EU keeps its shield up in the US trade war

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Europe wants to reset trade relations with incoming U.S. President Joe Biden but is not laying down arms just yet.

Indeed, the first major EU action after Biden’s victory has been to slam higher tariffs on U.S. planes and agricultural goods in a long-running case involving America’s subsidies for its aerospace champion Boeing.

Relations with the next U.S. administration pose a dilemma. On the one hand, Brussels is seeking to turn the page on four years of transatlantic tariff war with U.S. President Donald Trump and his “America First” strategy. On the other, however, EU officials are acutely aware that trade relations with the U.S. are likely to remain tense over topics ranging from taxing U.S. tech giants to Europe’s appetite for Russian gas.

For now, top officials in Europe insist that they are cautiously preparing for a new start. They argue this week’s Boeing tariffs are only retaliatory and counterbalance the tariffs the U.S. has imposed over European subsidies for Airbus. The new EU duties are supposed to create a level playing field until Washington comes back to the negotiating table to discuss a broader transatlantic détente.

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Dutch Trade Minister Sigrid Kaag argued the tariffs were all about building up a strong position for this kind of de-escalation.

“I understand this might look contradictory,” she said after a virtual meeting of EU trade ministers on Monday. “But it also means that all cards are now on the table. We expect these tariffs to be revoked in the near future when we can reset the trade agenda with the U.S.”

She added she hoped for a “new momentum” in transatlantic trade relations.

EU Trade Commissioner Valdis Dombrovskis also cast the Boeing tariffs as a move that should lay the path to a peace deal. “The EU wants a positive and forward-looking transatlantic agenda,” he said when announcing the new duties. “Therefore, we call on the U.S. to agree to both sides dropping existing countermeasures with immediate effect.” He also stressed: “We are not escalating anything, we are exercising our rights as awarded by the WTO.”

German Economy Minister Peter Altmaier, who chaired Monday’s meeting of trade ministers, said that over the course of discussions it had “become clear that a very broad majority of member states see the U.S. presidential election as an opportunity to realign trade relations, to resolve trade conflicts … and to contribute to a more rule-based, multilateral, anti-protectionist global trade relationship.”

Altmaier’s boss, Chancellor Angela Merkel, also said Germany and Europe were ready to contribute more to the transatlantic relationship, and named free trade as one of the key topics in which the U.S. and Germany must stand together.

No easy fixes

That is all easier said than done. While Biden will doubtless strike a different tone from Trump, Europe knows that he is no fanatical free trader. He has promised to boost U.S. manufacturing and has made strengthening “Buy American” provisions a centerpiece of his economic campaign.

In a sign of the type of discussions that lie ahead for Brussels and Washington, Altmaier on Monday also warned ministers had discussed Washington’s unilateral tariffs on steel and aluminum as well as Trump’s threat of car tariffs, and made clear Europe’s welcoming response to Biden was linked to an expectation that America would remove its tariffs on EU goods.

“With the new administration … we are striving for a situation in which it is no longer necessary to impose special tariffs for individual product groups, because we are prepared to reach a comprehensive trade policy agreement with the U.S.,” Altmaier said.

Altmaier’s choice of words — particularly differentiating an agreement on how to conduct “trade policy” from a trade agreement per se — reflects how difficult EU leaders think progress on concrete trade files will be.

While some politicians on both sides of the Atlantic still dream of a revival of the transatlantic TTIP deal, such as German Defense Minister Annegret Kramp-Karrenbauer, who last month called for a transatlantic free trade area, the Biden campaign has said new trade deals are not its priority. Such a deal would also face major opposition in Europe. Both sides have over the last four years grown apart on policies such as taxing digital giants, setting privacy limits to data transfers, phasing out pesticides, subsidizing “green deal” champions such as battery makers and imposing a border levy on carbon.

A new trade deal or World Trade Organization reform that seeks to address any of those issues will put Europe and America on opposite sides of the table.

Common ground

There is, however, more common trade ground for the Americans with Brussels now than under Trump.

Both the EU and Biden want to use trade policy to fight climate change, conditioning new trade deals on climate commitments and placing tariffs on high-carbon imports. In a similar vein as the EU, Democrats want to protect domestic industries from competition in countries with less stringent environmental standards.

Brussels and Washington could also work together on getting Beijing to reevaluate its economic practices, from market access to the use of forced labor.

Biden’s campaign has explicitly said it wants to team up with the EU to jointly tackle China’s unfair trading practices. EU trade ministers had this in in the back of their minds when they decided on Monday not to rush the EU’s investment deal with China, which the German presidency of the Council still hopes to conclude by the end of the year.

“We are in no hurry to start the endgame, especially now that we have a chance to work together with the U.S. on a mutual approach toward China’s trade policy,” said Kaag, the Dutch minister.

Brussels acknowledges that Biden’s first priorities will be domestic. But that shouldn’t stand in the way of reaching out to his transition team as soon as possible, officials say, especially because some trade files, such as the impasse over a new WTO chief, have to be resolved quickly.

A first test of Biden’s willingness to reset the transatlantic trade relations could therefore well happen in Geneva. The WTO is suffering from a leadership vacuum because Washington is blocking the consensus over appointing former Nigerian Finance Minister Ngozi Okonjo-Iweala as the next global trade boss.

Given that multilateralism was long a hallmark of Biden’s senate career, EU diplomats hope that he will not only allow the first woman and the first African to become the next global trade chief, but also work together with WTO members to resurrect the organization.

Until now, Biden’s campaign has not publicly said where he stands on the issue. EU officials also don’t rule out that the incoming U.S. administration might use the current blockade as leverage to get concession from Okonjo-Iweala or other WTO members on future reform plans. Either way, U.S. actions in Geneva will be seen as an initial litmus test of whether Biden will chart an entirely new course.

This article is part of POLITICO’s premium policy service Pro Trade. From transatlantic trade wars to the U.K.’s future trading relationship with the EU and rest of the world, Pro Trade gives you the insight you need to plan your next move. Email [email protected] for a complimentary trial.