EU and US face clash as tariff date looms
With Italy in political turmoil, oil prices on the rise and North Korea tensions returning, the last thing the global economy needs is a big lurch towards a trade war.
But that is exactly what the Trump administration in Washington faces if it does not extend temporary exemptions on steel and aluminium imports from Europe that expire on Thursday.
The Europeans have opportunities for last minute diplomacy when the Organisation for Economic Cooperation and Development holds its annual ministerial council in Paris on Wednesday. French President Emmanuel Macron is to due to make the case for breathing new life into the international economic order in a speech before the OECD.
But there are few signs of US appetite for that ahead of talks between US Commerce Secretary Wilbur Ross and EU trade chief Ceclia Malmstrom on the sidelines of the OECD meeting.
"The question is how can we accept a situation where the Americans manage their dialogue with a rival like China the same way as with their allies without special treatment for being a US ally," a senior French diplomat said.
Even before Trump raised the spectre of import tariffs, trade flows faced an increasing number of restrictions as economies struggled to get back on their feet following the global financial crisis of 2008-2009. G20 economies have put up 1,400 new trade restrictions over the last decade against only 200 liberalisation measures during that period, the OECD said.
OECD chief Angel Gurria said some governments were blaming globalisation, and by extension the broader multilateral trading system, rather than fixing bad policies that have failed to address voters' concerns about jobs going overseas.
"Globalisation does not have a face, globalisation does not have a neck from which you can hang it, so you use a proxy, the closest proxy is multilateralism," Gurria told journalists.
There is little prospect for a quick fix in the trade stand-off after the Trump administration opened a new front last Wednesday by also threatening tariffs on car imports.
US Treasury Secretary Steven Mnuchin will likely take flak over trade threats from his counterparts from other members of the Group of Seven economies as they meet in the Canadian Rocky Mountains today and tomorrow.
The prospect of a trade war is particularly of concern in Europe where the economy is already losing steam, complicating the European Central Bank's return to more conventional monetary policy as rising oil prices drive inflation higher.
"In this context, the ECB now faces a classic stagflationary shock, with higher inflation and slower growth," Oxford Economics Chief European economist James Nixon said. (Reuters)