Tackling Trade Tensions: EU's Approach to Counter Trade Disputes and Market Volatility
- EU's Vision for the Coming Years
The prolonged trade feud between the United States and the European Union shows no signs of abating. This week opened with an economic rout as President Donald Trump started his offensive on trade, hinting at negotiations under certain terms. However, the US Trade Representative, Howard Lutnick, had previously announced that the government was determined to impose high import tariffs on goods from nearly all countries. Now, EU trade officials are gathering at 11:00 AM in Luxembourg to discuss strategies to pressure Trump into reconsidering the tariffs.
Monday morning saw Asian markets plummet, with Japan's Nikkei index dropping by more than eight percent, plunging by 2,086.71 points or 6.18 percent, to 31,693.87 points. Similarly, markets in China, Hong Kong, and Australia experienced significant losses early in the day. The Shanghai Composite Index fell by 4.4 percent to 3,342 points following the market's opening, while the Hong Kong Hang Seng Index initially dropped by 9.3 percent to 20,730 points. The Australian S&P/ASX 200 also saw a new 100-day low in early trading. Germany's market is expected to follow suit when it opens later.
Last week, Trump's tariff package sent stocks into a tailspin, with Germany's DAX posting a weekly loss of over eight percent - its largest since the onset of the Ukraine conflict in spring 2022. Wall Street also suffered significant losses. There seems to be no recovery in sight as market experts predict continued volatility until the impact of the trade conflict becomes clearer or initial deals are struck.
Despite heavy criticism, the US government initially stuck to its global tariff plan. However, Trump later indicated openness to discussions on easing new tariffs on imports into the U.S. under specific conditions. Trump expressed, "I want to solve the deficit problem we have with China, the European Union, and other countries. If they want to talk, I'm open to discussions."
Trump also expressed renewed grievances about trade with European countries, which he claims have amassed a substantial trade surplus with the U.S. "The European Union was founded for one reason: (...) to rip off the United States," stated the Republican.
In light of EU trade ministers' meeting in Luxembourg, they will discuss strategies to persuade Trump to rescind the tariffs and also prepare for negotiations that may fail. They are planning to progress preparations for retaliatory tariffs and other possible countermeasures.
Not only is Germany, an export-driven nation, hard-hit by the tariffs, but the Association of German Chambers of Industry and Commerce (DIHK) calls it an attack on global trade. German ambassador to the UK, Miguel Berger, told Sky News: "This is the biggest attack on global trade since the end of World War II."
In addition to the US trade relations, the EU's trade relationship with China will also be discussed. The EU has been trying to persuade China for years to stop unfair trade and subsidy practices - without much success. Last year, the value of imports from China to the European Union exceeded the value of exports to the country by 304.5 billion euros.
To counter Trump's threat politics, the EU has developed several strategies to address the ongoing trade disputes and mitigate market downturns:
EU's Strategies Against Trade Disputes and Market Volatility
1. Anti-Coercion Instrument
The EU has established a new anti-coercion instrument, allowing for a wide range of retaliatory measures beyond just import duties. These measures include export controls, restrictions on intellectual property rights, limiting foreign investments, banning services, and applying duties to digital platforms. This tool also grants the EU flexibility and WTO-compatibility, serving as a defense mechanism against economic coercion.
2. Sectoral Counter-Tariffs
The EU has opted for sectoral counter-tariffs, targeting specific US exports like bourbon from Kentucky. This strategy aims to exert pressure without escalating the trade war.
3. Support for Trade Talks and Quotas
The EU is actively engaging in discussions with the US regarding tariff-based quota systems for EU exporters.
Recent developments include EU member states voting in favor of trade countermeasures against the US, demonstrating a unified stance on addressing trade disputes.
However, there are challenges: the use of the anti-coercion instrument or other strong retaliatory measures could lead to further US retaliation, potentially targeting the EU's reliance on US digital infrastructure. Balancing firmness and avoiding escalation is crucial to avoid exacerbating market downturns.
In summary, the EU's trade strategy combines diplomatic efforts with strategic retaliation, utilizing tools like the anti-coercion instrument and sectoral counter-tariffs to navigate the ongoing trade dispute and mitigate market downturns.
The EU's meeting in Luxembourg will discuss strategies to signal resistance against the US tariffs, such as preparing for negotiations and progressing preparations for retaliatory tariffs and other possible countermeasures. The Association of German Chambers of Industry and Commerce (DIHK) considers US tariffs an attack on global trade, likening it to the biggest attack on global trade since the end of World War II. To counter trade disputes, the EU has developed the anti-coercion instrument, allowing for a wide range of retaliatory measures beyond just import duties. In addition, they have opted for sectoral counter-tariffs and are actively engaging in discussions with the US regarding tariff-based quota systems for EU exporters. However, there is a delicate balancing act between firmness and avoiding escalation, as stronger retaliatory measures could lead to further US retaliation and potentially target the EU's reliance on US digital infrastructure.
