Trump’s Trade War with the European Union

All European nations have been on extremely good terms with America since the end of World War 2. One of the reasons behind these good terms was the fact that Americans and Europeans shared the same belief system, one that claims that international trade is a virtue. The belief explains that countries are better off economically when they trade with each other. An individual country with fewer allies is an isolated nation with no influence over the rest of the world.

However, Donald Trump, the latest American President does not seem to agree to this. Firstly, Trump has a medieval view of the way trade functions. He believes that if America runs trade deficits with other nations, they are losing money. Secondly, he wants to bully other nations to buy more American products instead of becoming more competitive in terms of prices and quality.

As a result, he has attacked many foreign nations and has threatened to impose trade tariffs on them. His fight with China and the resultant tariffs on steel and aluminium are well known.

The problem is that Trump has gone too far. He has now started attacking America’s oldest and staunchest allies, i.e. the European Union. In this article, we will have a closer look at the feud between Americans and Europeans.

Trump’s Logic for Import Tariffs

Trump believes that Americans are buying too many European products. Also, he has commissioned some sort of study on this subject. The result of this study claims that the decline of the American automobile industry is a national security threat to America. Trump believes that cars sold by European companies are the reasons why Americans don’t buy homemade cars. Hence, he wants to impose tariffs on European cars to make them more expensive and urge consumers to buy locally made vehicles.

This decision has left the European leaders including Germany’s Angela Merkel aghast. She is unable to believe Trump’s logic given the fact that most Republicans claim to support international trade. Also, she has repeatedly pointed out that companies like Bavarian Motor Works (BMW) have built their factories within the United States. BMW’s South Carolina plant employs thousands of local people, makes over half a million vehicles each year, many of which are exported from America to other nations. Hence, even though BMW may appear like a German brand to people, a lot of its production is done using American means of production.

The German car industry has massive sales within the United States. The top three carmakers, i.e. BMW, Mercedes Benz, and Daimler sell close to 50% of all the cars which are sold within the United States. Hence, it is obvious that Trump known Europeans will do anything to avert these tariffs which is why he keeps threatening them.

This is not the first time Trump has threatened to impose these tariffs on other European nations. The last time he made this threat, the European Union negotiated in good faith. They had agreed to buy more American products and were doing so. However, now all of a sudden, Donald Trump has once again started this unprovoked aggression aimed at European governments.

Effects of Donald Trump’s Import Tariffs

  • Many analysts have observed that Trump’s talk of tariffs have started only after countries like France decided to levy a digital tax. This digital tax would be levied on companies such as Facebook and Amazon, most of which are American. These American companies have huge business interests and are capable of lobbying the President into threatening the European government. Many analysts will believe that Trump will wield the trade tariffs chip to subdue European governments and get them to back off from the digital tax. It seems like Trump really has no intention of taxing German car makers. Instead, he is just scaring Europe into repealing the digital tax.
  • European car makers are the mainstay for many of those countries. For instance, the Germany economy is dependent upon car manufacturing companies. This is also the case with small countries such as Czech and Italy. The World Bank has estimated that if Americans continue with the threat of imposing tariffs on European vehicles, they could cause Economic mayhem in Europe. The GDP growth rate could be impacted by as much as 10%!
  • American agriculture is reeling because of the trade tariffs which were imposed by President Trump. The earlier tariffs have stalled agricultural exports to China. Trump is trying to use American muscle power in order to gain access to the European agriculture market. However, the chances of that happening are slim given the fact that many European countries like France are facing the onslaught from gilets jaunts, i.e. the yellow vests. If they open up the agricultural market, it will be viewed as the government selling out the common man to support big car companies. Such a move would end up with governments falling out of power and hence is unlikely.

The bottom line is that the escalation of the conflict is not in the interest of either parties. Hence, it is obvious that sooner or later sanity will prevail and no tariffs will be levied. However, before that, a lot of noise is likely to be made. Trump will try to score as many political points as possible given the fact that the extended shutdown and the national emergency have both made him extremely unpopular.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.