Secret EU plans on the table: Brussels is preparing for Trump’s tariff war

The prospect of new tariffs from the Trump administration portends a nightmare scenario for Europe’s economy, even though many in Brussels believe that

the US president’s campaign promises will come to nothing, as they may also have an adverse effect on the US economy.

The Trump administration’s planned tariff hikes, which would impose 10-20% tariffs on European goods, would hit Germany, the EU’s largest exporter to the United States, particularly hard. The auto industry, already under pressure from Chinese competitors and falling demand, could suffer significant losses. Companies such as Volkswagen are considering the possibility of factory closures, while the negative impact on the German GDP is already measured at ten billion euros.

In Brussels, the optimists trust in Trump’s withdrawal because the tariffs, especially on food and medicine, would put American inflation back on an accelerating path, but could even cause supply disruptions overseas for certain products.

The more realistic among EU officials are aware that the trade war is not only an economic issue, but also a political one. The EU leaders are trying to avoid the crisis by negotiating and by meeting possible American demands – for example by buying American LNG. However, with Trump’s strong rhetoric and raising trade disparities, the odds are uncertain.

EU officials speaking to Portfolio said that as Trump has a proverbial aversion to the EUthey are basically thinking about three member state negotiators that he likes in Brussels:

1. One of them Hungarian Prime Minister Viktor Orbánwho supported the president-elect the most during his campaign, but because of the existing EU contradictions, he is supported the least.
2. The other one Italian Prime Minister Giorgia Melonias he also has a good relationship with Donald Trump, and he also rarely winks from the European mainstream, for example Commission President Ursula von der Leyen has made compromise deals with him several times.
3. The third possible representative Polish leader Donald Tusk it can be, because the American politician does not like France or Germany, so he can talk with the third largest, militarily allied country, and he used to be especially cooperative with Poland.

They are also preparing for the commercial beer

In Brussels, under the pressure of the most pessimistic, a series of counterstrikes were already listed in the summer, with which it can react to a trade war to be launched by Trump, and the development of these has shifted into a new gear since his election, we learned from EU diplomats.

The EU’s response measures already include targeted countermeasures. Following the examples of recent years, the EU would impose tariffs on American products that play an important role in the economy of American political battleground states. From Harley-Davidson motorcycles to Kentucky bourbon, several products that have previously had a painful effect on the affected American industries may be targeted.

Turning to the World Trade Organization (WTO) could be a legal but less effective tool in the hands of the EU, considering that the USA obstructs the organization’s decision-making mechanism.

In addition, the Union can also try to exert pressure by investigating the dumping prices of certain industries, such as biodiesel, but these procedures are time-consuming and only have an indirect effect on the USA.

Another approach is that the union could use technical trade barriers, for example by tightening regulations on American products. For example, they are tightening consumer protection regulations, traceability and warranty criteria.

Although this could be classified as covert protectionism, it can be an effective tool to strengthen negotiating positions.

Are they not only negotiators, but also self-interested?

According to diplomats and experts speaking to Portfolio, the internal unity of the union may also be in danger. Individual member states may have different views on how to fight Trump’s tariffs, especially with regard to China.

They see that while Germany and Hungary are inclined to maintain relations with China, others, such as Italy, which may be closer to Trump’s political line, may make special deals.

They also fear that, although the union is considered a single customs area, the Hungarian or Italian governments may even try to agree that they are not subject to American restrictions and withdraw themselves from tariffs or other trade restrictions through complicated settlement methods. Such agreements, if not impossible, would be terribly difficult to create, except that previously French President Emmanuel Macron also feared that the unity of the EU could be broken if the member states looked at their own interests instead of those of the state federation.

“There will be a risk of division among European countries, depending on sectoral and national interests, some of which are very exposed to the Chinese and American markets,” warned French President Emmanuel Macron, who said that those more dependent on the American market would yield faster of the pressure that the United States government may exert on them.

EU decision-makers are hoping that Trump only wants to strengthen his bargaining position and that the threats will ultimately not materialize. According to Ursula von der Leyen, the president of the European Commission, the focus should be on negotiations and the search for common interests – as she also spoke about after the informal summit in Budapest.

At the same time, an American protectionist economic policy and the use of global trade as a weapon raise serious questions about the EU’s future strategy. It will also be a serious test of strength for EU unity.

Cover Photo: U.S. President Donald Trump delivers a speech on a trade deal with the European Union as representatives of the U.S. beef industry welcome the announcement in the Roosevelt Room of the White House on August 02, 2019 in Washington. Photo credit: Chip Somodevilla/Getty Images