- Europe’s exemption from U.S. metal tariffs ends Friday
- EU insists on ‘unconditional exemption’ as it preps retaliation
- Quotas on European exports could be the only ‘solution’
Although U.S. President Donald Trump granted a 30-day extension to the European Union’s exemption from metal tariffs on April 30, that June 1 deadline this coming Friday is fast approaching. The lack of details on any possible deal has proved vexing for EU politicians and left markets mired in uncertainty over the final outcome. Indeed, it appears there's been little progress toward any sort of agreement.
Talks Down To The Wire, EU Preps Retaliatory Moves
Back in March, Trump implemented tariffs of 25% on steel imports and 10% on aluminum, but gave temporary exemptions to the EU for an additional month. European Trade Commissioner Cecilia Malmstrom has been holding discussions with U.S. Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer in an attempt to avoid an all-out trade war between the two continents.
While the EU has repeatedly called for an unconditional exemption from the metal tariffs which it alleges are illegal under World Trade Organization rules, Malmstrom has expressed skepticism over a U.S. waiver for Europe.
Conversations are expected to take place on the sidelines of the Organization for Economic Cooperation and Development (OECD) forum in Paris this Wednesday. Ironically, perhaps, the conference theme is “What Brings Us Together.”
There will also likely be additional discussion beginning Thursday at a roundup of G7 finance ministers, development ministers and central bank governors taking place in Canada.
But the lack of any sort of progress has raised hackles, at least among European Union politicians. The Union has threatened that, barring a permanent waiver from U.S. import duties, it would retaliate by implementing 25% tariffs on about €2.8 billion ($3.26 billion) of American imports beginning June 20. The duties imposed would primarily target states that supported Trump in the presidential elections and include Harley Davidson (NYSE:HOG) motorcycles, Levi’s jeans and/or Kentucky bourbon.
That would compare to €5.3 billion ($6.17 billion) of steel and €1.1 billion ($1.3 billion) of aluminum that the EU exported to the U.S. in 2017, according to data compiled by Bloomberg.
Outcome Lacks Clarity; Quotas Predicted
Despite several conversations with Ross, Malmstrom admitted last week that “we have no clarity yet.” Ross had indicated that the U.S. would only waive metal tariffs for those countries that agreed to quotas on their exports, thereby supporting demand for U.S. metals in the domestic marketplace. South Korea and Argentina have already agreed to such quotas in exchange for exemptions.
Malmstrom has said that U.S. measures could potentially cap EU exports at 90% of their 2017 levels in exchange for waivers, implying lower European output. EU Commission President Jean-Claude Juncker, speaking at the EU summit press conference in Sofia, Bulgaria on May 17 was inflexible in his stance toward any form of compromise : “I have to be very clear, and I am repeating myself by saying it; we want an unlimited exemption from the proposed tariffs.”
European leaders reportedly produced a proposal at that meeting to include talks to deepen energy cooperation in the field of liquefied natural gas—likely meant to play to Trump’s desire for the U.S. to become an energy powerhouse, voluntary regulatory cooperation and an agreement to improve reciprocal market access by slashing tariffs, especially for industrial products such as cars.
However, nearly two weeks later and with the June 1 deadline on the horizon, the proposal appears to have been ignored by the Trump administration. Adding an additional insult, just last week Trump was reported to have launched an investigation into the possibility of imposing tariffs of up to 25% on imported vehicles, making the future of unrestricted European trade with the U.S. even murkier.
Though it's not apparent whether Trump's aggressive rhetoric and hard deadline are his bottom line or simply part of a bargaining tactic meant to secure less extreme concessions, as the clock runs down, one thing seems increasingly probable—the current trade relationship between the U.S. and the EU will likely undergo a change no matter what finally transpires. As Malmstrom told the EU Parliament on Tuesday, “Realistically, if the U.S. decides to refrain from applying duties I expect them nonetheless to want to impose some sort of cap on EU exports.”