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Europe's ties with US strained as new tariffs on the way

Like many other troubles that hit the world, it is likely the poorest who will be hit the hardest. Farmers in the US are now struggling due to the trade conflict with China and low-income consumers in the heartland pay that much more at Walmart.

By Jon Van Housen & Mariella Radaelli (Euroscope)

Published: Sat 5 Oct 2019, 10:27 PM

Last updated: Sun 6 Oct 2019, 12:30 AM

It seems Europe can't catch a break. Just as the unemployment level dropped to its lowest level since 2008 and the refugee crisis eased, it now faces a potential trade war with the US.
The European Union's industrial engine, Germany, was already facing flat-lined growth when the administration of US President Donald Trump announced last week that it would impose up to $7.5 billion in new annual tariffs on European goods. A newly appointed EU commission set to be seated has placed the fight against climate change as its top priority but now it will first have to grapple with a fight against the policies of Trump.
In his bunker mentality of 'us against them', Trump has turned his sights on Europe after his prolonged trade tiff with China. He has now drawn the world's three biggest economic zones into trade conflict, leaving experts to wonder and warn that the entire global economy could finally falter under the strain.
The leverage Trump is using is a case filed with the World Trade Organization back in 2004 over European subsidies in the development of Airbus, the airplane manufacturing consortium designed to counter the long dominance of Boeing. After years of decisions and appeals, the WTO issued a final ruling in September that the US has been damaged by unfair business practices in an amount equal to some $7.5 billion a year in the development and sale of Airbus planes.
Though Trump is now using the WTO final ruling as weapon in his bid to promote himself as the great protector of American workers and interests, the case was initiated under the watch of George W. Bush and continued through under eight years of the Barack Obama presidency. The administrations of those predecessors did the careful work of proving the case in the complex world of international trade at the highest level.
With his own administration in continued chaos, it is doubtful whether Trump himself could have marshalled the case through the WTO labyrinth, a task that requires an attention span longer than a tweet. And it has been the so-called "deep state" of professional bureaucrats that saw it through to conclusion, not any of Trump's cohorts or family.
Though the WTO ruling supports the US claim of damage, a balanced leader would consider the calculus of overall benefit in using the tariff option. Could additional strain indeed trigger a sharp global downturn that would damage the US along with everyone else? It seems that question is too deep for Trump to fathom.
The EU has a parallel case running in the WTO against the US over what it says are subsidies to Boeing in the form of tax breaks in the state of Washington. The final ruling is expected next year, but the EU already has other rulings from the WTO it could weaponise to immediately respond with its own tariffs.
The result could be a tit-for-tat, spiralling battle that damages everyone.
Kerstin Braun, president of the international trade finance Stenn Group, told the Business Insider newspaper that "the WTO ruling against the EU on Airbus lets Trump play 'trade war' with a new part of the world."
The result, she warns, could be a slowdown in services and manufacturing that "will cause a recession snowball effect - hitting the jobs market, then lowering wages and stagnating prices."
"This isn't going to end well for anyone, from European farmers to specialty foods distributors, to the 275,000 workers in America connected to Airbus supply chain and assembly," Braun said.
In the immediate term, European goods facing increased taxes when imported to the US could include fish, citrus fruit, olive oil, juice, wine and a range of cheeses as well as a bewildering list of other items.
But how much a boost in levies on European goods would damage their sales in the US is a big question. In a luxury market already prepared to pay a premium, an additional 25 cents at the deli or specialty store is unlikely to make sales plummet.
And perhaps Trump doesn't realise, or doesn't care, that higher prices due to tariffs amount to an additional tax on US citizens. The funds raised through tariffs go directly into US government coffers. In the case of China's inexpensive products, struggling consumers will go ahead and pay a few more cents for a kitchen bowl, while for luxury European goods the more affluent will likely pay more without even noticing the difference.
And like so many troubles that hit the world, it is likely the poorest who will be hit the hardest. Farmers in the US are now struggling due to the trade conflict with China and low-income consumers in the heartland pay that much more at Walmart. The small agrarian producers in Europe, already facing possible extinction in a mechanised world, now have another hurdle to face.
The great irony is that the voters who support Trump are among those who could pay the biggest price. By buying into his vision of an idealised better past, they could be sealing their fate for the future.
Jon Van Housen and Mariella Radaelli are editors at www.luminosityitalia.com

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