European Leaders Warn US of Tariff Retaliation

European leaders reaffirmed their commitment to protect the region’s trade interests and address elements of a nuclear accord with Iran, even as attempts to lobby the US president on those issues last week appeared to have failed.

France’s Emmanuel Macron and Germany’s Angela Merkel made separate trips to Washington in recent days to persuade Donald Trump to grant the European Union a reprieve from US tariffs, as well as remain in a nuclear deal, Bloomberg reported.

With no indications that Trump has eased his stance on either issue, Merkel and Macron discussed next steps with UK Prime Minister Theresa May by phone this weekend, according to statements from Berlin and London.

“The three reiterated a preference for the United States to remain in the nuclear agreement with Iran,” German government spokesman Steffen Seibert said in one of the statements.

They also agreed to maintain a firm stance on defending the European Union’s interests should the US not grant the region a permanent exemption from tariffs on steel and aluminum. An initial exemption granted to the EU is set to expire Monday night, and Trump has insisted he wants economic or security concessions from countries seeking a permanent waiver.

Allies Brace for Trade War

A few weeks ago, it felt as if a trade war pitting the United States against allies like Australia, Canada and the European Union was over before it even began. The Trump administration dispensed so many temporary exemptions to steel and aluminum tariffs that many countries figured the threats were just political theater.

But with little time left before the exemptions expire and punitive tariffs take effect, it’s dawning on foreign leaders that decades of warm relations with the United States carry little weight with a president dismissive of diplomatic norms and hostile toward the ground rules of international trade.

What began as a way to protect American steel and aluminum jobs has since become a cudgel that the Trump administration is using to extract concessions in other areas, including car exports to Europe or negotiations to revise the North American Free Trade Agreement with Mexico and Canada.

As a May 1 deadline looms, the decision on whether to grant permanent exemptions to the steel and aluminum tariffs, and to whom, appears likely to come down to the whims of Trump, who has seesawed between scrapping and rejoining global trade deals.

The European Union, the United States’ biggest trading partner, indicated over the weekend that it was losing hope of reaching an agreement in the face of what many of the region’s political leaders regard as unreasonable demands.

Uncertainty Prevails

The uncertainty is sowing chaos in international supply networks. Car companies and other manufacturers do not know whether ships carrying steel or cars may suddenly be barred from American ports.

Some countries are confident they will avoid the tariffs. Australia is treating an exemption as if it’s a done deal. Brazil, which primarily exports slab steel to American manufacturers, is hoping to escape by agreeing on limited quotas for more sophisticated products. Argentina is counting on the good relationship between its president, Mauricio Macri, and Trump.

But it’s unclear whether the confidence is justified. The White House has not confirmed that Australia, Brazil or Argentina will receive exemptions.

Austrian Chancellor Sebastian Kurz said a trade war between the EU and the US would be “extremely negative” for both sides.

The EU should consider a collective response if the US doesn’t extend tariff waivers that expire this Tuesday, Kurz said in a Bloomberg Television interview. Speaking Sunday in Abu Dhabi, Kurz said he he hopes the trade barriers announced by US President Donald Trump “won’t turn into reality”.

Kurz was in Abu Dhabi to witness the signing of a $1.5 billion deal between Austrian oil and gas producer OMV AG and Abu Dhabi’s state-owned energy giant, Abu Dhabi National Oil Co. Abu Dhabi’s Mubadala Investment Co. holds a 24.9% stake in OMV and a majority stake in Borealis AG, the Austrian chemical maker.

Austria assumes the 28-nation EU’s rotating six-month presidency in July, when it will spearhead the group’s handling of a number of thorny issues ranging from Brexit to immigration, and now the prospect of a trade war between the US and some of its closest allies.

Meanwhile, Wilbur Ross, Trump’s commerce secretary, has said the administration plans to extend relief from the tariffs to some, but not all, countries. Ross, in an interview in Washington with Bloomberg late Saturday, declined to identify which nations would be spared from the tariffs. He said the announcement will be made right before the May 1 deadline for the duties to kick in.