The European Union has warned that the global trade war is going to get worse.
An internal memo circulated among European Union governments has warned that the world is slipping back into a situation where the strong impose their will on the weak with gaps in the global rule book on trade.
The memo drafted by the European Commission warns that the disputes between the U.S. and its closest trading partners are set to escalate “in the coming months, as more unilateral measures are threatened and imposed, leading, in some cases, to countermeasures, or to mercantilist deals.”
It warns that the world will go back “to a trading environment where rules are only enforced where convenient and where strength replaces rules as the basis for trade relations.”
The memo has been written at a time when the exports-based European economic model is under pressure from US President Donald Trump seeking to narrow the US trade deficit at all costs.
This has seen him defying global rules on trade and imposing punitive tariffs on steel and aluminium imports from Europe.
Mr Trump is now threatening a 20 percent levy on European cars, a measure that would deal a massive blow to the EU’s auto industry.
The Trump administration is also looking to impose fresh tariffs on products from China, sending the markets into turmoil. Washington has already announced a 25 per cent tariff on up to $50 billion of Chinese goods and Mr Trump says he has instructed the US Trade Representative’s office to identify $200 billion in imports from the Asian nation for additional tariffs of 10 per cent. And he has warned that the US would impose tariffs on another $200 billion after that if Beijing retaliates.
The memo says there are three drivers that could escalate the trade war.
First, it cites gaps in the rulebook of global trade “leading to distortions, many of which are associated with non-market policies and practices in major trading nations that the World Trade Organisation does not seem able to address adequately.
Then it points to aggressive unilateral actions by the US targeting allies and foes alike with punitive tariffs.
And finally, it cites the US’s decision to block appointments to the World Trade Organisation’s Appellate Body, the final arbiter in trade disputes.
“As more appellate body members leave office while the new appointments are being blocked, the dispute settlement system will soon fall into paralysis, rendering enforcement of the rules impossible,” the commission said. “That would equate to a 20-year step backward in global economic governance.”