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The European Union, a political project aimed at removing trade barriers, has been raising tariff barriers at the fastest pace in 15 years. But just as defenses against cheap Chinese imports were rapidly building, a new storm has once again thrown the EU off balance.
For example, Donald Trump has threatened to impose tariffs of up to 60% on Chinese goods, which would erect a higher tariff wall around the United States than planned by the European Union.
If the US president follows through, the result will be to divert Chinese goods from the US to the EU, forcing Brussels to consider tougher defensive measures to fight back.
This is an impossible situation for a union that prides itself on its free-trade instincts. Every obstacle it raises saves some domestic jobs but also makes other domestic industries less competitive by raising import prices.
With China currently accounting for 30% of global industrial output, this will have considerable knock-on effects on EU products ranging from electric cars to Italian ketchup.
Vulnerable industries such as steel and fiberglass manufacturers complain that the EU is not setting up trade defenses fast enough or high enough to save them. “Many industries are approaching a tipping point,” said Laurent Ruessmann, partner and trade defense expert at RB Legal.
On the other hand, those who want cheap Chinese inputs to drive down the price of their own products, such as paint manufacturers, have lobbied against the tariffs. The European Union has imposed tariffs on a key ingredient, titanium dioxide, which has paint makers worried they will have to bear costs or lose sales.
Simon Evenett, professor of geopolitics and strategy at IMD Business School, said tariffs will always ultimately cost consumers or other businesses.
“Europe’s dilemma is to impose tariffs on Chinese imports at the expense of downstream jobs and to watch EU producers shrink by doing nothing. When it comes to protectionism, someone’s cow is always going to be gored.
However, Aegis Europe, which represents heavy industries such as steel and chemicals, believes the EU is taking a wait-and-see attitude.
Aegis Group said the trade defense measures covered far fewer EU imports than other trading blocs. The number of tariffs has increased to the highest level since 2009, with 141 tariffs set to take effect by 2023.
“Suggestions that EU manufacturers are using trade defenses as a protectionist tool do not stand up to scrutiny,” it said in a report.
Brussels has responded. At Aegis Network’s request, it now automatically registers imports when a trade investigation is launched. If it wanted, it could backdated the tariffs, preventing stockpiling in response to rising prices during the months-long investigation.
But even when tariffs are in place, China tends to find ways around them. Chinese producers have doubled their market share since the European Union imposed countervailing duties in 2010 on fiberglass used in construction, wind turbines and other industries.
After the tariffs were imposed, imports from Egypt began to surge. Chinese state-owned Jushi Group opened a factory there, and Brussels eventually imposed tariffs on Egypt.
Ludovic Piraux, CEO of producer 3B and president of Fiberglass Europe, said the tariffs were ultimately too low. “Companies like ours that operate under market economy conditions cannot withstand relentless attacks from Chinese state-subsidized competitors,” he said.
The steel industry is under the most pressure – struggling with weak demand, high energy costs and regulations forcing it to invest in eliminating carbon emissions.
According to lobby group Eurofer, steel production will reach an all-time low of 128 million tons in 2023. Trump imposed tariffs on metals during his first term to protect voters in America’s industrial heartland and may re-introduce them within days of his return.
“We have to decide whether we want a European steel industry,” said Axel Eggert, director general of the European Steel Industry Association.
Eggert argued that EU steel is needed by carmakers, who themselves are now partially protected by tariffs from a surge in imports of cheap Chinese electric cars that are said to be subsidized. While they may be tempted by cheaper Chinese products to reduce costs, “once we leave, the Chinese will raise prices.”
The EU may try to reopen talks with the United States on a “green steel club” that would allow zero-tariff trade between member states while outside countries pay.
This had been dismissed by Brussels as inconsistent with World Trade Organization rules. But senior EU officials are now suggesting they have flexibility in interpreting the rules.
In this hostile environment, even the best scholars of trade multilateralism may find it impossible to stand up for their principles.
