EU-US tariff deal jeopardizes rules-based global trade

“The deal agreed yesterday is not a good deal—it is appeasement. While the EU may avert a trade war in the short term, it is paying a high price in the long term by abandoning the principles of the multilateral, rules-based world trade system of the World Trade Organization (WTO), which has been instrumental in guaranteeing Europe's prosperity to date. 

While the short-term economic consequences of the deal may seem limited—we expect growth in Germany to initially be reduced by 0.13 percentage points—the long-term damage to the multilateral trading system is far greater. The EU should urgently consider its strengths and promote trade partnerships with like-minded countries.

Under WTO rules, member countries must apply the same tariffs to all other members. Deviations are only permitted under free trade agreements in which both sides reduce their tariffs to zero. The current deal clearly violates these principles and sets a dangerous precedent. It could encourage other countries to impose arbitrary and politically motivated tariff increases. In the long term, this could lead to an increase in trade conflicts and higher tariffs overall—a development that would affect exporting nations such as Germany particularly badly.

Instead of agreeing to a disadvantageous deal, the EU could have formed a coalition with other affected economies, such as Canada, Mexico, Brazil, and South Korea. This would have created an effective counterweight to US tariff threats. However, the deal concluded today strengthens President Trump's strategy of pitting other economies against each other.”