'We Will Not Negotiate Under Threat'

Trump is using the possibility of tariffs to get trade concessions from Europe. The Europeans are not interested.

President Trump and German Chancellor Angela Merkel
President Trump and German Chancellor Angela Merkel hold a joint news conference in the White House on April 27, 2018.  (Brian Snyder / Reuters )

At the last minute, the United States this week deferred a decision about whether to subject Europe to steel and aluminum tariffs. Trump at first announced sweeping and expensive measures designed to discourage imports of those products to the United States from around the world, but soon began distributing exemptions to some allies. The European Union thus got a reprieve, but when it came time for Trump to decide whether to make it permanent, he instead extended it for 30 days—within which time, perhaps, he expects negotiators to be able to convince the Europeans to submit to Washington’s demands.

But the Europeans don’t seem interested. European leaders like France’s Emmanuel Macron and Germany’s Angela Merkel lobbied hard during their respective trips to Washington last week in order to secure permanent EU exemptions to the tariffs, warning that the U.S. risks starting a “trade war with your ally” without one. In response to the 30-day extension Tuesday, Brussels struck an indignant note, declaring in a European Commission statement that “as a longstanding partner and friend of the U.S., we will not negotiate under threat.”

Ultimately, what the U.S. wants is for all countries seeking exemptions from its tariffs to submit quotas or other restrictions on how much aluminum and steel they are allowed to export to the States. It’s a trade-off that Peter Navarro, the White House trade adviser, said is “necessary to defend the aluminum and steel industries from imports in defense of our national security.” U.S. Commerce Secretary Wilbur Ross offered a similar rationale, stating Tuesday that the U.S. has “no intention of protracted extensions,” even for its allies.

This approach has earned the U.S. some concessions elsewhere. In late March, South Korea announced that it reached an agreement in principle with the U.S., under which it would be exempt from tariffs in exchange for a 30-percent reduction on Korean steel shipments to the states. South Korea also agreed to double the number of U.S. cars it imports and allowed the U.S. to extend its 25-percent tariff on Korean pickup trucks until 2041. The White House said it has reached similar deals with Argentina, Australia, and Brazil.

But the EU is a different matter, and not just because the bloc has so far refused to negotiate without securing permanent exemptions first. For one, negotiating with a bloc of 28 countries (as opposed to one) is inherently more difficult, as the collective body is less likely to submit to a deal that favors one party over the rest. Moreover, the EU is a larger economy than the U.S. and is the U.S.’s largest trading partner (having exchanged upwards of $700 billion worth of trade last year). Trump bemoaned the bloc’s $150.9 billion trade surplus with the U.S., and has expressed equal frustration over his inability to negotiate bilaterally with individual EU countries—something the president was apparently unaware of before Germany’s Merkel explained it to him last December. “The trade with France is complicated because we have the European Union,” Trump told reporters last month. “I would rather deal just with France. The union is very tough for us.”

André Sapir, a senior fellow at the European economic think tank Bruegel, told me such a deal is also less likely to happen because it’s not in the bloc’s interest to establish that kind of precedent. “You would open the door for further such requests from the U.S. down the road,” Sapir, a former economic adviser to the president of the European Commission, said, adding: “First it’s steel, then it’s God knows what in six months. On what grounds do we know there won’t be further requests?”

And the bloc has leverage of its own. It already has a plan for how to respond to the tariffs if they fail to secure a permanent exemption: It will retaliate. Specifically, the EU has threatened to tax $3.5 billion worth of hundreds of American exportsin ways that could specifically hurt the livelihoods of American voters in key areas of the countryranging from bourbon whiskey to Harley Davidson motorcycles. The EU imposed similar retaliatory measures the last time the U.S. threatened to impose steel tariffs in 2002. Then-President George W. Bush ultimately backed down.

Still, Trump has shown no indication that he will follow his predecessor’s path, nor has the EU suggested it’ll deviate from the one it followed in 2002. Though some industries, such as Germany’s automobile industry, would be hit more than others, it’s hard to predict exactly how higher tariffs will impact the EU and U.S. economies. Fredrik Erixon, the Director of the European Centre for International Political Economy, a Brussels-based think tank, told me “the general conclusion is that it’s the party that introduces them that loses the most.” He added that the greatest threat isn’t the steel and aluminum tariffs themselves, but the tit-for-tat trade war that they could provoke. “It’s virtually impossible to try and figure out who would lose the most because both parties would lose tremendously from a development like that.” As of now, they’re headed for precisely that kind of collision.