Jeans and bourbon in reserve - a defense against a trade war

06.03.2018 15:34|Bartosz Grejner

“Europeans will find it harder to sell cars to the American market and customers in the EU will pay more for American jeans, American whiskey and their legendary motorcycles. This is the dire result if trade war announcements between the US and the EU materialize. Everyone loses in a trade war, even if its not equally,” writes Bartosz Grejner, Conotoxia analyst.

Bartosz Grejner, Analityk Cinkciarz.pl

Last week, US President Donald Trump surprised everyone by announcing a 25% duty rate on imported steel and 10% on aluminum. The European Union replied almost immediately with the possibility of introducing tariffs on American products.

American commodities endangered in the EU

The European Commission debated on this matter at the beginning of March 2018 and, according to Bloomberg, prepared a list of American products that would incur duty taxes when imported to EU if the White House realises the threats made in the announcement. The tax would be imposed on popular American products, including bourbon, motorcycles, jeans, corn and steel.

The estimated annual value of these imports amounts to approximately 3.5 billion USD. Although this amount seems considerable at first glance, it only makes up a measly 0.15% of total US export. It's unlikely that this amount will cause panic stateside. However, this is a negotiation tactic initiated by President Donald Trump.

The way that the US president has run his enterprises in the past now translates to government policy. Although the last announcement regarding the introduction of duties on steel and aluminum will probably contain provisions which will exclude specific countries (Trump himself has already mentioned this), trade wars can negatively affect the economy on a global scale. Over the weekend, Trump suggested another move via Twitter. He said that duties will be imposed on cars from the EU if the EU charges products imported from the US with 25% rates. He also stated that trade wars are “easy to win.”

Is this just a negotiation tactic?

It seems, however, that we are still far from the escalation of a trade war. Car imports from the EU to the US last year were worth 43.4 billion USD, and a large part of European producers manufacture cars in Mexico. Not only could bidding on tariffs be costly for the EU, but the reality is that the EU has more to lose and less to gain. Annually, cars imported from the US to the European Union amount to only 8.8 billion USD.

In the current political climate, it is probably more about negotiating favourable trading conditions than about fulfilling threats. One thing is certain, tightening regulations may have a domino effect, and a trade war would negatively affect the global economy. In the short term, prices may increase and the pace of development might slow down, which may also lead to lower salaries. Although customs protection of some key sectors may, to some extent, have economic justification, everyone loses in a customs war, but not equally. And in this specific battle, the EU would probably have more to lose.

 


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