TRADE: DO NOT MAKE IT WORST

Dark clouds are gathering over the horizon, and they are not promising healthy showers. They rather risk bringing a storm that is gaining strength around the new US Administration intentions.

A border adjustment tax, or an internal revenue tax mechanism, is being considered to promote exports and tax imports.

Another tool being examined would tackle currency manipulations, whereby they could be considered as an unlawful subsidy and thus open to countervailing duties at the request of affected US firms.

It is too soon to say whether these measures will ever be implemented, and in which form. They might fail to pass Congress, or be fundamentally redesigned. But they might also pass and become US law.

Some of the issues are real, and previous attempts to address them in WTO fora have gone nowhere. Currency manipulation is clearly one, as it can distort trade more than the average tariff. The problem is how to define what currency manipulation is, and how to sanction it.

The EU has always privileged multilateral rules and actions, and its discomfort with these potential unilateral moves by the US is palpable and understandable.

But the reactions in Brussels are to say the least puzzling.

The Commissioner for Trade has signaled a rapprochement with China as a response to US unilateralism.

If the Commission is trying to pass the message to Washington that it has options and can realign its world trade, choosing China is not the best credible card to play as the US believes according to their own experience that this might not result into a balanced relationship.

The Commission is also threatening that the EU could challenge a US border adjustment tax. That is the right thing to do if you believe the new policy would be faulty under WTO rules, and if you bet you can deter the US from going ahead.

But there are limits to this strategy, as the Commission knows well that that would risk bringing the two big trade blocks into a collision course never seen before. With unforeseen consequences if it leads to a trade war.

The current situation, with its perceived threats and uncertainties, demands careful evaluation and assessment of options, rather than rushing into false alternatives.

The situation demands additional engagement to prevent measures against EU interests to be taken, and the evaluation of options that protect our interests, rather than confrontation or grand standing.

O artigo foi publicado originalmente em Farm Europe .