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German  Ifo Institute criticized US tariffs on steel and aluminium. “The tariffs violate the principles of the World Trade Organization (WTO)”, according to Ifo trade expert Gabriel Felbermayr. “This trade conflict is economic folly, even if the economic damage is initially limited, because I fear it’s only the beginning of a series of additional US measures. President Donald Trump doesn’t seem to grasp that the WTO also protects American interests, for example in the services trade, where the US has large surpluses, or in the protection of intellectual property. He also does not understand that the data of his own authorities on Europe show a surplus for the US and not a current account deficit. This is why he’s going after the wrong people. Trump thinks he can get by without allies, but he will need them to confront the real problem of China’s protectionism. The US is not large enough for this task, as it accounts for only about 20 percent of global economic output.”

The US administration has three objectives, Felbermayr added. “First, Trump intends to weaken the WTO because it limits his trade-policy options. Second, he wants to reduce the alleged excessive current account deficit. Third, he is interested in weakening China economically. His policy up to now has been aimed primarily at the first goal. If he wants to correct the American deficit without attacking the real problem of the US – excessive consumption and the weak savings propensity – he must significantly expand his tariffs policy. Then the economic consequences for the EU and Germany will become much more noticeable.”

Felbermayr urged Europe to press for compliance with WTO rules. “Otherwise it will be too easy for the US president to target other products as well, and there could be imitators worldwide. Europe must prepare for a new cold war in trade with the US. It needs to display internal unity and solidarity with other WTO members, all of whom are in a similar situation.” In order to defend free trade in particular, the EU and the other WTO members must elaborate how they will react to further violations of the rules. “Here, they should focus on those industries where Americans make real money abroad: digital services.”

As of 1 June, US import tariffs of 25 and 10 percent will apply to 186 steel and aluminium products from Europe. A trading volume of $7.2 billion will be affected. The EU, in turn, will raise a 25 percent tariff on 183 American goods worth nearly $3.2 billion. A second, similarly extensive list of tariffs will take effect after the WTO deadline has expired.