Monday, 28 October 2019
American supervillains come in all shapes and sizes. Superman’s nemesis Lex Luthor cuts a superficially respectable figure. The Green Goblin, Spiderman’s arch-enemy, looks ghoulish. The Joker, Batman’s arch-foe, is famous for his warped face and crazed smile. And now, with his trademark orange face, bouffant hair and puckered lips, there is Tariff Man – and he’s coming after the EU.
Donald Trump prides himself on being “a Tariff Man”. “When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN,” the US president has tweeted.
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
— Donald J. Trump (@realDonaldTrump) December 4, 2018
For once, Trump has been true to his word. He has lashed out at foreign washing machines and solar panels. He has progressively escalated his trade war with China such that most American imports from China are now heavily penalised. And he is also attacking the EU on three fronts.
In 2018 Trump slapped punitive tariffs on US imports of steel and aluminium, including $7.4 billion (€6.7 billion) from the EU. And in October he imposed further tariffs on $7.5 billion (€6.8 billion) of European exports. These include 25% duties on products such as French wine, Spanish olive oil, Italian cheese, Scotch whisky and German machinery, as well as 10% import taxes on Airbus aeroplanes.
By the time you read this, the protectionist US president may also have followed through with his threat to target the $62 billion (€56 billion) in cars and car parts that the US imports each year from the EU. That could tip a feeble eurozone economy into recession.
A trade war over cars would be a hammer blow for the German car industry in particular. It is already laid low by the diesel-emissions scandal, its digital backwardness – pity drivers who are fooled into paying a fortune for shoddy proprietary satellite-navigation systems when they can obtain a much better service for free from Google Maps – and its underinvestment in disruptive new technologies such as electric cars and self-driving vehicles.
To be fair to Trump, his October tariff hike against the EU was authorised by the impartial arbiter of international trade disputes, the World Trade Organisation. The WTO ruled that the EU had provided illegal subsidies to Airbus for the development of its A380 superjumbo and its smaller long-range A350 aeroplane, to the detriment of its American rival, Boeing. The Geneva-based body gave the green light for the US to retaliate with 100% tariffs on $7.5 billion of EU exports.
In this case, then, Trump was – exceptionally – acting within the scope of the multilateral trading rules that the EU professes to uphold. Indeed, he arguably acted with moderation, since the initial tariffs that the US has imposed are much below 100%.
That said, in 2020 the WTO is expected to rule against the US in an EU counter-complaint against the allegedly illegal support provided to Boeing through US government defence contracts and tax breaks. That, in turn, would allow the EU to retaliate against US exports. By far the best outcome would be a negotiated settlement that averts tariffs altogether.
Typically, though, Tariff Man acts unilaterally, with brazen contempt for international rules and security alliances. His pretext for imposing tariffs on steel and aluminium was that imports from longstanding allies in Europe and elsewhere constituted a threat to US national security. That is not just untrue, it is also deeply offensive. Most EU members are longstanding allies of the US through the North Atlantic Treaty Organisation (NATO). Many sent troops to fight in Afghanistan in defence of the US after the 9/11 attacks; more than 870 Europeans have died there.
Trump’s bogus excuse for targeting European cars is likewise that they pose a national security threat. Like the best spies, it would appear, Mercedes and BMW cars hide in plain sight.
Tariff Man claims that “trade wars are good, and easy to win.”
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
But so far he has inflicted much harm without securing any victories. His tariffs don’t just hurt foreign exporters; they are also a tax on American consumers and US-based businesses that rely on imports. Pity Americans who like a glass of Chablis or US airlines such as Delta that buy Airbus aircraft. Retaliatory measures by China, the EU and other aggrieved parties have also dented US exports.
More broadly, Trump’s erratic behaviour and wild threats have created unprecedented uncertainty. That stifles business investment, both in the US and globally. Business leaders who once assumed that our globalised economy was here to stay are suddenly re-evaluating their assumptions. What if globalisation were to collapse and the world economy were to split into rival economic blocs? Where would that leave Europe?
That crippling uncertainty is a big reason why the US economy – and the global one – has slowed so sharply recently. Tariff Man is shooting Uncle Sam in the foot.
How, then, should the EU fight back against Tariff Man? By clubbing together as the EU, twenty-eight smaller European economies don’t just benefit from a vast internal single market that makes Europeans richer and freer. Their collective $19 trillion economy – which is nearly as large as the US’s – gives them global clout, as Britain is finding out to its cost as it seeks to leave the club.
Even without the UK, the EU is an economic superpower that can normally stand up to US bullying on trade. Big Phil – that is Phil Hogan, the new EU trade commissioner, who is 1.95 metres tall – would appear to be more than a match for Tariff Man (whose height is disputed, but who is certainly shorter).
But Tariff Man has superpowers that Big Phil lacks. For a start, he is happy to play hard and fast with the rules. Since larger European companies tend to export to the US, have investments there or do business that involves the US dollar, US sanctions can cripple them at will. When Trump pulled out of the Iran nuclear deal and threatened sanctions not just on Iranian companies but also on foreign ones that continued to do business with Iran, the EU proved powerless to defend European companies’ interests and its own political commitments to Iran. SWIFT, the messaging service that banks use to order international payments, is based in Belgium, yet when the US, in defiance of EU policy, told it to cut off Iranian banks, it duly complied.
Tariff Man also literally has a nuclear option. Europe depends on US nuclear weapons for its security against Vladimir Putin’s Russia. American troops who would act as a tripwire in the event of a Russian attack are also on the ground in Germany, Italy, Belgium, Poland and many other European countries. But the decision of whether or not to come to Europe’s defence is ultimately up to the US president. And Trump has blown hot and cold about his support for NATO. If Tariff Man used defence as an unconventional weapon against Europeans on trade, they would be hard-pressed to respond.
As a former German defence minister, Ursula von der Leyen, the new European Commission president, is well aware of Europe’s weaknesses. Her stated aim to make the EU a more effective geopolitical power is absolutely right. But making progress requires difficult decisions, not least in her home country.
Europeans need to be able to act together to defend themselves, as French President Emmanuel Macron advocates. They require a common euro asset – a Eurobond – that could provide internal stability for the eurozone and an international alternative to the dollar. And they need greater energy security, to reduce European dependence on the likes of Putin’s Russia.
Crucially, Europeans also need to be willing to exercise power collectively. At its best, the EU can do so: witness its sanctions against Russia over Putin’s illegal invasion of Ukraine and his annexation of Crimea. But often, it falls far short of this.
European policymakers used to assume that the rest of the world would ultimately become more like the EU: an international system based primarily on rules, rather than the raw exercise of power. But that was a delusion made possible by the willingness of a dominant US to submit to such rules – not least in trade – and to pressure others to do so too.
Now Tariff Man refuses to play by the rules, while a rising China has its own geopolitical ambitions. If the EU is to stand up for itself in this new international jungle, it needs superpowers too.
By Philippe Legrain