EU will not be able to return favors to Americans with tariffs

It is not a question of whether a reprise will happen but how the sour faces from the Brussels corridors will digest it. With war in the backyard, cut off from cheap energy, version 2.0 of the ‘man-tariff’ announces a 10 percent increase in exports to a rare market that can digest European prices. Analysts believe a repeat of 2018 is imminent.

– They will negotiate as they did last time. They will go by commodity groups; for example, in the first mandate, they negotiated steel, aluminum, and airplanes. The connection is too great; Trump will surely take a step back in these negotiations, the EU will retaliate, imposing tariffs on some insignificant goods just to show their teeth, and then compensate with lower tariffs on more important goods for both countries. A real trade war between the US and the EU will not happen; no one can afford that, but the EU has a big problem in negotiating. The EU is a single market, but it is not a single economy, which is why its negotiating position is weak. Because when something is negotiated, it is usually in favor of a specific member state, not for the others, which deepens the division – assures Jurčić, adding that the EU is further stifled by the urgent replacement of Russian energy with solar energy. Trump has already announced his withdrawal from the main climate agreement, the Paris Agreement, freeing up enormous investment potential, among other things, for the Taiwanese chip factory – believes economist Ljubo Jurčić.

Professor Luka Brkić from Libertas University states that access to cheap energy is crucial for economic leadership. And this could be the main ace in the negotiating sleeve. The EU is energy-stranded (even if Trump ends the war, returning to factory settings will not be politically correct), part of the Russian energy has already been replaced by American LNG, so a promise of even greater imports of liquefied gas could sound soothing. Messages are already being sent from Brussels that increased imports of American LNG could play an important role in reducing the continent’s dependence on Russian energy (even with possible price reductions if Trump’s promise to cut energy prices materializes).

– Without a deep and liquid market for debt, creating European safe assets, crucial for raising financing for public goods, as well as a capital market union, which would greatly contribute to supporting private investments, it will be impossible to wriggle out of the anxious tariff story. Draghi’s report calls on Europe to build something like a war economy and to kickstart it using common firepower. However, the EU is not a federation; economic nationalism prevails, preventing cross-border mergers, limiting coordination, and hindering joint financing. The EU’s common budget today amounts to only one percent of the bloc’s GDP, and the common debt issued in response to the pandemic was temporary by design. Although today’s geopolitical challenges are unprecedented, the problems of growth, integration, and governance that plague the EU have been known at least since Sapir’s report in 2004 – explains Brkić.

How the European response to American tariffs is assessed can be read in the new printed and digital issue of Lider.

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