Previously, the White House pledged not to move forward with imposing tariffs on the European Union or Japan as long as constructive progress is being made in bilateral trade talks.
Radio Sputnik spoke about the possibility of increased US tariffs on imported European cars with David Bailey, a professor of Industrial Strategy at the Aston Business School in Birmingham.
Sputnik: Now, in your view, how likely is President Trump to go ahead with his idea to increase tariffs on European cars?
Prof David Bailey: Well, it is not clear whether it is just a threat at the moment from President Trump to prompt the Europeans into faster action on a trade deal but, certainly, there is a credibility to his threat. We know that he is willing to do this sort of thing. And if there isn't faster progress in trade talks, perhaps, even extending them — I think he wants agriculture added in — then it seems that he is willing to go ahead.
Sputnik: Do you think that President Trump is correct in his assessment that the tariffs would help push the European Union towards a trade deal?
Prof David Bailey: Well, I am not a fan of tariffs at all, let's be clear on that. But certainly his earlier threat a threat of doing that, forced a very quick reaction by the Europeans.
The reason why Trump has got leverage on this is that there is asymmetry in the trade relationship on automotive in particular. So, lots of imports of European cars into the US, a lot of imports the other way as well, but it is unbalanced.
At the same time, however, Trump needs to realise that the value chain is integrated as well. So his tariffs would impact on components, they go into cars made in the US by European producers. So, it would damage the US economy as well if he went ahead with it.
Sputnik: What effect would the move have on trade relations between Washington and Brussels?
Prof David Bailey: It would be extremely negative. So, I think the Europeans would not take this lying down. I think last year they already draw up a list of possible US products, including things like whiskey from Tennessee, that they would look at imposing tariffs on and hit back.
Now previously, of course, when there have been issues like these, way back at the beginning of the 2000s when then-President Bush imposed tariffs on steel, the Europeans would use the multilateral system, go to the WTO, file a complaint, wait for the WTO to rule against the Americans.
Then there would be the threat of reciprocal sanctions and the Americans would back down. This is kind of bypassing all of that. So this is Trump trying to do a bilateral deal with Europe, and Europe saying "well, maybe we will hit back directly". It does raise into question the whole multilateral trade system, globally.
Sputnik: To what extent would Europe be prepared to compromise in case of a trade war with the United States and how would this affect the global economy?
So that would want to be avoided I think by Europe. I think they are all prepared for a quick limited trade deal to reduce tariff barriers on automotive products, on automotive components, in order to satisfy Trump. So that would give Trump a political victory.
At home, I think he could then sell it to his domestic base. But let's be realistic that would be I think beneficial for trade between the two countries. But the big "big issue" in a lot of trade isn't so much tariffs, it is non-tariff barriers.
This is a huge topic of discussion in the UK in the context of Brexit. Some estimates have suggested that the difference in the regulatory system between the US and Europe adds up to an equivalent of a tariff of 24 per cent. So, yes, by all means, remove tariffs but non-tariff barriers maybe more significant, still.
Sputnik: Professor, we have had many experts on this topic and all of them said nobody would benefit from a trade war. Mr. Trump claims that trade wars are a good and easy to win. What is the reason behind this move?
Prof David Bailey: He wants to get a political victory to sell to his domestic base, which is blue-collar workers in many cases. So, he wants to be seen to be standing up for their jobs. He is appealing as it were, to automotive makers and workers in manufacturing in the US. So that is setting ultimately his political objective. Trade wars are damaging to both sides.
I think you remember as well he comes out of business where he has written his book on the art of the deal. This is about him trying to set up a context for a deal to happen. Whether we actually see a trade war or not is another thing but he has the credibility to threaten it.
So, it is about trying to exercise leverage to get the Europeans to the table to have a limited trade deal or a broader trade deal if need be. Trade wars themselves would be extremely damaging there, every serious economist has agreement on that.
The views and opinions expressed in this article are those of the speaker and do not necessarily reflect Sputnik's position.
The views and opinions expressed in the article do not necessarily reflect those of Sputnik.