EU threat on auto tariffs

https://www.reuters.com/article/us-usa-trade-eu/eu-redoubles-threat-to-retaliate-if-us-raises-auto-tariffs-idUSKCN1UH1N5

The above-linked report was published a few days ago, but I can’t let it pass without comment.  It’s reported that the EU is threatening to retaliate with tariffs of its own if Trump were to push ahead with tariffs on EU auto imports.

“We will not negotiate under WTO illegal action. Nor will we go down the road of managed trade,” she (Sabine Weyend, the EU’s director general of trade) said.

If Washington pushed ahead with its threat to raise auto tariffs to 25%, Brussels would respond with tariffs of its own, resulting in a “lose-lose” situation for all involved, she said.

This is exactly the same approach taken by China, and the EU should consider how well that’s working out for them.  And the EU is in a far weaker position than China.  Unlike China, who supplies electronics and other consumer products for which new supply chains will have to be re-established in the U.S., the EU competes with the U.S. in products that are still manufactured here, like autos and parts.  A full one third of our trade deficit with the EU – approximately $43 billion – is in autos.  If tariffs make such EU imports more expensive, American consumers can instantly and painlessly switch to American brands.  The same is true for pharmaceuticals, chemicals, plastics and virtually everything else imported from the EU.  We don’t need their imports – we have it all right here.

The notion that a tit-for-tat tariff battle with the EU would be a “lose-lose” situation is laughable.  When you’re already losing, as the U.S. is with a $150 billion/year trade deficit with the EU, the only possible outcome for the U.S. – even if a balance of trade with the EU were reached through a total cessation of trade with them – would be a $150 billion boost to the U.S. economy, a huge win by any measure.

If the EU wants to avoid the loss it’d suffer, it’d be better for them to boost their domestic consumption instead of relying on manufacturing for export – the same remedy that experts have recommended for China.  Of course, with a population density nearly the same as China, they face the same problem:  per capita consumption that’s depressed by over-crowding.

Trump is continuing his “slow turkey” approach to restoring a balance of trade through the use of tariffs.  It won’t be long before he levies the long-promised 25% tariffs on the remaining half of Chinese imports.  I suspect that the EU will then be his next target.

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