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The EU should stand its floor in a possible commerce conflict with the US and may retaliate if President Donald Trump imposes punitive tariffs on European items, mentioned Financial institution of Finland governor Olli Rehn.
“The very last thing we want is a brand new commerce conflict between allies however we have to take proportionate coverage measures [in case the EU is going to be targeted by the US],” the previous European financial commissioner mentioned.
He informed the Monetary Instances that “we can not lie down” within the face of US threats — “even whether it is pleasant hearth”.
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 had 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 12 months she informed the FT that the EU should aim for a deal with Trump as a commerce conflict was “in no person’s curiosity”.
Rehn careworn that the “first purpose” in European commerce coverage needs to be to discover a “negotiated answer”, as an escalating commerce battle needs to be fully prevented at a time when a “brutal conflict” was being fought on Europe’s fringe in Ukraine.
But when negotiations failed, Europe wanted to combat again.
“For those who ask economists, the bulk would say that it could be higher for everyone to not retaliate. However this isn’t solely [about] economics, that is largely politics,” mentioned Rehn.
“It’s higher to organize coverage measures, seek the advice of member states and in case Europe will likely be concretely focused by tariffs, then make it extra particular,” 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 “attention-grabbing to any buying and selling accomplice”. The EU has additionally expanded its trade network, most not too long ago 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 had been prone to fail, Rehn mentioned.
“The European Fee has sturdy prerogatives in commerce coverage, 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 greatest supply of imports to the EU after China — but it surely nonetheless had little cause to be cowed by the prospect of a commerce conflict with its most essential ally.
“Tariffs will hit most American customers and can have an inflationary impact on the US financial system,” 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 into cheaper whereas its exports rise in worth.
Whereas a commerce conflict could be anticipated to dent progress in Europe, its results on client costs had been unclear, the Finnish central banker mentioned.
He additionally raised doubts over the argument that tariffs had been a negotiation device to advance Trump’s different coverage targets.
“There appears to be a distinct sort of rationality [in Washington] than to what we’re used to in worldwide relations,” he mentioned. “As President Trump has himself said, he’s a ‘tariff man’ and it appears to be a really ideological difficulty for him and his administration.”
