US trade representative Robert Lighthizer. Picture: REUTERS
US trade representative Robert Lighthizer. Picture: REUTERS

Geneva — The US is weighing new tariffs on $3.1bn of exports from France, Germany, Spain and the UK, adding to an arsenal the Trump administration is threatening to use against Europe that could spiral into a wider transatlantic trade fight later this summer.

The US trade representative wants to impose new tariffs on European exports such as olives, beer, gin and trucks; while increasing duties on products that include aircraft, cheese and yoghurt, according to a notice published late on Tuesday evening. The statement lays out a month-long public comment period ending on July 26.

The Euro Stoxx 50 index, which tracks leading companies in the euro area, extended a decline on the news, slumping 2% at 11.26am in Brussels. The UK’s FTSE 100 hit intra-day lows.

If the US follows through with its plan, it could hammer European luxury brands such as Givenchy and Hermès — which produce leather goods — and Remy Cointreau and Pernod Ricard, which make Cognac and Champagne. LVMH Moët Hennessy would be particularly vulnerable because it produces a wide array of these products.

Tariffs on British gin could increase US prices at peak season for gin and tonics, potentially hurting British spirits companies such as Diageo, the London-based maker of Tanqueray; James Burrough, the maker of Beefeater gin; and William Grant & Sons, the maker of Hendricks gin.

German beer

New US duties might also dampen demand for German beer ahead of any Oktoberfest celebrations that aren’t already canceled because of the coronavirus.

The additional import taxes would already add to the 25% tariff the US imposed last year on imports of Scotch and Irish whiskey and liqueurs, and cordials from Germany, Ireland, Italy, Spain, and UK

The Distilled Spirits Council of the US said it opposed any additional spirits tariffs, which would “escalate trade tensions across the Atlantic and further jeopardise American companies and hospitality jobs already under duress as a result of Covid-19”, according to a statement.

The move is related to Europe and America’s 15-year-old World Trade Organisation (WTO) aircraft subsidy fight. A couple of years ago the WTO said both the US and the EU were guilty of illegally supporting their respective aircraft industries.

In October, the US gained the upper hand when the WTO authorised President Donald Trump to retaliate against $7.5bn worth of EU exports in response to Europe’s illegal subsidies to Airbus. Next month, the WTO is expected to deliver a retaliation award to the EU in its separate but related case against US subsidies to Boeing.

Carousel of pain

In the meantime, Trump’s top trade official, Lighthizer, has sought to increase pressure on the Europeans by deploying a particularly damaging tactic called “carousel retaliation”, whereby a country periodically shifts tariffs on different groups of goods.

Tuesday’s trade representative notice is a reminder that the US’s tariff targets may shift or be subject to higher levies — a strategy that spreads the sanctions pain across an array of industries, creating uncertainty for businesses and headaches for exporters and importers alike.

Earlier this year, the US deployed its carousel retaliation strategy to increase tariffs on exports of Airbus aircraft and parts from 10% to 15%. To date the US has only deployed tariffs on goods worth about half its permitted retaliation levels.

Lighthizer said his goal in increasing tariffs is to persuade the EU to agree to a settlement. But talks between the US and the EU have floundered this year, and now the EU is preparing to retaliate with new tariffs against an array of politically sensitive US industries.

Stalled talks

“The US has stepped back from the settlement talks in recent weeks,” EU trade commissioner Phil Hogan told European trade ministers on June 9. “If this remains the case, the EU will have little choice but to exercise its retaliation rights and impose our own sanctions.”

The EU has asked the WTO to give it the green light to place levies on as much as $11.2bn worth of US exports to Europe in retaliation for America’s illegal subsidies to Boeing. The Trump administration argues that the WTO award will be much smaller, with only about $300m at stake.

Regardless of the level of the WTO award, the US is now preparing to hit more European products as a means to dissuade the EU from retaliating at all. “There is no valid basis for the EU to retaliate against any US goods,” Lighthizer said last month. “We will continue to press the EU to negotiate a resolution that respects the WTO’s findings.”



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