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    EU's Counter-Plan to US Car Tariffs 'Not Empty Threat', But Will This Stop Trump?

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    The EU has worked out a set of counter-measures in case the Trump administration resorts to imposing new tariffs on the bloc's vehicles and spare parts. The newly proposed plan envisages slapping tariffs on $39.1 billion worth of US goods.

    Donald Trump has yet again ramped up the rhetoric against the European Union and the bloc's trade practices, singling out Germany as “the biggest offender” and castigating the World Trade Organisation (WTO), while delivering a speech at the conservative Turning Point USA’s Teen Student Action Summit.

    "European Union is worse to us on trade than China", the US president said in a clear reference to the longstanding trade spat with the People's Republic.

    The Trump administration launched a tariff spree in March 2018 by stepping up import taxes on steel and aluminium, which prompted his European allies to complain to the WTO and trigger nothing short of a full-fledged trade war with China.

    In May 2019, the US president announced that Washington would impose tariffs on specific imported vehicles and parts which pose a threat to the country's "national security" by the US' account.

    While Trump's new measure was temporarily suspended, Brussels has worked out a counter-plan to potential US tariffs on EU cars. The European grand design envisions the imposition of extra duties of up to 35 billion euros' ($39.1 billion) worth of US goods.

    “We will not accept any managed trade, quotas or voluntary export restraints and, if there were to be tariffs, we would have a rebalancing list”, European Trade Commissioner Cecilia Malmstrom told the European Parliament on 23 July, adding that she hopes that the EU does not have to resort to this.

    EU 'Counter-Plan' Will be Incentive for US to Escalate Conflict

    "It is a good thing that the EU does not want to violate the WTO rule that prohibits quantitative restrictions on trade", says Raoul Leering, the head of International Trade Analysis at Dutch bank ING, commenting on Malmstrom's statement. "The EU can play tougher than Countries like Canada, South Korea and Mexico that depend much more on US demand for their products than the US depends on their demand for US products. Between the US and the EU this dependency is roughly the same".

    In 2018, the US goods trade deficit with EU member states amounted to $169 billion, while trade in services with the EU, both exports and imports, reached $452 billion.

    ​The finance expert foresees that "for the US administration this will be an incentive to escalate the conflict by raising the tariff on automotive products further or including other (non-automotive) products in the basket of goods that are subject to tariff hikes from the US".

    "After all, the US is of the opinion that trade in automotive products between the US and the rest of the world is unfair because the US charges lower import tariffs on cars (2.5%) than the EU (around 10%). So retaliation of the EU would restore the un-level playing field in the eyes of the president", Leering suggests.

    Retaliation From EU Not an Empty Threat

    Nicola Borri, an economics and finance professor at Rome's LUISS Guido Carli University, believes that the EU's measure could force the US to think twice before imposing high tariffs on cars imported from the bloc.

    "US exports to the EU account for 19.1% of overall US exports in 2018", the Italian professor points out. "Therefore, retaliation from the EU is not an empty threat. Both parties have a lot to lose: we'll see if the threat of higher tariffs and trade restrictions on both sides acts as a deterrent and stops Mr Trump's aggressive trade policy towards the EU".

    Borri expects that "the US will be more careful in pushing forward the tariffs against EU cars and other products", adding that "the claim that EU vehicles are a threat to US national security is absurd".

    "It's obvious that Mr Trump thinks that trade is not a zero sum game, and he wants to be on the winning side", the professor remarks. "However, the risk is that everyone, both the US and the EU, end up on the losing side".

    Two 'Red Lines' for European Union

    According to Leering and Borri, the EU automotive industry and agriculture exports play a big role for the Europeans, constituting some sort of "red line" for the bloc's producers.

    "There are two red lines for the EU: it cannot tolerate that its vehicles are considered a threat to US national security; and it cannot put agriculture to the bargaining table", Borri says, warning that if Trump does not take this into account, there will be "no deal".

    For his part, Leering believes that while agriculture could become a real "deal breaker" for the US and EU, the bloc "has already indicated that bringing the tariff on cars back to zero is no problem, which could result in taking away the tariff barrier completely".

    According to the finance expert, the US-EU tit-for-tat tariff war will obviously hit the global economy, since "trade wars reduce world output".

    "In the short-term, some sectors and some countries could benefit from higher tariffs. But in the long-run everyone loses", Leering concludes.

    The US-China trade war, which continues to rage with ups and downs between Washington and Beijing, could provide an illustration of how prolonged trade frictions affect "warring" parties and the global economy. Thus, according to the International Monetary Fund, the escalation of the tit-for-tat tariffs could cut 0.5% off global growth by 2020.

    IHS Markit Ltd, a London-based global information provider, predicts that "in the protectionism scenario, the level of global real GDP is reduced 0.1% [in 2018], 0.8% in 2019, and 1.4% in 2020".

    "There are no real winners in this US-initiated trade war", the IHS' macroeconomic forecast said in 2018. "Countries facing new tariffs, including the United States, experience decline in real exports and GDP. Other countries are hit indirectly through weaker demand for their own exports, either through supply chains or in response to weaker global economic growth".

    The views and opinions expressed by the speakers do not necessarily reflect those of Sputnik.

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.

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