Europe's Best Tools for Countering Trump

[Celerity]

Daniel Gros recommends targeted export tariffs, taxes on royalties, and the elimination of US Treasuries’ risk-free status.

https://www.socialeurope.eu/europes-best-tools-for-countering-trump



Now that US President Donald Trump has climbed down from his demand to “own” Greenland, an imminent trade war between the United States and the European Union has been averted. But there is little reason to think that the Trump administration will not find more reasons to coerce and antagonize Europe, including with renewed tariff threats. But, contrary to the Trump administration’s narrative, EU leaders have options to push back.

Given that the US and the EU have the world’s most robust and important economic relationship, comprising not only high volumes of merchandise trade but also copious exchanges of services and capital, a transatlantic trade war would be very costly for both sides. But because European exporters depend more on the US market than American exporters do on Europe, the EU would probably have a harder time coping with escalating tit-for-tat tariffs, likely provoking resistance from the EU’s most exposed countries.

If, however, the EU eschewed import tariffs in favor of export taxes, the US may take a bigger hit. A large share of US exports to the EU is energy – a fungible commodity, for which alternative suppliers can be found relatively easily. By contrast, the thousands of goods for which the EU is America’s dominant supplier – amounting to $300 billion in annual US imports – would be significantly more difficult to substitute.

But the EU should go further. Instead of imposing blanket export tariffs, it should target those products for which the US has imposed no import tariffs – an indication of its desire to avoid domestic price increases. A good example is pharmaceutical products, where the EU runs a large trade surplus with the US. An even better example is the machinery used to manufacture microchips, especially the most advanced devices, produced by the Dutch company ASML. Without ASML’s machines, the US could not produce the chips it needs for AI technologies. This is why the firm has been exempted from US import tariffs.

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[Wounded Bear]

1. With trump in charge, our treasuries are definitely not risk free...