3-8-18 11:51 AM EST | Email Article
By Bojan Pancevski in Berlin and Emre Peker in Brussels 

A rift has appeared in Europe over how to respond to President Donald Trump's proposed steel tariffs, with Germany alarmed that tough retaliation by European Union officials could escalate and ensnare the country's car industry.

After Mr. Trump announced last week that he would slap punitive tariffs on steel and aluminum imports, the European Commission, the EU's executive arm, said it would quickly hit back with tariffs on iconic U.S. exports ranging from Harley Davidson bikes to bourbon.

While Berlin has joined the commission in criticizing Mr. Trump, officials have expressed concern that the retaliatory approach might trigger tit-for-tat action followed by a full-scale trade war. Berlin is also adamant that the Europeans should take a conservative approach in sticking to World Trade Organization rules.

The commission has full authority to determine the bloc's response to Mr. Trump's trade move and only a majority of EU member states would have the power to stop it. Several EU members have backed the commission's robust approach this week.

But as the region's largest economy and the biggest contributor to its budget, Germany wields considerable influence and news that it sees the commission's approach critically could raise questions in Washington about the continent's resolve.

Germany would have a lot to lose in a trade war. The country boasts the second-largest trade surplus in the world--$300.9 billion in 2017--and Mr. Trump this week threatened to slap a 25% tariff on European cars, which count among Germany's flagship export products.

A top German trade official directly involved in the talks said Berlin was concerned that an escalation of the conflict would have a negative impact on the global trade system.

"The U.S. economy would also suffer. We don't know what the Chinese might do. About 90% of the production of iPhones, for instance, takes place in China, and this is true for many other product groups," the official said. "We want to prevent a conflict in the global economy."

Jürgen Hardt, Chancellor Angela Merkel's Coordinator for Transatlantic cooperation who was in Washington this week to discuss the dispute, said the European reaction "must be compliant with WTO rules, because we want to strengthen, not weaken the international trade order. I am against an escalation leading to a trade war."

The European Commission says it would be acting within WTO rules by imposing retaliatory tariffs on the U.S. almost immediately and before a WTO panel rules on any U.S. measures.

German officials believe the WTO would first have to decide on whether the U.S. argument that the tariffs are justified on national-security grounds was valid before the EU could respond with countermeasures.

A senior German government official familiar with Ms. Merkel's thinking echoed the concerns, and said that any action by the EU had to be "very well-considered" as both Germany and Europe stood to "lose a lot" in case of a trade war with the U.S.

Jean-Claude Juncker, president of the commission, caused irritation in Berlin by responding to Mr. Trump's pronouncements in a language German officials saw as needlessly belligerent. Mr. Juncker dismissed the proposed U.S. tariffs as "stupid" and threatened: "We, too, can do stupid."

EU officials and diplomats in Brussels broadly reject that their strategy against planned U.S. tariffs is aggressive, saying that all 28 members supported the Commission when it laid out its proposal and explained how it would comply with WTO rules.

If EU legal experts deem U.S. tariffs to be noncompliant with WTO rules, then, according to EU interpretation of WTO statues, the EU has the right to launch retaliatory measures within 90 days. The interpretation is controversial and remains untested.

Other European countries have endorsed a more muscular approach. French officials say they share some of the concerns expressed by Germany about escalation, but support the Commission's approach and its use of all the options it has. The EU taking unilateral countermeasures is particularly warranted, the French say, because the U.S. has circumvented ongoing multilateral talks on the global surplus in the steel industry.

"A strong response is needed... Europe must show its sovereignty, its power," French Foreign Minister Jean-Yves Le Drian told French radio on Thursday.

EU officials have prepared and hinted at a list of dozens of potential U.S. products to be targeted. The items were selected for political impact and purely U.S. sourcing, to avoid hurting third countries.

While resistance by Berlin would make it very hard for the EU's executive to adopt its current strategy, Germany would also find it difficult to "leave the commission out to dry" after Brussels strongly laid out its position against the U.S., an EU diplomat said.

Other EU members may also be wary to join Berlin, whose preoccupation is protecting powerful German auto makers, the diplomat said.

William Boston in Berlin and William Horobin in Paris contributed to this article.

Write to Emre Peker at emre.peker@wsj.com


(END) Dow Jones Newswires

March 08, 2018 11:51 ET (16:51 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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