COUNTERING TRUMP’S THREATS

European leaders are sick and tired of Trump, who has been an exasperating, unpredictable and unfriendly negotiating partner to them, fitting no definition of an ally. But the Europeans are reluctant to abandon the existing trade rules and allow them to be replaced by an unpredictable might-based system. This isn’t merely about commercial interests; its about principles and rules.

For this reason the EU has challenged Trump’s moves at the World Trade Organization, pointing out that his national security rationale for imposing tariffs is laughable among close military allies and that the U.S. is merely engaging in protectionism. While the U.S. will argue that it has the right to define its own national security interests, the outcome of the dispute will at least show whether WTO arbitration works in such obvious cases. If it turns out that it doesn’t, the EU will only have its market power to depend upon in trying to force the U.S. to play by any rules at all.

A move by President Donald Trump to impose tariffs on cars assembled in Europe would dramatically escalate trade tensions and produce a quick response from the European Union. The European Union will be ready to strike back.

Cars worth €38 billion are shipped each year from the European Union to the United States. It's the biggest export market for an industry that forms the backbone of manufacturing in Europe.

Given the size of the trade at stake, and the potential damage to European companies who also export cars from plants in the United States back to Europe, EU officials may start by offering to strike a deal with Trump. The Trump administration may not be willing to play ball. Meanwhile, the European Union would be working to finalize a list of American products that could be targeted for retaliatory tariffs. That list could potentially include chemicals, aerospace and agricultural products.

The European Union will chose its targets from US imports worth about €256 billion each year. The targets will be a combination of iconic US brands and politically sensitive agricultural products. Boeing could face tariffs since it's America's single largest exporter and it competes directly against Europe's Airbus. The European Union would also attempt to limit damage to its own companies and consumers while pursuing a proportionate response. That could prove to be difficult because of the large size of the trade penalties and because global supply chains are interconnected.

European automakers including Volkswagen and BMW have major factories in America, for example, and their exports to Europe would be harmed by new EU tariffs.

EU officials are likely to challenge the legality of any US tariffs on cars. the economic cost of retaliatory tariffs and the threat of further escalation could encourage the European Union to moderate its response. The European Union will not want to do anything that would really damage the economy and industry.