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Europe not feeling much pain from Trump tariffs, central bank says
[FRANKFURT] President Donald Trump's trade war was supposed to make Europeans feel so much pain they would beg for mercy at the negotiating table. But it is not working very well, according to a new study by the European Central Bank.
Almost a year after the White House imposed tariffs on European steel and aluminum, the actual damage to European exports has been surprisingly mild, according to the study, released Wednesday.
Some industries, notably manufacturers of heavy equipment, may have even profited. That is because the White House imposed a broader array of tariffs on Chinese products, making competing European goods less expensive by comparison and allowing them to gain market share.
The tariffs "pose only a modest adverse risk to the global and euro area outlooks," said the study by Vanessa Gunnella and Lucia Quaglietti, who are economists at the European Central Bank.
The central bank's study, which comes as Europe and the United States prepare to begin high-level trade talks, reinforces other research showing that the tariffs on European goods have, by themselves, not amounted to very much. They have probably hurt the US economy more than the intended targets.
One reason is that much of the steel that Europeans sell to the United States is specially formulated for specific uses, like aircraft parts or oil drilling equipment. US companies cannot find domestic suppliers able to provide the same products, which often contain patented combinations of minerals or other metals. So they simply wind up paying the tariffs of 10 per cent on aluminum and 25 per cent on steel and passing the extra cost on to American consumers.
"There was not necessarily a lot of production capacity in the US to pick up the slack," said Oliver Rakau, chief German economist at Oxford Economics, who was not involved in the central bank study.
At the same time, the trade war is having a significant psychological impact. Mr Trump has rattled European confidence with the tariffs and his threats to expand the levies to include cars. Fearful of what may come next, business people are delaying plans to expand their factories or hire new workers.
"Uncertainty related to protectionism is weighing on economic sentiment," the central bank study said, adding that was only one of the reasons for Europe's tepid growth.
Many economists have said that putting tariffs on cars would raise the stakes significantly and cause a lot more damage.
As part of their study, which appears in the European Central Bank's monthly bulletin, Ms Gunnella and Ms Quaglietti also calculated what would happen if the United States imposed 10 per cent tariffs on imports from all countries and if all of the countries hit by the tariffs retaliated in kind.
The US economy would suffer the most damage in such a trade war because American products would become more expensive abroad, the central bank economists estimated. China would come out ahead.
In Europe, the damage to business confidence in the hypothetical trade war would largely be canceled out by increases in exports to countries other than the United States. European companies would be able to take market share from their American rivals in China.
There are already signs that European manufacturers of factory machinery, construction vehicles and other heavy equipment are exploiting Trump's trade war with China. Industrial machinery is Germany's second biggest category of exports after cars, and also an important sector in countries like the Netherlands and Italy.
In recent years, Chinese companies have become more skilled at producing sophisticated machinery and challenging the dominance of European rivals. But White House tariffs on Chinese products have given the European companies at least a temporary price advantage.
Still, few business managers are feeling good about the turmoil.
"Further trade conflicts would not be in our interest," Trumpf, a German company known for machines that use lasers to cut steel, said in an emailed statement.
The United States and China are Trumpf's two biggest foreign markets, and it has factories in both countries, the company noted.
"Things go well for Trumpf when things go well for China, the USA and Europe," the company said.