EU to accept increases in US tariffs as China demands levy reversal

The European Commission has demanded that the United States stick to the terms of an EU and US trade deal reached last year, after the US Supreme Court struck down Donald Trump's global tariffs and he responded with new levies across the board.

The Commission, which negotiates trade policy on behalf of the 27 EU member states, said Washington must provide "full clarity" on the steps it intends to take following the court ruling.

After the court struck down Trump's global tariffs on Friday, the US president announced temporary, across-the-board tariffs of 10 per cent, which he then hiked to 15 per cent a day later.

"The current situation is not conducive to delivering "fair, balanced, and mutually beneficial' transatlantic trade and investment, as agreed to by both sides" in the joint statement setting out the terms of last year's trade agreement, the Commission said. "A deal is a deal."

The comments were far more strongly worded than the Commission's initial response on Friday, which had said only that it was studying the outcome of the Supreme Court decision and keeping in contact with the U.S. administration.

China has strongly condemned the United States’ recent tariff measures and is closely evaluating their implications. Responding to the latest developments, China's Ministry of Commerce stated:

"We have noted the US Supreme Court's ruling on the tariff case and are conducting a comprehensive assessment of its content and impact. China has consistently opposed all forms of unilateral tariff increases and has repeatedly emphasized that there are no winners in a trade war, and protectionism leads nowhere. 

"The US's unilateral measures, such as retaliatory tariffs and fentanyl tariffs, violate both international trade rules and US domestic law, and are not in the interests of any party. Facts have repeatedly proven that cooperation between China and the US benefits both sides, while confrontation harms both. 

"China urges the US to cancel its unilateral tariff measures on its trading partners. We have also noted that the US is preparing alternative measures, such as trade investigations, to maintain the tariffs imposed on its trading partners. China will closely monitor this and firmly safeguard its interests."

Will the current trade deal still remain in place?

American and EU officials sealed a trade deal last year that imposes a 15 per cent import tax on 70 per cent of European goods exported to the United States.

The 15 per cent US tariffs were applied to most EU goods, apart from those covered by other sectoral tariffs such as on steel. It also allowed zero tariffs on some products such as aircraft and spare parts. The EU agreed to remove import duties on many US goods and withdrew a threat to retaliate with higher levies.

It is not clear whether Trump's new 15 per cent tariffs supersede the EU-US deal. If they do, the EU's zero tariff exemptions could disappear. The new tariffs could also be placed on top of pre-existing 'most-favoured-nation' U.S. duties, which is not the case under the EU-US deal.

Furthermore, the comparative advantage the EU had with a 15 per cent tariff would appear to have disappeared as even countries without a deal face that rate.

Trade policy monitor Global Trade Alert estimates that the EU as a whole will be 0.8 percentage points worse off, with Italy facing an extra 1.7 percentage points of US tariffs.

However, as primarily a trading bloc, the EU has a powerful tool at its disposal to retaliate, the bloc's Anti-Coercion Instrument. It includes a raft of measures for blocking or restricting trade and investment from countries found to be putting undue pressure on EU member nations or corporations.

The measures could include curtailing the export and import of goods and services, barring countries or companies from EU public tenders, or limiting foreign direct investment. In its most severe form, it would essentially close off access to the EU's 450-million customer market and inflict billions of dollars of losses on US companies and the American economy.