By Bas van Geffen, senior macro strategist of Rabobank
Brussels’ response to Trump’s steel and aluminum tariffs has put the European Union in the US president’s crosshairs. Europe announced a 99-page list of American-made goods that may be subject to rebalancing tariffs from April 1, including motor cycles, food & agriculture products, and clothing.
President Trump, of course, was not amused. He claims that the EU has imposed “a nasty 50% tariff on whisky,” adding that the US will shortly counter this with “a 200% Tariff on all WINES, CHAMPAGNES, & ALCOHOLIC PRODUCTS” unless the EU removes its tariffs immediately.
Such a response was to be expected, after Canada’s earlier run-in with the American president. In his tariffs aimed specifically at Canada, President Trump had included a carve-out for energy imports, which would ‘only’ face a 10% tariff. That’s entirely in the US’ interest, as certain states rely heavily on Canadian energy. But Ontario also knows just how interconnected the US and Canadian power grids are. So, when Trump announced steel and aluminium duties earlier this week, Ontario threatened to levy export duties on electricity provided to the US.
The US President was equally dismayed at the Canadian response, threatening an additional 25% tariff on Canadian steel and aluminium. Both sides backed down eventually, and neither the Ontario’s export duty, nor the additional US tariff went into force. However, Canada’s counterbalancing tariffs on US imports remain into force.
Canadian and US officials had a “constructive” meeting yesterday, but the talks ended without any concrete results. Both sides will meet again next week.
As Trump alienates both the EU and Canada, the President’s two targets are getting more aligned. EC President Von der Leyen called for greater cooperation with “like-minded countries, such as […] Canada,” and according to one poll, Canadians see the EU overtaking the US as the country’s primary global ally in the next three to five years.
In fact, 44% of respondents, believes Canada should join the European Union. Brussels is “honored” by the poll, but added that it is a non-starter: only European states can apply for EU membership. But if Trump can rename bodies of water, who is to say where Europe begins or ends? The Eurovision Song Contest also includes Israel and even Australia!
All joking aside, is a hypothetical EU membership the safeguarding that Canada seeks? Yes, the European bloc has quite some power when it comes to trade and the size of its internal market. As long as the conflict remains purely trade-related, at least.
If Trump presses on with retaliatory tariffs in response to Europe’s rebalancing tariffs on the US’ original tariffs, there’s a good chance that Europe may respond to those 200% tariffs. Such a tariff supernova is bad, but what is Europe to do if Trump decides to, say, withdraw military support until the trade dispute is settled to his liking?
Rearming Europe is easier said than done, especially when Europe is in the midst of a trade war with the US. Even without that headwind, European procedures and regulation already make this a Herculean task. The urgency may be clear for European politicians, but members of national parliaments are still struggling with the costs involved with the European Commission’s plans– both in monetary terms, and the fear that it could encroach on countries’ sovereignty.
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