The Effects of Trump's Tariff Conundrum with Europe

By Benny Sun

After one month of his presidency, Trump did the unthinkable; with security experts, defense lobbyists, and military contractors joined together in shock around the globe, Trump discovered the ultimate form of warfare surely to shake the international stage: Twitter. With his right hand furiously tapping away and his left comfortably by his side, Trump has no-doubt altered the method of conducting foreign policy in America, cutting off foreign aid to Pakistan via Twitter, sending in troops to Afghanistan via Twitter, and even bickering about North Korean tyrant Kim Jong Un… via Twitter. Unsurprisingly, this past summer marks another time Trump has famously used his Twitter weapon, as Trump announced in April of 2019 that the US is now able to “put tariffs on 11 billion dollars of EU products!”, furthering that “the EU has taken advantage of the US on trade for many years. It will soon stop!” With October marking the end of Europe’s and America's failure for productive trade negotiations, the World Trade Organization has finally given the greenlight for America to impose tariffs on the European Union, an outcome which could potentially reorient international supply chains around the world and even shift major geopolitical dynamics, in this duel launched solely from a single tweet. 

Since his nomination to presidency, Trump’s tariffs have been a major element behind his economic beliefs. With years of bipartisan support for unrestrained free trade, Trump’s tariffs are another example of how his political views run opposite to the Republican Party. Under the auspices of protectionism, Trump touts restrictions on foreign trade either through tariffs or other government regulation as a strategy to shield domestic industries from foreign competition. In fact, Trump’s support for protectionist policies stems from his populist backing, as the majority of Trump’s political base, who work in the agricultural and industrial sectors, also feel that foreign goods have the potential to seize American jobs and hurt local domestic growth with their cheaper prices. As such, Trump began initiating many trade wars with other countries by placing tariffs on the imports of other countries like Mexico, China, and now the member nations of the European Union. 

Tariffs on the European Union are no different and are a result of similar consequences of foreign competition. In April of 2019, Trump tweeted his plans to target $25 billion dollars of European exports with tariffs, as part of a dispute over Europe’s subsidies to Airbus, an aerospace and defense company. These trade policies followed personal complaints and lobbying efforts from America’s largest manufacturing exporter, Boeing. Boeing argued that Europe was unfairly giving substantial financial support to the European airplane manufacturer Airbus, giving Airbus the opportunity to sell their planes at a much cheaper price which undercutted Boeing’s sales. Trump’s decision has not gone ignored. The European Union also has declared retaliatory tariffs against American imports, pushing both parties towards the negotiating table.While the European Union and the United States sought to establish peace through trade negotiations which would take place beginning in May, these talks ended abruptly in October due to bitter rivalry and lack of agreement. 

In order to impose tariffs on another country, the United States must first file a complaint to the World Trade Organization, who then rules on the validity of the complaint. As such, on October 2nd of 2019, the World Trade Organization cleared Trump’s ability to impose tariffs over the European Union, which included a 25% duty on a range of products like Italian cheeses, French wines, and Spanish olives, and also a 10% tariff on all Airbus products adding up to 7.5 billion dollars worth of imports (18 billion dollars less than initially threatened). Inadvertently, America’s tariffs could negatively harm some American workers. Many analysts including the Specialty Food Administration predict that these tariffs could adversely raise the price of some European food products by 33% and the United States could lose 14,000 specialty food retailers and 20,000 other food retailers nationwide. Conversely, a European Central Bank study conducted by Dr. Venessa Gunnella and Lucia Quaglietti concludes that current trade-war outcomes have had “mild impact across the Atlantic”.

However, while the trade conflict may seem mild, recent deadlines placed by Trump previously could potentially escalate the EU-US dispute and cause severe consequences. In May of 2019, Trump announced that he would delay his decision of implementing tariffs on Europe’s automobile industry as high as 25% to November, citing that Europe’s sway over American cars is a “national security threat” to the American economy. Europe’s auto industry holds crucial portion of Europe’s economy accounting for 10% of Europe’s global exports, employing 14 million Europeans, and generating 7% of Europe’s total GDP. Thus, America’s auto tariffs could also greatly affect the European economy. Despite Trump’s claims, many are detesting his actions. Industry group Alliance of Automobile Manufacturers claims that implementing “auto tariffs” in Europe would be a mistake and could entail significant negative consequences. With his deadline coming up soon, many are questioning whether or not Trump will actually move forward with his threat.

There is little consensus over Trump’s ultimate goal in the trade war. Given the popular perception that Europe is an American ally, many analysts believe that Trump no longer has the political capital to implement auto-tariffs if he wants to win the 2020 elections as both Republicans and Democrats have pushed Trump away from auto tariffs. Instead, David Hauner from Bank of America Merrill Lynch indicated Trump may only be threatening a large sector of Europe’s economy so that he may gain leverage over current trade talks in Europe. More specifically, Trump may be holding the looming threat of auto tariffs over their heads in order to coerce Europe into accepting more agricultural imports such as beef which would appease his political base of farmers for the 2020 elections. Other analysts predict that Trump will actually implement these auto tariffs. Citing Trump’s his desire to slash his trade deficit with Europe, Economist Hans Buchard suspects that the President’s method of receiving votes is through his confrontational approach to foreign countries. Thus, implementing auto tariffs on Europe could serve as an example for other countries. In fact, many politicians believe that Trump won his 2016 election by portraying China as a massive foreign threat, a strategy that got him the support of his blue collar base. Painting Europe in this light could fortify the loyalty of Trump’s Rust Belt supporters as he enters his 2020 campaign season. 

Overall, Trump’s trade war with Europe could provoke massive consequences on the global economy. In a worst-case scenario, analysts from Bank of America Merrill Lynch predict that economic growth could fall from 2.2% to 1.2% as the price of American vehicles, both domestic and imported, could be raised anywhere from 2,000 dollars to 7,000 dollars making the cost of travel much more expensive. Contrary to popular belief, this lesser known trade war may even cause harms even worse than the Chinese-US Trade war. While the total trade between Europe and the United States is worth 1.2 trillion dollars, Chinese-American trade is only worth 737 billion dollars; thus continuing Trump’s tit-for-tat approach with Europe spark an economic catastrophe worse than one with China. Unfortunately, with the last recession of 2008 still burned into the minds of many pushing over 64 million people around the world into poverty, many are worried about the economic consequences of the US-EU trade war. However, there are also greater geopolitical consequences at hand. In contrast to many other nations, China could easily be the greatest winner of the EU-US trade war, as a disruption of the American-European alliance could prompt Europe to shift eastward for a stronger relationship. With China and Europe already working on a free-trade agreement, promises to collaborate on China’s Belt Road Initiative, and greater collaboration on environmental issues (all of which are opposed by the United States), pushing Europe toward China could permanently damage Transatlantic relations.

In conclusion, the EU-US trade war is a conflict that must be monitored in 2019, as just a single tweet can evoke century-lasting changes on the world.