Search ForexCrunch

The EU has until Thursday to stop President Trump from raising tariffs on European steel and aluminium and if current talks fail, higher tariffs will become a reality, according to analysts at ING.

Key Quotes

“The EU is in a difficult spot. President Trump wants voluntary export restrictions on steel and aluminium from the EU in return for permanent exemption of the elevated US tariffs on the imports of these metals. By initially demanding that it will be permanently, and unconditionally, exempted from these additional tariffs, the EU has taken the principal stance that it does not want to breach the WTO rules for international trade. This makes it difficult to give in to President Trump’s demands without losing face.”

“But under pressure from Germany, talks have begun to move away from a fight about principals towards a more practical approach that tries to avoid a trade war that would be harmful to both sides.”

“According to the trade-focused news agency Bordelex, word has it that Washington and Brussels are edging towards an informal deal that would cap European steel shipments to the US at 90% of 2017 imports. In that case, the EU does not have to officially announce it will limit its exports to the US and thereby break WTO rules. On top of this, the EU is understood to have agreed to negotiate industrial tariffs and liquefied natural gas trade.”

“But while it could be that a solution is found that keeps the exemption of the tariffs for the EU in place, it is possible negotiations will fail, and higher US tariffs on steel and aluminium will become a reality. In that case, the EU will likely retaliate, and that could be the start of a tit-for-tat trade war between the two trade giants.”