President Trump has until midnight to decide whether the European Union gets smacked with tariffs on steel and aluminum. To put it another way, the United States could very well be in a trade “spat” with some of its closest allies by the time people walk their dogs Tuesday morning.
Despite the smiles and many warm embraces last week between Trump and President Emmanuel Macron of France and Chancellor Angela Merkel of Germany, the E.U. and United States have fundamental disagreements on trade. Trump says the United States has been treated unfairly for years, especially by China and Germany. Europe thinks Trump is trying to blow up the entire rules-based trade system that the United States pushed everyone else to join in the 1980s and early 1990s.
Both sides think they have the moral — and legal — high ground. And Monday night, those tensions could boil over.
“If Trump doesn’t exempt Europe, we’ll get in a trade war with the E.U. countries. They are not going to let this pass,” said C. Don Johnson, a Democratic former congressman from Georgia and U.S. trade negotiator for the Clinton administration. He is the author of “The Wealth of a Nation: A History of Trade Politics in America.”
The Trump administration is demanding the E.U. accept 25 percent tariffs on steel sent to the United States and 10 percent tariffs on aluminum or agree to a quota that would sharply limit how much of the metals the E.U. could ship here. Europe has rejected those demands.
When Trump first announced the tariffs, he set up a 30-day window for countries to negotiate. That expires at day's end, and now the administration has to decide which countries get hit and which ones get a pass.
European leaders argue that these actions are illegal under international law, not to mention an affront to the long-standing friendship between Europe and the United States. And if they don't get an exemption, E.U. leaders are ready to fight back. They plan to bring a case to the World Trade Organization, which many experts predict Europe would win.
On top of that, the E.U. already has a list of more than $3 billion worth of U.S. goods that would soon face a tariff in Europe if Trump doesn't continue to give European steel and aluminum a pass. The list includes U.S. steel, bourbon, blue jeans, cranberries and motorcycles. (Much of the bourbon is made in Senate Majority Leader Mitch McConnell's home state of Kentucky, and many of the motorcycles are made in House Speaker Paul D. Ryan's home state of Wisconsin).
“My sense is in this case, it’s going to be Trump who blinks. If not, we are going to get into an ugly retaliation process,” said Robert Lawrence, professor of international trade at the Harvard Kennedy School.
The president's closest advisers aren't saying — or aren't sure — what he will do tonight.
“You’ll know when the president makes his announcement,” Commerce Secretary Wilbur Ross, the lead U.S. trade negotiator with Europe, said Friday at the Society of American Business Editors and Writers conference. “He has very broad powers. He can raise the tariffs. He can lower them. He can let countries in and let them out.”
Ross confirmed the Trump administration has asked all countries seeking exemptions to accept quotas if they don't want tariffs.
“If you let everybody back out of the tariff and you let them out of any kind of quota, how would you ever reduce the imports here?” Ross said.
But some trade experts don't understand why Trump would try to play hardball with Europe (or other close allies such as Canada and Australia) over steel and aluminum. Europe sends $7.3 billion worth of these metals to the United States, and Europe isn't “dumping” cheap metals onto the world markets.
One of the Trump administration's top goals on trade is to push back on China. It would seem to make more sense to get Europe on board with a bigger push to force China to open up its massive market to more American and European businesses, as well as to have Chinese companies stop stealing foreigner firms' intellectual property.
“We are all on the same side against China. The E.U. are our natural allies in this. Given all of that, why wouldn’t we exempt them from steel and aluminum?” Lawrence wondered, a sentiment echoed by many who study trade or served in prior administrations.
Trump granted a temporary exemption to the E.U. in March when the metals tariffs were first put into place. Ross and his counterparts in Europe continue to discuss the possibility of a bigger deal on trade, especially to make it easier to sell American cars in Europe, but it is going to take more time to hash out details, especially with the U.S.-China trade talks taking priority.
There's also concern that U.S. companies aren't ready for all of these trade wars. The China tensions are concerning enough. Major retailers, in particular, are trying to figure out ways to get TVs and other key products that they normally source from China from other locations. Adding a trade war — or even a spat — with Europe in the mix only adds more uncertainty and pain for U.S. companies.
“Most companies we deal with are expecting the exemptions to continue,” said Doug Zuvich, global leader of KPMG’s trade and customs services. “They are sitting back being hopeful that the administration will follow through with an extension.”