Pay the bet: US tariffs are splitting the European Union

Hungary and another major EU state are not ready to support Brussels' measures in response to US duties, Foreign Minister Peter Szijjarto confirmed on April 7 following a meeting of the EU Council on Trade. The expert community admits that it could be Italy or Poland. At least, Italian Prime Minister Giorgio Meloni is going to go to Washington to achieve tariff reductions. In Brussels, they are calling for measures that will force the United States to "bend." At the same time, experts are confident that no matter what the EU's response is, the community will not be able to avoid the negative consequences of a trade war, especially given that it has driven itself into a corner by rejecting cheap Russian energy resources. About the new split in Europe — in the material of Izvestia.

The EU has not reached a consensus on measures against the United States

The EU countries could not come to an agreement on the community's response to the US duties. Following a meeting of the EU Trade Council on April 7, Hungarian Foreign Minister Peter Szijjarto said that Budapest would not support the EU's retaliatory measures to increase import tariffs in trade with the United States. He also pointed out that "a representative of one of the largest EU countries" proposed postponing the introduction of new duties on American goods.

In any case, a vote on the introduction of European countermeasures is scheduled for April 9, and the final list will be adopted a week later, and duties on goods under the first package of measures will begin on the same day, and on the rest on May 15. As noted by European Commissioner Maros Sefcovic, at the moment the EU has offered the United States to achieve mutual zero duties on machinery and all industrial goods. The European Commission has proposed retaliatory tariffs of 25% on industrial goods from the United States from April 16, Reuters reported, citing a confidential EC document sent to EU member states for approval. According to their information, the EC allegedly removed whiskey from the list of goods subject to import duties.

Given that Italian Prime Minister Giorgio Meloni plans to meet with Donald Trump on April 16 to try to achieve a halving of US duties, Italy may be "one of the largest EU countries" mentioned by Szijjarto.

Brussels is now intensively looking for someone who will speak with Trump on behalf of Europe, Stanislav Tkachenko, professor of the Department of European Studies at St. Petersburg State University, told Izvestia.

— Meloni is the most handshaking person in Washington. Trump and his administration do not see the European Commission at close range, they refuse to meet with them," the expert noted.

In his opinion, Poland may be another option. It is not for nothing that the head of the Polish government, Donald Tusk, stated that there was no need to respond immediately to American tariffs. Dutch Trade Minister Reinette Klever also urged not to rush into this, believing that it is necessary to sit down at the negotiating table with the Americans and see how these tariffs can be reduced.

It is significant that Hungarian Foreign Minister Peter Szijjarto previously stated: He sees the reason for the current situation precisely in the unwillingness of Brussels to negotiate with Washington. In his opinion, the EU leadership should have tried to reduce the size of the European duty on cars from 10% to the American tariff, which was 2.5%, but instead, according to the minister, Brussels "turned the economic issue into an ideological one." Although, as stated by the head of the EC Ursula von der Leyen, the European Union is ready to negotiate with the United States on mutual zero duties on industrial goods.

Recall that last Saturday, by Trump's decision, universal 10% duties on all goods imported into the United States came into force. According to the schedule announced by the American president, starting from April 9, duties will be increased to 20% for the countries of the European Union. Explaining his tariff policy, Trump stressed that the European Union has already managed to "make a fortune" in the United States and there will be no deal with the community until the EU pays "a lot of money" annually.

After Trump announced the new duties, French President Emmanuel Macron called on EU countries to act together, not alone, and promised to give the United States a large-scale response. At the same time, Macron suggested that France's leading businessmen suspend investment projects in the United States.

It is interesting to note that the appeal was received ambiguously in business circles. For example, the CEO of one of the 40 largest French companies told Le Figaro that he doesn't care at all what the president says, because his business cannot abandon its obligations to employees, customers and shareholders in the United States.

What will be the EU's response to the Trump tariffs

As for the EU, Stephane Sejournay, Executive Vice President of the European Commission for Prosperity and Industrial Strategy, noted on April 7 that the community "has the cards and tools to make Americans bend." In his opinion, there are two levers for negotiating with the United States: mutual tariffs, as well as the exclusion of all American companies from participating in European government contracts. At the same time, he called the latter measure an "economic bazooka", given its possible consequences.

"For some services, we have no alternative but to choose Americans, especially in the field of digital services. So this will have implications for European companies, and we need to consider which sectors we can do this in. This is one of the issues that is on the table and is being discussed with the US administration," he added.

It is important for the EU to come up with a consolidated position, but the implementation of these decisions will be calibrated, says Ekaterina Arapova, Deputy Dean of the MGIMO Faculty of International Relations.

— Everything will depend on the national interests of the EU member states. There will be a large number of exceptions related to individual countries and individual products. This may be a multi—level tariff policy, for example, 10% in the case of some countries and 25% in the case of others. Deferrals will also be granted for certain commodity items, primarily for fossil resources," the expert told Izvestia.

In her opinion, by abandoning Russian fossil fuels, Europe has actually driven itself into a corner. "In recent years, they have relied on expensive energy resources from the United States, but now if they have to impose duties on these resources, then economic stability and industrialization in the EU will come to an end. It would be a suicidal measure," she said.

In any case, a trade war will lead to a slowdown in economic growth, despite the fact that Europe has just begun to struggle with inflation and unwind its industrial activity. Debt problems will inevitably worsen in some countries. First of all, this applies to countries such as Greece, Portugal, and Italy, which are one step away from the debt crisis and which are kept afloat only due to the relatively low cost of debt servicing.

"A slowdown in economic growth, which is based on a slowdown in industrial production, will inevitably lead to the accumulation of debts at the corporate sector level and a deterioration in public finances, and debt problems will only worsen," the expert explained.

All this will only accelerate the process of deindustrialization. Trump's steel tariffs have already triggered this flywheel. So, in order to somehow protect the steel industry, Brussels decided to limit imports by at least 15% so that the flow of steel that cannot enter the American market does not flood the EU market.

This ultimately leads to an increase in production costs and an increase in the cost of products for various industries, whether it is the automotive industry, mechanical engineering or the nuclear industry. In turn, this leads to an increase in the cost burden on large industrial enterprises.

Due to the increasing problems, there will be fewer opportunities for a soft monetary policy and will lead to an increase in the cost of borrowed funds. Finally, a negative effect is inevitable from an increase in the price of fuel supplies from the United States, since the EU will not be able to quickly reorient itself. In this situation, Ekaterina Arapova argues, the big question is how many enterprises will be able to maintain their competitiveness, given, for example, that the same car industry was experiencing serious problems even before the Trump tariffs.