EU holds off on US tariff countermeasures for now to pursue talks

The European Union said on Sunday it would extend its suspension of countermeasures to US tariffs until early August and continue to press for a negotiated settlement, after US President Donald Trump ratcheted up his trade war on the bloc.

Trump said on Saturday he would be imposing a 30% tariff on most imports from the EU from August 1, though his deadline gave the EU, like other targeted countries, time to hammer out agreements that could lower the threatened tariff rate.

Ursula von der Leyen, head of the EU’s executive Commission which handles trade policy for the 27 member states, said the bloc would maintain its two-track approach: keep talking and prepare retaliatory measures.

“We have always been very clear that we prefer a negotiated solution. This remains the case, and we will use the time that we have now,” von der Leyen told a press conference, adding that the bloc would extend its halt on countermeasures until August.

Von der Leyen’s decision to resist immediate retaliatory measures points to the European Commission’s desire to avoid a spiralling tit-for-tat escalation in the trade war while there remains a chance of negotiating an improved outcome.

White House economic adviser Kevin Hassett said Trump had seen some trade deal offers and thinks they need to improve, adding that without that, he would proceed with the threatened tariffs on Mexico, the EU and other countries.

“These tariffs are real if the president doesn’t get a deal that he thinks is good enough,” Hassett told ABC’s This Week programme. “But you know, conversations are ongoing, and we’ll see where the dust settles.”

TEST OF UNITY

The latest salvo from Trump and the question of how to respond may test the unity of member states, with France appearing to take a tougher line than Germany, the bloc’s industrial powerhouse whose economy leans heavily on exports.

French President Emmanuel Macron said the Commission needed more than ever to “assert the Union’s determination to defend European interests resolutely”, and that retaliation might need to include so-called anti-coercion instruments.

Germany’s economy minister called for a “pragmatic solution” immediately after Trump’s latest threat, though on Sunday the country’s finance minister said the EU should be ready to take firm action if talks failed.

“If a fair negotiated solution does not succeed, then we must take decisive countermeasures to protect jobs and companies in Europe,” Finance Minister Lars Klingbeil, also vice chancellor in the ruling coalition, told Sueddeutsche Zeitung newspaper.

While the EU has held back from retaliating against the US in the months since Trump hit the bloc with tariffs, it has readied two packages that could hit a combined 93 billion euros of U.S. goods.

A first package, in response to US levies of 50% on imported steel and aluminium that would hit 21 billion euros in U.S. goods was suspended in April for 90 days to allow time for negotiations. The suspension had been due to expire on Monday before the extension was announced.

A second package in retaliation against Trump’s “reciprocal” tariffs has been in the works since May and was set to target 72 billion euros of U.S. goods. These measures have not been made public and the final list requires approval by member states.

ANTI-COERCION INSTRUMENT

Von der Leyen said on Sunday that the use of the EU’s Anti-Coercion Instrument was not yet on the table.

The instrument allows the bloc to retaliate against third countries that put economic pressure on EU members to change their policies.

“The (anti-coercion) instrument is created for extraordinary situations, we are not there yet,” she said.

Possible retaliatory steps could include restricting EU market access to goods and services, and other economic measures related to areas including foreign direct investment, financial markets and export controls.

In a sign of the EU’s desire to strike deals with more trading partners at a time of deepening uncertainty in trans-Atlantic relations, von der Leyen said a political agreement had been reached to advance an EU-Indonesia trade deal.

France’s cheese producers warned of the damaging consequences of a 30% tariff for the local dairy industry, which exports nearly half its produce, including to the United States.

“It’s a new environment we will have to get used to – I don’t think this is temporary,” Francois Xavier Huard, CEO of dairy association FNIL, told Reuters.