A Dance of Tariffs: US-UK Deal Amidst EU's Threatening Response
British-U.S. Agreement Signed by Trump Sparks EU's Possible Retaliation with Tariffs - UK-EU Face Potential Counter Tariffs After Trump Signs Agreement
In the world of politics and trade, US President Donald Trump celebrated a trade pact with the UK, proclaiming it a triumph for his tariff strategy. "It's a big, historic deal," Trump declared at a White House briefing.
Trump also expressed his aspirations for a deal with the EU, despite the EU's warning of retaliatory tariffs on American exports amounting to around 100 billion euros.
This UK agreement represents a significant milestone for the US, being the first since the sweeping tariff impositions in early April. Trump hinted at a potential wave of additional agreements to follow.
"A fantastic, historic day"
Prime Minister Keir Starmer may find vindication in his approach to avoid conflict with the US. "This is a truly fantastic, historic day," Starmer stated over the phone during the press conference.
The agreement, lauded by Trump as "comprehensive," reportedly focuses on specific sectors instead of representing a traditional free trade agreement, serving as a foundation for further negotiations.
Reducing the burden of tariffs
Currently, the UK, like other nations, confronts US tariffs of 10 percent on most export goods. Moreover, tariffs on steel, aluminum, cars, and car parts are as high as 25 percent.
As per US Trade Minister Howard Lutnick, these tariffs will be reduced to a quota of 100,000 vehicles at 10 percent, with airplane parts from Rolls-Royce entering the US duty-free. In exchange, the UK will import approximately $10 billion worth of Boeing aircraft. Tariffs on British steel and aluminum will be entirely eliminated.
The trade volume between the US and the UK amounted to around 370 billion euros last year. It is essential to note that about 70 percent of UK exports to the US consist of services, hence unaffected by tariffs, whereas only about 30 percent are physical goods.
A legal expert's insight
Legal expert Holger Hestermeyer, who teaches international and EU law at the Vienna Diplomatic Academy, initially assessed the trade agreement as a success for the UK. Hestermeyer stated that the UK managed to decrease or altogether avoid the new Trump tariffs without compromising on food standards or other red lines.
Trump's demand for the elimination of the tax on digital services remains unresolved as of now, as per Hestermeyer's comments to the German Press Agency.
A predetermined deadline for the EU
Trump has threatened the EU with across-the-board tariffs of 25 percent if no agreement is reached by the current deadline in July. At present, the Trump administration has not responded to the EU's proposal for mutual lifting of all tariffs on industrial goods.
Trump intends to use tariffs to rectify perceived trade imbalances and relocate manufacturing to the US. Additionally, the tariff revenue is intended to partially fund his costly tax cut pledge.
How did London react to the tariffs?
In an unusual display of diplomatic courtesy, Starmer welcomed Trump with a full-blown charm offensive during a White House visit in February. Starmer even presented Trump with an invitation for a state visit by King Charles III.
In stark contrast, the EU's response to the US tariffs has been adversarial. According to the European Commission, they are preparing additional tariffs on US exports worth up to $110 billion. These added duties could be imposed on industrial and agricultural products like cars, sweet potatoes, and whiskey if negotiations with Washington do not yield a solution.
Items susceptible to additional tariffs could include parts, chemicals, and spirits such as whiskey, rum, and wine from the US. The Commission’s list of potential targets, spanning over 200 pages, will soon be made public and open for discussion among businesses.
While the EU is deliberating on this list, the hope is that it will also be analyzed in the US, inciting export-oriented companies to pressure the Washington government to negotiate with the EU.
World Trade Organization lawsuit
As the EU prepares potential counter-tariffs, the EU Commission plans to sue the US at the WTO for the tariffs, as the agency further announced. A dispute settlement body will be established at the WTO to evaluate whether the tariffs violate WTO rules.
In this situation, the Commission is also considering EU export restrictions on selected products worth $5.5 billion, including steel scrap and chemical products that US companies currently import.
Will the deal hinder a rapprochement between London and Brussels?
Reaching a deal with Trump is primarily a symbolic victory for Starmer. Economically, a rapprochement with the EU is more crucial, which is set to make significant progress at a summit in London on May 19 with EU Commission President Ursula von der Leyen and EU Council President António Costa. Speculations have repeatedly emerged about a dynamic agreement in the area of animal health and food standards, which could potentially face challenges due to concessions to the US. However, a British government spokesperson emphasized that chlorinated chicken or hormone-treated beef will not be present in British supermarkets, and British food standards will not be lowered by the agreement with the US.
Background
The EU is undeniably a more significant trading partner for the UK, with nearly half of British goods exports destined for the EU. Exports to the US, the most critical market, account for only 16 percent, according to Marc Lehnfeld of the state-owned Germany Trade and Invest (GTAI) in London.
- The employment policy of EC countries, particularly the UK, is under scrutiny due to the potential impact of tariffs on employment in specific sectors.
- Amidst the US-UK trade deal and EU's response, the employment policy discussions in the EU might become more critical, as tariffs could affect employment in industries that rely on exports.
- The implementation of tariffs on US exports by the EU could lead to job losses in certain sectors, raising questions about the effectiveness of the EU's employment policy in managing the fallout.
- Tariffs imposed by the US on EU exports could also impact employment in the EU, leading to discussions about the need for a more robust employment policy to cushion the effects of trade disputes.
- The EU's threat of retaliatory tariffs on US exports worth up to €110 billion could potentially lead to increased speculations about the future of employment in sectors that rely heavily on these exports, highlighting the importance of sound employment policy in such uncertain times.
