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Tit-for-Tat Steel Taxation: A Potential Inflammatory Step by Trump? - Is Trump's recent proclamation of steel tariffs crossing the line of provocation?
The worsening trade war between the US and the EU has left many wondering if diplomacy would ever prevail. But on the heels of the recent easing of hostilities between both powers, Donald Trump has just announced an increase in the existing tariffs on steel and aluminum imports from 25% to an astonishing 50%. This move has left the EU fuming, threatening retaliatory measures.
The Shocking Surprise
Given Donald Trump's recent signs of seeking a peaceful resolution to the trade conflict, this sudden announcement comes as a significant shock. A week ago, Trump threatened the EU with yet another dramatic tariff hike, only to agree to a conversation with EU Commission President Ursula von der Leyen after raising eyebrows. During their encounter, Trump withdrew the threat and acknowledged that negotiations would continue until July 9. The EU Commission hailed the conversation as a new step forward.
Since then, multiple phone conferences have taken place between both parties' trade representatives, with EU Trade Commissioner Maros Sefcovic talking to US Trade Minister Howard Lutnick as recently as last Friday.
The EU's Fierce Response
The EU Commission, taking the reins in the tariff negotiations, has made it clear that it views the increased tariffs as a blatant challenge to the ongoing efforts to resolve the dispute peacefully. In a statement, a spokesman asserted that the move undermines the very heart of diplomatic dialogue. The EU is prepared to act swiftly, and although negotiations will continue until July, countermeasures could be put in place earlier if necessary.
Potential Swift Countermeasures
EU member state governments have prepared initial counter-tariffs of between 10% and 25% to counteract the new tariffs imposed by the US. Products like jeans, motorcycles, beef, and citrus fruits could all become more costly for American consumers if these measures are enforced immediately. Additional duties on industrial and agricultural goods, such as cars, sweet potatoes, and whiskey, could follow suit.
Trump's Motivation
Trump claims that this aggressive tariff move is crucial to correct trade imbalances and protect domestic production. According to the US President, the additional fees for imports will strengthen the domestic steel industry. His speech to employees at a Pennsylvania steel plant last Friday attests to this.
Kevin Dempsey, the president of the American Iron and Steel Institute, has welcomed this crackdown on steel imports. Chinese steel exports, he argues, have more than doubled since 2020, largely thanks to questionable international practices. Dempsey contends that this tariff initiative will avert a new wave of imports that would be detrimental to American steel producers and their employment. The revenue generated by these tariffs will also help Trump meet his costly tax cut promises to some extent.
Consequences for the EU
The European steel industry had already expressed concern earlier this year that higher tariffs would force additional capacity reductions and potential job loss within the industry. With the EU accounting for 16% of total EU steel exports, the US was the second-largest export market for European producers in 2024.
Despite these challenges, Germany's largest steel manufacturer, Thyssenkrupp Steel, has appeared relatively calm, insisting that Europe remains their main market for steel exports.
A Pathway to Compromise?
Although the US and the EU could potentially team up to address massive overcapacities on the global market due to subsidies, chiefly attributed to China, which harms companies from both continents, it remains to be seen whether both sides can reach a compromise. The EU is readying economic and political pressure, as well as potential trade negotiations leverage, in response to Trump's escalation.
Possible Countermeasures
- Countertariffs: The EU is preparing to impose tariffs on American goods worth up to €95 billion if the situation escalates.
- Trade Negotiations: Upcoming trade negotiations could provide an opportunity for both sides to address tariff issues directly.
- Economic and Political Pressure: By elevating the economic risks and global growth slowdown caused by higher tariffs, the EU might generate support from other countries and international organizations to pressure the US to revise its tariff strategy.
- Supporting the EU Industry: The EU could use this opportunity to bolster support for their own steel and aluminum industries through subsidies or other economic measures.
The EU is determined to protect its industries and negotiate fairer trade terms while maintaining stability with the US.
- The EU Commission views the increased tariffs on steel and aluminum imports as a challenge to diplomatic dialogue and is prepared to act swiftly, potentially implementing countermeasures earlier than July if necessary.
- In response to the potential countermeasures, American consumers may face increased costs on products like jeans, motorcycles, beef, and citrus fruits, as well as industrial and agricultural goods such as cars, sweet potatoes, and whiskey.
