Is a trade war between the US and the EU on the horizon?

The Trump Administration's trade plan could endanger the economy of a number of countries and lead to mass job losses. [Gage Skidmore/Flickr]

Donald Trump’s Republicans are preparing reforms that would significantly affect the rules of trade throughout the world. EURACTIV Czech Republic partner Aktuálně.cz reports.

America’s new governing party wants to reduce the price of US exports, but are preparing a 20% “equalisation tax” in return that would apply to goods imported into the United States. This would violateWTO rules.

The European Union is threatening to bring an action before the WTO in response. But Trump has repeatedly floated the possibility that the United States might leave the organisation.

This would mean that the US would avoid any possible sanctions.

By the end of this year

Republicans introduced the plan last June during Donald Trump’s election campaign. Now they want to put it into practice as quickly as possible.

House Speaker Paul Ryan is talking about this August. Trump is being slightly more cautious and wants the bill to pass through Congress “by the end of this year”.

Trump's disruptive approach to trade

A shift in US trade policy that follows the outline presented on Wednesday (1 March) to Congress would upend the foundations of global trade as it is currently conducted, Stratfor experts write.

If the reform is successful, European exporters to the US will see a significant increase in costs. As well as the action at the WTO, there could also be “retaliatory” measures in Europe that could eventually lead to a genuine trade war, which, according to some economists, would harken back to the1930s.

The new American government is also considering torpedoing the Transatlantic Trade and Investment Partnership (TTIP).

“It is sad that the new American administration is turning 180 degrees against the previous developments in trade and economic relations,” says ANO 2011 MEP Pavel Telička (ALDE), the vice-president of the European Parliament.

“Instead of us negotiating a new contract, Trump’s administration is heading towards protectionism and administrative measures that instead will damage the American economy,” adds Telička.

Trump victory could spell the end of TTIP

A protectionist US president and increased European suspicion of a Trump-led America undermine the prospects of a planned transatlantic free trade agreement between the European Union and the United States, various stakeholders said.

Priority: New jobs

However, Donald Trump mainly wants to fulfil his campaign promises and create new jobs in the United States.

Therefore he wants to promote American exports and offset or even reverse the imbalance in trade with the European Union, which is unfavourable for the United States.

While in 2015 the European Union exported goods worth €371 billion (10 million crowns), American exports created €248 billion (approximately 6.7 million crowns).

According to some analysts, the plan put forward by Republicans could endanger the economy of a number of countries and lead to mass job losses. The EU, therefore, wants to defend itself using all possible means.

“If the Americans begin to break their commitments, defence through the WTO is absolutely logical,” emphasises Telička. “This is not a question of a trade war, but the law,” he adds.

Czech exports to the US are increasing dramatically

The new American government’s plan would also affect Czech companies, which in recent years have started to become far more active in the United States.

The volume of Czech exports to the US is currently 92 billion crowns, which is only 2.4% of the Czech Republic’s total exports. However, between 2014 and, increased by almost 14%, or twice as much as in the case of China.

“The United States is the largest economy in the world with high purchasing power. 70% of this highly flexible market is based on consumer spending,” warns Lukáš Martin, the director of the International Division of the Confederation of Industry of the Czech Republic. According to Martin, trade between the Czech Republic and the US is increasing every year.

In his opinion, Czech exporters can succeed in the US in the aviation industry, in research and development, precision engineering, biotechnology and other areas.

Among the ten most important export items are engineering products, including turbines and pumps, microscopes, as well as optics for hunting rifles.

The trade war is already here

“American protectionism is nothing new. It’s just that now it is visible. Trump is boasting about it politically,” warns Pavel Poc, a member of the European Parliament for ČSSD (S&D).

He points out, for example, that the US has still not withdrawn the ban on imports of European beef. Washington introduced it during the 1990s because of mad cow disease (BSE). “They only withdrew it for Irish beef and that was simply because they themselves want it on the market,” adds Poc.

Lamy: 'Trumponomics' won't contaminate Europe

Former World Trade Organisation chief and EU Trade Commissioner Pascal Lamy has denounced Donald Trump’s protectionist trade policy for being outdated, telling a EURACTIV event he isn’t concerned that European politicians will follow the new US president’s cue.

“In my opinion, there has already been a trade war here for a long time but only from the United States’ side. Europe is open to trade, perhaps too much, while others protect their markets and their economy,” says the Czech MEP.

Imports to the United States are currently burdened with, on average, 3%customs duty.

“Together the European states and the US form the largest economic force in the world. 20% customs duty between them would obviously have a negative impact on a global scale,” says Jan Zahradil, a member of the European Parliament for ODS (ECR) and vice-chairman of the parliamentary Committee on International Trade.

However, according to the Washington think tank the Tax Foundation, the new “equalisation tax” that the Republicans are planning would earn the US Treasury more than a trillion dollars over the course of ten years.

A dispute in the WTO could be expensive for Trump

However, if any action by the European Union against the introduction of American customs duty were successful in the World Trade Organisation, the United States would, on the contrary, have to pay sanctions.

According to Chad Brown of the Peterson Institute for International Economics in Washington, they could amount to up to $385 billion a year (almost 10 million crowns).

But the question is whether the EU would succeed with its complaint.

“It is too early to assess the chances of whether any dispute by the European Union against the USA would be successful,” warns the Czech Ministry of Industry and Trade. In its opinion, it is mainly important what the content of the lawsuit would be and what precise commitments would the United States be breaching by taking this step.

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