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Winter is coming: Trump tariff clash looms for von der Leyen

By Hans von der Burchard

The first big battle for Ursula von der Leyen’s new European Commission is already clear: a trade clash with President Donald Trump.

The incoming EU leader is adamant that she wants to create a “geopolitical” Commission that responds to threats from China and the U.S., and she’s probably going to have to prove her mettle as a global gunslinger within weeks.

A confidential World Trade Organization ruling, issued Friday, allows Trump to trigger a full-blown trade war by imposing tariffs on billions of euros of European exports, from as soon as Sept. 30.

This puts von der Leyen in a political bind. As the American tariffs come in response to European subsidies to aircraft-maker Airbus, Brussels doesn’t have immediate grounds to hit back.

To make matters worse, the self-styled “Tariff Man” is threatening a killer one-two punch against Brussels. In addition to Airbus tariffs, probably on up to €8 billion of goods, Trump is also looking to impose hefty duties on European auto exports that could come as early as mid-November.

Officials in Brussels have been watching with horror how Trump used the threat of those same auto tariffs to strong-arm Japan into making concessions on agriculture. The EU fears that a U.S.-Japan trade deal, which is supposed to be signed at next week’s U.N. General Assembly in New York, will reinforce the president’s belief that he can proceed with his gun-to-the-head tactics to extract similar concessions from the Europeans.

On top of these concerns, China has snubbed the EU by not sending a top official to a trade meeting scheduled for next week, as Beijing appears to prioritize reaching an “interim trade deal” with the U.S. instead of making concessions on longstanding EU demands for market openings.

“The global trade climate is not good. We have no more natural allies,” said Bernd Lange, chairman of the European Parliament’s trade committee.

The looming trade escalation also sets the stage for von der Leyen’s pick as trade chief, Phil Hogan, who has a reputation as more of a brawler than his predecessor Cecilia Malmström. The Irishman told RTE radio last week he would do everything he could “to get Mr. Trump to see the error of his ways” on trade.

From whiskey to wings

The WTO ruling on Airbus represents the most urgent challenge.

America’s tariff hit list, published in April and extended in July, covers about $22.7 billion worth of iconic European products — from whiskeys and Dutch Gouda cheese to luxury goods such as handbags — that the U.S. can tax at different rates to claw back damages of probably up to €8 billion. Washington can impose the tariffs as soon as the ruling has been made public, which is expected to happen in two weeks.

Malmström told reporters Monday that Brussels had pulled out all the stops to avoid a tariff escalation from happening, but said the Americans “have not engaged” in offers to reach a negotiated settlement.

“We have made concrete proposals but received no reaction. Zero,” said Lange.

Gordon Sondland, the U.S. ambassador to the EU, said Washington was seeking “an end to subsidies for Airbus and the recovery of damages. However, if negotiations between the U.S. and EU don’t elicit a change in this behavior and a recovery of those damages, then the United States will suspend concessions and resort to tariffs.”

Tiziana Beghin, a member of the European Parliament from the Italian Five Star Movement, said the threatened tariffs were a wake-up call for the incoming Commission to develop more robust defense mechanisms in the trade sector.

“The policy of muscle and retaliation is damaging to everyone and does not suit anyone,” she said. “The European Union needs more effective trade defense instruments as soon as possible to enable it to impose sanctions on third countries if unjustified tariffs are applied to European products.”

Referring to the various Italian products that are targeted by the U.S. — such as pasta, Parmesan cheese, roasted coffee and olives — Beghin said the WTO ruling was “worrying and clearly damages ‘Made in Italy.'”

Other targeted food producers have also expressed concern. “Every barrier that a country introduces is of course troublesome. We are in favor of free trade,” said René van Buitenen, spokesperson for the Dutch Dairy Association. He added that about 2 percent of all Dutch cheese and other dairy products go to the U.S. “If these tariffs were to be introduced, we would need to see whether American producers are willing to pay more or where we can find alternative export markets.”

French wine exporters, which have already been threatened with U.S. tariffs in a parallel trade dispute over France’s digital services tax, called for a negotiated outcome as nearly 20 percent of their global sales — worth over €1.6 billion last year — go to the United States and risk being affected by the duties, according to the Federation of French Wine and Spirits Exporters.

Tit for tat

Besides the long list of prominent European food products in Trump’s sights, the U.S. tariff list also covers airplane parts. This has sparked a warning from Airbus chief executive Guillaume Faury, who told POLITICO that imposing such tariffs would backfire and negatively affect American jobs because of Airbus production in the U.S.

Besides that self-inflicted wound, the EU expects to have a chance to impose counter-duties against the U.S. in about half a year.

That’s because Brussels has its own WTO dispute running against American airplane producer Boeing, which was found to have benefited from unlawful subsidies too. By spring 2020, the WTO is expected to issue a ruling that will allow the EU to also claim damages from the U.S., and Brussels has already drafted a target list covering up to $20 billion worth of American products.

The European Parliament’s Lange called the U.S. attitude “regrettable” because it forces the EU to resort to tariffs as well. “It would be much better to forego such an escalation and agree on global rules for airplane subsidies, because there are other players such as China, Russia and Brazil that are pushing in this market and we need to create fair rules that apply to all sides,” he said.

The U.S. National Association of Beverage Importers already issued a warning to U.S. Trade Representative Robert Lighthizer that such a tit-for-tat escalation could be destructive.

“Up to 78,600 jobs in the U.S. beverage, alcohol and hospitality sectors could be lost if distilled spirits, wine and non-alcoholic beer are included on the final U.S. list of European Union products targeted for retaliatory tariffs,” the association told Lighthizer’s office last month.

“If beverage alcohol products remain on the final U.S. list, the EU would certainly respond by keeping U.S. beverage alcohol products on its list,” the association said. “The EU has threatened to impose tariffs on imports of U.S. wine, vodka and rum,” it added.

This report first appeared on politico.eu on Sept. 17, 2019.