Rattled by President Trump’s proposal to raise tariffs on steel and aluminum imports, the European Union is threatening the U.S. with a full-blown trade war. “We will now impose tariffs on motorcycles, Harley Davidson, on blue jeans, Levis, on bourbon,” Jean-Claude Junker, President of the European Commission, warned earlier this week.

“Should Trump follow his words with actions, Europe will reply proportionately,” German Economy Minister Brigitte Zypries said in response to the proposed move.

Earlier this week, President Trump had mulled the prospect to impose 25 percent import tariffs on steel imports and 10 percent on aluminum, a move aimed to prevent foreign producers from dumping cheap steel and aluminum into the U.S. market.

The EU is ready to ‘reciprocally raise’ import duty on U.S. steel and aluminum, Germany media reported on Wednesday. The EU, along with other steel and aluminum producing countries like Canada, Brazil, Japan, and China, might also lodge a formal complaint with the World Trade Organization (WTO).

President Trump might have been onto something when he said that the EU had “banded together in order to beat the United States in trade,” at a Florida fundraiser recently. As Germany’s state-run broadcaster Deutsche Welle now reveals, the EU plans to “forge a coalition of countries to agree a unified reaction to Trump’s move.” Brussels hopes to recruit Canada, Japan, Australia, and Turkey among other countries in a united front against President Trump’s move, the broadcaster said.

As a retaliatory measure, the EU Trade Commissioner Cecilia Malmström wants to target US agriculture products like peanut butter, cranberries, and orange juice, France24 revealed:

Bourbon, Levi’s jeans and Harley Davidson: these are the main products Brussels is threatening to tax in the event of US tariffs on imports of aluminum and steel. The EU did not chose these products by chance.

EU Trade Commissioner Cecilia Malmström on Wednesday added that the EU’s counter-measures would also include tariffs on US steel and agricultural products as well as on peanut butter, cranberries and orange juice.

“EU goes tactical in looming US trade war,” claimed France24. Retaliating against U.S. steel import tariffs by hitting bourbon, peanut butter and cranberries juice, doesn’t sound like a grand strategy—unless Brussels has a better card up its sleeves.

“If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S.,” Trump wrote on Twitter. “They make it impossible for our cars (and more) to sell there. Big trade imbalance!”

Despite tough talk from Brussels, the EU bosses are treading on thin ice, and they know it. According to the German newspaper Die Welt, merely the talk of a trade war is destabilizing the euro currency zone. The strengthening of the euro against the dollar, as a result of President Trump’s announcement, is set to make European exports less competitive in the U.S. market, the newspaper argued:

At a meeting on Thursday, the top custodian of the euro [Mario Draghi, President of the European Central Bank] had the opportunity of criticizing the US. Since US President Donald Trump raised the prospect of imposing punitive tariffs on trading partners, the transatlantic relations have been adversely affected. Even the monitory policy, which usually is not connected to international trade policy, needs examining.

The mere announcement of the tariff on US imports has pushed the governments of key US trading partner in a state of hectic activity and the financial markets in a state of anxiety. The stock markets have fallen, the dollar has lost value. The latter can be a problem for the European Central Bank. A strong euro not only slows down the economic growth, but lead to a decline in inflation. [Die Welt, March 8, 2017; Translation by the author]

Steel and aluminum imports make up for a tiny sliver of the overall U.S.-EU bilateral trade that is somewhere in the range of $650-$700 billion annually. According to EU data, U.S. imported $5.6 billion worth of steel from Europe in 2016. During the same period, European aluminum imports to the U.S. was around $500 million. The annual U.S. trade deficit with the EU is around $147 billion. Given the trade discrepancy, if the EU gets into a trade war with the US, it has lot to lose.

Video: “I’ve warned US President Trump, we will take countermeasures,” Jean-Claude Junker, EC President

[Cover image via YouTube]


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