Europe Confronts Blowback From U.S. Economic Moves

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German Chancellor

Angela Merkel

and French President

Emmanuel Macron

visit Washington this week with strains hanging over European economic relations with the U.S.

The strains—over trade, sanctions and other matters—were evident during semiannual meetings of the International Monetary Fund and World Bank this in Washington this weekend.

European capitals find themselves facing blowback from U.S. confrontations with China, Russia and Iran, including the threat of steel and aluminum tariffs, the prospect of the U.S. pulling out of the nuclear deal with Iran that the U.K., France and Germany helped negotiate; and proposed sanctions on Russia. Other tensions loom with the U.S., including Europe’s plan to tax digital companies.

Ms. Merkel and Mr. Macron visit Washington as a number of deadlines loom, including May 12, Mr. Trump’s self-imposed date for essentially getting out of the Iran deal, and May 1, for steel and aluminum tariffs taking effect in Europe.

“We are allies,” French Finance Minister

Bruno Le Maire

said Friday in a news conference. “We can’t live with a Sword of Damocles hanging over our heads.”

He indicated that until the U.S. removes the threat of tariffs on European steel and aluminum, the bloc wouldn’t join in Washington’s campaign to pressure Beijing.

“If we want to discuss China we must first get rid of that threat,” Mr. Le Maire said. “This can’t just be bilateral work.”

At a press conference Saturday, Treasury Secretary

Steven Mnuchin

was asked if the U.S. had been successful recruiting or persuading allies to its international efforts against China.

“We’re not looking to recruit other people,” he said. “What we are looking to do is have discussions with our other partners, they share similar issues, a lot of these issues are not unique to the United States.”

Mario Centeno,

the Portuguese finance minister, who presides over meetings of Eurozone finance ministers said, in reference to trade, that “Europe is of course not happy with this dimension of the global debate, we made it very clear to the U.S.”

Many European policy makers have sympathy for U.S. frustration with China’s trade practices.

European Union financial-services chief

Valdis Dombrovskis,

said the EU was eager to work with the U.S. “in a multilateral way” on China’s trade practices. He said that the EU was negotiating in good faith on steel and aluminum tariffs, but would be prepared to retaliate on trade if exemptions aren’t granted.

“Of course, if for whatever reason they are imposed, we are ready to react in proportional way which is in line with WTO rules,” Mr. Dombrovskis said. He added that the Trump administration’s justification for imposing the tariffs—on national security grounds—didn’t make sense. “We certainly do not see the EU as a threat of national security for the U.S.”

U.S. trade partners are accelerating trade deals with others to protect themselves. The EU announced Saturday it had struck a free-trade deal with Mexico, whose trade agreement with the U.S. is being renegotiated after being attacked by President

Donald Trump.

The EU said the deal would eliminate almost all tariffs on goods bought and sold between the two regions, including in the agricultural sector.

The EU-Mexico deal follows a December free trade agreement between the EU and Japan that the European Commission touted as “a powerful signal to the rest of the world that two large economies are resisting protectionism.”

“The list of partners willing to work with the EU in defending open, fair and rules -based trade is growing fast,” European Commission president

Jean-Claude Juncker

said in a statement.

The United Kingdom shares concern with the U.S. about China, but has found itself worrying it could suffer collateral damage in the spat between the world’s two largest economies.

“We do not believe that the implementation of tariffs is the way ultimately to resolve problems in the global trading system,” said

Philip Hammond,

the U.K.’s Chancellor of the Exchequer. “We do expect to suffer perhaps as much as many, and more than some, if global trade were affected by such actions.”

In challenging Russia and Iran, the Trump administration is ramping up sanctions as a primary policy tool to challenge threats to national security without military confrontation.

Europe is feeling the blowback. The European Union is Russia’s biggest trading partner, while Russia is the E.U.’s fourth largest trading partner.

European finance ministers urged the U.S. Treasury against a major escalation in sanctions against Russia and asked Mr. Mnuchin to exempt their firms from the latest round of sanctions. Ms. Merkel may press Mr. Trump to exclude existing contracts from Russian sanctions, Austrian finance minister Hartwig Loeger said Sunday.

German firms said complying with U.S. sanctions could cost them hundreds of millions of dollars in lost contracts and raise production costs.

Similarly, European nations are worried about the U.S. pulling out of the 2015 Iran nuclear deal, which could involve Washington imposing sanctions back onto broad swaths of the Iranian economy, including oil exports and financing.

Many European nations, including Germany, Italy and Spain, have business ties to Iran in the energy and industrial sectors. Oil prices could also go back up, hitting Europe as its economy is gathering pace.

“The message we are emphasizing is that it’s important to coordinate our response to Russia,” said Mr. Dombrovskis of the EU. Coordinating punitive actions against Russia and Iran is especially important, he said, because of the negative economic impacts on the European economy.

Other European officials put in it more bluntly in private meetings with U.S. officials and finance executives this week. “We still want to keep trans-Atlantic unity, but it is increasingly difficult to do that,” one European diplomat said.

Collectively, all of the policies putting Europe at odds with the U.S. are going to drive political pressure within Europe in a direction that many don’t want, said the diplomat. “All mixed together, this is not a good recipe.”

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com, Tom Fairless at tom.fairless@wsj.com and Ian Talley at ian.talley@wsj.com

Appeared in the April 23, 2018, print edition as ‘Merkel, Macron to Visit at Tense Time.’



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