Connect with us

Economy

Trump’s cynical #Tariffs deception

SHARE:

Published

on

We use your sign-up to provide content in ways you've consented to and to improve our understanding of you. You can unsubscribe at any time.

In a bid to divert the threat of new tariffs on America’s luxury car imports, the German car bosses of VW, Daimler and BMW met in Washington, and emerged optimistic that "We made a big step forward to avoid the tariffs”. The long-anticipated meeting between Germany’s top car officials and White House economic adviser Larry Kudlow is a stark representation of how Trump assesses political and economic partnerships purely on the basis of imbalances in trade flows, writes Colin Stevens.

Angered by General Motors’ (GM) move to close a number of US and Canadian plants, Trump has once again revived the spectre of tariffs on European cars, rebooting the trade war with the EU. Unfortunately, his threats cannot be easily dismissed as mere posturing. With Trump’s capricious track record, the threat to slap European cars with a 25% import tariff, especially in light of the GM development, are fuelling fears that Europe may be next in line for punitive action.

The smokescreen of US manufacturing

If Trump presses ahead, it is bad news for EU manufacturers. A German government report warns that the bloc would be at risk of dipping into recession if bilateral trade disputes were to escalate and European cars placed under tariffs. It is also likely to lead to tit-for-tat retaliation, as has already happened with the $3.2 billion-worth of tariffs on US imports to the EU which were levied as part of the backlash against Trump’s European steel and aluminium exports earlier this year.

But while Washington’s official rationale for trade tariffs is the protection of America’s industrial base, developments at home reveal this merely to be a smokescreen: as savvy analysts have pointed out, the real objective behind punitive measures blackmailing Brussels into opening the EU’s agriculture sector to US imports. This becomes clear considering that existent tariffs have done nothing to help the American industry – despite Trump’s steadfast praise of their effectiveness in protecting America’s interests.

Indeed, far from Trump’s populist bravado, the tariffs have increased input costs for American firms, forcing them to increase prices for consumers through what has been referred to as the “Trump tax”. The negative impact on domestic production is so severe that the conservative Cato Institute published a list of 202 companies hurt by the tariffs, who “have been forced to take cost-cutting measures such as laying off employees or forgoing expansion”.

Advertisement

The biggest give-away that Trump’s intentions are not as they seem was delivered by GM itself. Justifying its asset closures, the company said that tariffs imposed on imported European steel and aluminium has added $1 billion to its operational costs, making maintenance of the plants now slated for closure unsustainable. The GM case shows how Trump’s policies ultimately impact US households since they lead to job losses at firms that rely on foreign materials.

A trade war with allies

The GM closures showcase the importance Trump attaches to obtaining access to Europe’s agricultural sector and how far he is willing to go to obtain it – after all, the White House has deliberately and progressively escalated the trade war between Washington and Brussels. By triggering Section 232 investigations that led to import tariffs of 25% on steel and 10% on aluminium – ostensibly to protect America’s steel and aluminium industries – the administration not only offended US allies. It also hit Europe when its domestic aluminium industry was already vulnerable following Trump’s imposition of sanctions against Russian aluminium supplier Rusal and its owner, Oleg Deripaska, one month before.

While the tariffs impacted €6.4 billion worth of exports, the Rusal sanctions had far-reaching effects on Europe’s €40 billion-a-year aluminium industry. In one sweep, they punished the numerous small and medium sized enterprises (SMEs) relying on steady aluminium supplies to continue their production. The sanctions caused a spark in aluminium prices as industry organisations like the International Aluminium Institute (IAI) warned of serious global disruption to supply chains.

Rusal supplies most of Europe’s aluminium, and as its Aughinish alumina refinery in Ireland is facing a shutdown, key parts of the European and global supply chain would be destroyed. The refinery provides alumina to many aluminium smelters across Europe – aluminium that is indispensable for the many specialised SMEs producing semi-finished products for carmakers BMW and Daimler among others, as Germany’s WirtschaftsVereinigung Metalle, an industry group for 655 metals companies, warned.

Targeting the European agriculture sector

Washington may have postponed the Rusal sanctions deadline to 21 January 2019, but its posture is as belligerent as ever. And although the German auto manufacturers were quick to praise the constructiveness of the Kudlow meeting, relations between Brussels and Washington, or progress on opening Europe’s agricultural market, are unlikely to improve soon.

Indeed, the disconnect between Washington and Brussels is tangible. While Brussels has insisted that comprehensive trade talks must include the topic of auto tariffs, Paris has nixed the inclusion of agriculture, thereby infuriating powerful US farm lobbies feeling the pinch from China’s 25% soybean tariffs. European Commission President Juncker and Trump avoided the issue during their last talks, which explains why Washington will exploit the threat of vehicle tariffs to gain the agricultural concessions it has long promised to farmers. But major sticking points remain, making any movements on trade unrealistic.

Meanwhile, Europe’s aluminium industry and SMEs will continue to suffer as America’s collateral. Washington has shown unambiguous intent to inflict major damage to allies who are not dancing to its tune. While the aluminium tariffs are hurting European producers of the metal and risk unemployment across the EU28 to rise, the sanctions against a major aluminium supplier mean that broken supply chains need to be replaced, which is difficult and will take years to achieve.

Trump’s heavy-handed blackmail strategy blackmail flirts with danger because the outcomes of adversarial trade negotiations are notoriously difficult to predict. By threatening Europe with car tariffs again, Trump is hoping to achieve an economic success story, but as GM shows, he may be receiving a humiliating backlash instead.

Share this article:

EU Reporter publishes articles from a variety of outside sources which express a wide range of viewpoints. The positions taken in these articles are not necessarily those of EU Reporter.

Trending