Europe is devising a new trade weapon to shoot back at U.S. President Donald Trump in a deepening transatlantic trade war.
But the development of this revolutionary howitzer, which will allow the EU to impose higher tariffs on Washington, is causing palpable unease in Brussels among those officials who fear that the EU should not be stooping to Trumps dog-eat-dog level.
Under European Commission President Jean-Claude Juncker, the EU repeatedly encouraged Trump to engage with global trade rules at the World Trade Organization, but his successor Ursula von der Leyen is indicating that the worlds biggest trade bloc may well have to play the U.S. president at his own game.
Preparing to begin her mandate next month, von der Leyen wrote to her trade commissioner, Phil Hogan, instructing him to upgrade the EUs “enforcement regulation” to improve Europes trade defense arsenal.
From the EU perspective, this new counter-measure is necessary because Washington is blocking the appointment of judges in the main court for trade disputes at the World Trade Organization. Americas primary grievance is that it thinks the Geneva-based body is too soft on China, but the American pressure means the whole court system is set to collapse in December.
The EU plan has been in the works since the summer, when it appeared in a memo that European Commission experts wrote for the EUs new leadership.
Europe fears that the death of the WTO court in Geneva will mean it has nowhere to go for adjudication if Trump follows through with promises to slap duties on the European car industry later this year, after his earlier tariffs on EU steel, planes and farm goods. Von der Leyens “enforcement regulation” is a way to retaliate with tariffs when the architecture of the WTO crumbles.
“I want you to look at how we can strengthen our trade toolbox,” von der Leyen wrote to Hogan. “This should include upgrading the EUs enforcement regulation to allow us to use sanctions when others adopt illegal measures and simultaneously block the WTO dispute settlement process.” That looks like the new tariff powers would be directed at the U.S., as it brings the WTOs dispute settlement to its knees.
Three diplomats said EU countries knew the Commission was drafting a legal text on this new trade weapon but added Brussels would only launch the official legislative procedure for the upgrade once the WTO court had collapsed.
“It makes sense that the Commission is preparing this [law], so that we can react quickly” in December, one of them said. “We are seeing that the world is becoming more and more protectionist, and we must be prepared.”
Fighting fire with fire
The EUs plan is to unshackle itself from WTO rules that only allow retaliation in very narrowly defined cases after a WTO ruling. If Trump is riding roughshod over the WTO framework, the EU must be able to match his tariff powers, the argument goes.
Outgoing Trade Commissioner Cecilia Malmström, a prominent liberal who always pushed for U.S. engagement at the WTO, was conspicuously non-committal about the enforcement regulation| Sebastien St Jean/AFP via Getty Images
Part of the attraction of the enforcement regulation to Brussels is that the EU would be able to retaliate with tariffs similar to those imposed by the U.S. Current WTO rules mean the EU has limited retaliation power. When Trump imposed tariffs on more than €6.4 billion of EU steel and aluminum in 2018, the EU was only able to retaliate on €2.8 billion of U.S. products.
The EU plan has been in the works since the summer, when it appeared in a memo that European Commission experts wrote for the EUs new leadership.
Many in Brussels are nervous about the implications of the new weapon as it could be seen as an acceptance that the world is heading inexorably back to a situation of might is right.
In an interview with POLITICO, outgoing Trade Commissioner Cecilia Malmström, a prominent liberal who always pushed for U.S. engagement at the WTO, was conspicuously non-committal about the enforcement regulation.
“Im leaving in a month, I have no view on that,” Malmström said. “I dont know what she [von der Leyen] means … I have only seen that line [in the mission letter]. I dont know what and how that will be.”
The problem with the new law, critics say, is that it allows the EU to impose tariffs without the WRead More – Source
