the entire steel industry. That’s why U.S. President Donald Trump’s latest decision to delay imposing steel (and aluminum) tariffs on Canada, the European Union and Mexico for another 30 days will give the U.S. a chance to negotiate a longer-term deal with its trading partners.

If the tariffs are really related to national security, they should be applied mainly to imports from close allies. Such as Canada, Mexico, Japan and the EU. The complicated problems are still the so-called transshipments. Steel comprises a relatively homogeneous class of goods. For example, flat rolled steel (of a certain quality) is traded on organized exchanges, with little attention to its origin. So, if the US were to impose tariffs on steel only in some countries, steel exporters from these countries could send their products to American allies. Which could then increase its exports to the USA.

This means that, if the US exempts its allies from tariffs.  And there would also be a need for a reassurance that the exports of these allies to the United States will not change. And, indeed, the United States is now asking its allies, including the EU, to limit their steel exports to the US. The problem is that WTO rules do not allow these so-called voluntary export restrictions.

The EU imposes measures after tariffs increased in the America’s steel industry

This puts the EU in a dilemma. The Union has threatened to impose compensatory measures if the US imposes tariffs. But these measures might not be legitimate, if a WTO committee finds that the US has the right to decide that its national security justifies steel tariffs. However, if the EU complies with US demands for „voluntary” limits on its steel exports, it could also be in breach of its WTO obligations.

Tariffs offer the prospect of additional income to the importing country, but exactly how much would depend on the extent to which imports decrease. For example, if the US imposed a global import tariff of 25% on steel products and imports fell to $15 billion – half of their 2017 value – the US would still gain $3.75 billion in revenue. yearly.

Unlike the USA – which has apparently abandoned economic logic in search of quick „victories”. The EU is an entity that, in general, prioritizes economic logic over geopolitical considerations and favors long-term agreements. Given these differences, it may be difficult to reach an agreement in the next 30 days.

Article source: http://www.businesstimes.com.sg/opinion/how-europe-should-respond-to-trumps-steel-tariffs