Trade ministers from across the EU are due to meet on Monday to discuss the response to Donald Trump’s tariff policy. It is one of a series of engagements which are unlikely to reach a conclusion until later this month. While Trump moves on a whim, the EU has its processes and, in this case, real disagreements among its members as well.
For the next few weeks, inaction could be the best policy. The EU wants to see if a way forward can be found through negotiations, but – like the rest of the world – is unsure whether Trump is interested in talking.
A good short-term tactic is to see how the pressure on the US president builds at home. While he feigns indifference to the fall in the stock market, investors big and small have lost heavily. The pension pots of ordinary Americans have taken a heavy hit. Before long, job losses will start and prices will go up. Trump may be targeting other economies, but his action will seriously damage his own.
Trump will continue to obfuscate and blame other countries, while arguing that any short-term pain is worth taking. But before long he may be more willing to make a deal. Trump craves attention and headlines and the EU, for now, should not be in a hurry to give him either.
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Before too long, however, the odds are that some form of EU retaliation is inevitable. If Trump will not negotiate with a view to removing the 20 per cent tariff on EU goods, then reaction from Europe will come. Judging what to do is difficult. Can the EU persuade the US back to the negotiating table with a tough package? And how does it cope with the risk of a damaging and escalating trans-Atlantic trade war?
When US policy is not set on a logical basis, these judgements are hard to make. And politics enters the equation, as well as economics. The EU cannot be seen to be pushed around . A part of its response, too, needs to be buildings its own economic resilience and competitiveness. What has has happened is a wake up call.
There is a lot at stake for Ireland in the EU response. It could endanger some key sectors, such as the drinks industry; if the EU targets bourbon, then Trump has threatened penal tariffs on EU drinks products. There is also pressure within the EU to target the US digital services sector and many of these companies have their international headquarters in Dublin. For these reasons, the Government will urge restraint and negotiation.
This may be the EU route for a short period. But beyond that it is going to depend on whether Donald Trump will negotiate. Or whether he now sees tariffs as permanent fixtures to help pay for lower taxes elsewhere. The EU’s dilemma is that it does not know what kind of deal – if any –the US would sign up to. And this damaging uncertainty may continue for some time.
