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Original article: https://theconversation.com/how-the-eu-is-preparing-to-play-hardball-in-the-face-of-donald-trumps-tariff-threats-251506
US president Donald Trump sees himself as a born negotiator with a knack for driving a hard bargain and striking a good deal. When it comes to trade, his approach is clearly positional, and negotiations are treated as zero-sum games with winners and losers.
Imposing tariffs – or threatening to do so – is his preferred way of exerting influence over US trading partners. While tariffs are unilaterally imposed – and not the result of negotiations – they can be interpreted as an opening gambit to gain leverage in trade negotiations further down the line.
Since taking office, Trump has already announced a series of sweeping new tariffs, including an across-the-board steel and aluminium tariff to be effective from March 12.
He has also presented the “fair and reciprocal plan” aimed at correcting any trade imbalances facing the US, including the EU’s trade surplus in cars. And most recently, he threatened to impose 25% tariffs on all imported goods from the EU.
As the biggest trading partner of the US, the EU is concerned. Yet the EU is also a formidable negotiator.
Negotiations are very much part of the EU’s DNA. They are the bloc’s preferred way of engaging with third countries, and in trade the European Commission negotiates on behalf of the member states, projecting a unified EU front. With more trade agreements in place than any other country or regional bloc, it is considered a champion of a liberal global trade order.
Unlike Trump, the EU prefers a more open approach. Negotiations are considered win-win games, with a focus on relation-building and trying to understand where the other party comes.
Its response to the provocation from Washington has been rapid and strategic. Even so, the EU has already found that the only option with Trump is to play him at his own game.
The art of other deals
Sticking with what it knows best, the EU has hurried to conclude trade negotiations with other partners to offset some of the economic losses resulting from potential US tariffs, and to demonstrate its continued commitment to trade liberalisation and international cooperation.
Since Trump’s election, the EU has finalised negotiations for a groundbreaking trade deal with Mercosur – a South American trade bloc bringing together Argentina, Brazil, Paraguay and Uruguay. This agreement –- if ratified – will create a market of 800 million citizens and boost trade and political ties between the two regions.
Indirectly rejecting Trump’s “America first” approach, Commission president Ursula von der Leyen, stressed how the EU-Mercosur agreement is a political necessity, “bringing together like-minded partners that believe in openness and cooperation as engines of economic growth”.
The EU has also concluded negotiations on trade agreements with Switzerland and Mexico, relaunched negotiations for a comprehensive free trade agreement with Malaysia, and is aiming for a trade deal with India this year.
EPA/Harish Tyagi
This reaction is similar to the EU’s response to the isolationist approach taken by Trump during his first administration. Most significantly, it then reached an extensive free trade agreement with Japan.
Cecilia Malmström, the EU trade commissioner at the time, highlighted how the EU and Japan were “”sending a strong signal to the world that two of its biggest economies still believe in open trade, opposing both unilateralism and protectionism”.
It was also the first time the EU used a trade agreement to commit to the Paris agreement on climate change – a commitment that was replicated in the EU-Mercosur agreement. This again, was a way of taking a stance against Trump’s broader rejection of multilateralism and withdrawal from the Paris agreement.
Although not intentionally, Trump has triggered an expansion of the EU’s network of trade agreements. But while these are significant, they cannot fully protect the EU from the effects of US-imposed tariffs. After all, the EU and the US are each other’s largest trading partners, and they have the world’s most integrated economic relationship.
For that reason, the EU has engaged in intensive diplomacy to try to avert the looming tariffs, and to lure the US to the negotiating table. It has expressed openness to lowering tariffs on industrial goods, including cars, while insisting such a move needs to form part of a broader negotiated deal, compatible with the rules of the WTO. However, these efforts have been to no avail.
This has left the EU with no choice but to adopt Trump’s positional approach and threaten to impose retaliatory measures. In response to the economic pressure exerted by Trump in his first term, the EU has expanded its arsenal of punitive measures, including an anti-coercion instrument that allows for rapid retaliation.
There has long been strong resistance to use such measures as it runs counter to the EU’s traditionally open negotiating approach, but the tone in Brussels has now hardened.
A tit-for-tat tariff war would negatively affect businesses and consumers on both sides of the Atlantic. During his first term Trump imposed tariffs on steel and aluminium, and the EU responded with targeted tariffs on goods, such as American whiskey and jeans.
This was followed by a political agreement, opening the door for trade talks. While a trade deal never materialised, it demonstrates how both the US and the EU recognised the need for a de-escalation of the dispute, and a return to the negotiating table.
This time around, the looming tariffs are more comprehensive, and they would have more far-reaching implications. The question is how long – and how damaging – the trade war will be before the parties return to the negotiating table. After all, that’s where you reach a deal.