US tariffs will have negative impact on economic growth in EU and US - Dombrovskis

RIGA - The customs tariffs imposed by the United States will have a negative impact on the economic growth indicators of the European Union (EU) and and the US, as well as inflation, Valdis Dombrovskis (New Unity), European Commissioner for Economy and Productivity, Implementation and Simplification, told LETA.

The EU commissioner said that the EU, for its part, wanted to avoid such a scenario, which was also made clear to the US, but the new US administration decided to go ahead with the tariffs on EU steel and aluminum, as well as steel and aluminum products. The commissioner said that this is why the EU has decided to impose retaliatory tariffs, part of them effective from April 1 and part from April 16.

Dombrovskis noted that the EU faced a similar situation during the first presidency of US President Donald Trump, when tariffs were imposed on EU steel and aluminum. He explained that the tariffs introduced by the US administration this time are more extensive: while previously there was a 25 percent tariff on steel and a 10 percent tariff on aluminum, there is now a 25 percent tariff on both steel and aluminum, covering also steel and aluminum products.

The commissioner indicated that the EU is preparing its response in two steps, on April 1 and April 16. The first step will restore the tariffs that the EU had imposed in response to US tariffs during Trump's first presidency. According to Dombrovskis, this makes it possible to do it sooner. However, future tariffs will require consultations with the bloc's member states, so this will take a little longer.

"For its part, the EU has indicated to the US administration that the European Commission is open to negotiations and constructive solutions, because tariffs will not be good for the US or the EU economy, so of course it would be better to avoid them," the commissioner said.

Asked what the US could gain from imposing tariffs, Dombrovskis explained that this is Trump's policy, which is protectionist in nature. The aim is to protect domestic industry from foreign competition, but these goods will become more expensive on the US market. Dombrovskis also noted the highly integrated supply chains, including between the EU and the US. Tariffs will also lead to disruptions in the supply chains and thus to negative consequences for businesses in both the EU and the US.

"The economic reality of these types of tariffs is not positive. I have to say that the new US administration's tariffs are targeting not just the EU, but also Canada, Mexico and China. Overall, this policy of Trump will also have negative consequences for the global economy," Dombrovskis warned.

Dombrovskis mentioned the International Monetary Fund's study on tariffs, which shows that they lead to fragmentation of the economy - trade is focused in certain trading blocs. In the medium term, this leads to a situation where world gross domestic product (GDP) is 7 percent lower, as opposed to a situation where there are no such tariffs and no economic fragmentation. Dombrovskis explained that the effect is equivalent to taking the combined GDP of Germany and France out of the world economy.

As reported, the previously announced 25 percent US tariffs on steel and aluminum imports from all countries came into force at midnight on Wednesday. A quarter of the steel and 40 percent of the aluminum used in US industry are imported.

Economists say that higher import tariffs on steel and aluminum will raise production costs and prices for consumers, and reduce the competitiveness of US companies.

Trump on Thursday threatened to impose 200 percent tariffs on wine, champagne and other spirits from France and other EU member states in the light of the bloc's planned tariffs on whisky imports from the US.

The European Union (EU) said Wednesday it will respond to the US tariff hike on all steel and aluminum imports by reintroducing customs tariffs on whisky, motorbikes, peanut butter and boats.

The European Commission said in a statement that the EU countermeasures are meant to protect European companies, employees and consumers from the 25 percent tariffs applied by the US to the imports of steep, aluminum and some products containing these metals.

The EC says the new US tariffs will affect EUR 26 billion worth of EU exports, or around 5 percent of the bloc's total exports of goods to the US, resulting in additional EUR 6 billion import duties for US importers.