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The EU should stand its floor in a possible commerce battle with the US and will retaliate if President Donald Trump imposes punitive tariffs on European items, mentioned Financial institution of Finland governor Olli Rehn.
“The last thing we need is a new trade war between allies but we need to take proportionate policy measures [in case the EU is going to be targeted by the US],” the previous European financial commissioner mentioned.
He advised the Monetary Instances that “we cannot lie down” within the face of US threats — “even if it is friendly fire”.
Trump has warned that imports from Europe could also be subsequent in line after the US moved to impose 25 per cent tariffs on Canadian and Mexican imports and a further 10 per cent levy towards Chinese language items. The tariffs on Mexican and Canadian imports have been paused for a month on Monday whereas China imposed tariffs on US vitality export and farm tools.
One of many 26 members of the European Central Financial institution’s governing council, Rehn struck a extra combative tone on the matter than president Christine Lagarde. Late final yr she advised the FT that the EU ought to goal for a deal with Trump as a commerce battle was “in nobody’s interest”.
Rehn confused that the “first goal” in European commerce coverage must be to discover a “negotiated solution”, as an escalating commerce battle must be utterly averted at a time when a “brutal war” was being fought on Europe’s fringe in Ukraine.
But when negotiations failed, Europe wanted to battle again.
“If you ask economists, the majority would say that it would be better for everybody not to retaliate. But this is not only [about] economics, this is mostly politics,” mentioned Rehn.
“It’s better to prepare policy measures, consult member states and in case Europe will be concretely targeted by tariffs, then make it more specific,” he added, stressing that the bloc didn’t must disclose potential retaliatory strikes prematurely.
The EU can enter any battle with “self-confidence”, he mentioned, pointing to the truth that its single market, which has a inhabitants of about 450mn, was “interesting to any trading partner”. The EU has additionally expanded its commerce community, most lately with 4 South American international locations that belong to the Mercosur group.
Potential US makes an attempt to strike unilateral offers with particular person EU international locations have been prone to fail, Rehn mentioned.
“The European Commission has strong prerogatives in trade policy, which is a safeguard for European unity,” the veteran policymaker added.
Europe confronted low progress and a big publicity to American commerce — the US is the biggest marketplace for the EU items and the second largest supply of imports to the EU after China — however it nonetheless had little cause to be cowed by the prospect of a commerce battle with its most vital ally.
“Tariffs will hit most American consumers and will have an inflationary effect on the US economy,” Rehn mentioned, including that the greenback’s rise after the tariff bulletins had made it harder to decrease the US commerce deficit because the nation’s imports turn out to be cheaper whereas its exports rise in worth.
Whereas a commerce battle could be anticipated to dent progress in Europe, its results on client costs have been unclear, the Finnish central banker mentioned.
He additionally raised doubts over the argument that tariffs have been a negotiation instrument to advance Trump’s different coverage objectives.
“There seems to be a different kind of rationality [in Washington] than to what we are used to in international relations,” he mentioned. “As President Trump has himself stated, he’s a ‘tariff man’ and it seems to be a very ideological issue for him and his administration.”
