The European Union is responding to President Trump’s trade war threat with a mix of enticements and retaliatory tariffs on American products next week. Trump has threatened tariffs on Chinese goods and is prioritizing negotiations with nations that did not retaliate. Europe is offering to drop tariffs on American cars in exchange for the U.S. doing the same, but Trump has not taken the offer. The EU plans to vote on retaliatory tariffs in response to steel and aluminum levies. Europe is taking a gradual approach to avoid a full-blown trade war, but the risk is that Trump may not heed their threats. They are hoping falling markets and the desire to avoid tariffs will encourage America to engage in negotiations. Trump suggested a deal with Europe if they eliminate their trade imbalance by increasing oil and gas purchases to $350 billion. European leaders have shown a willingness to buy more American fuel but may find it difficult to promise huge increases in liquid natural gas purchases. The lack of progress in negotiations has led Europe to prepare for retaliation, with proposed countermeasures for the 20 percent tariffs on EU goods potentially coming as soon as next week. The risk is that Europe’s threats may not lead to negotiations, as Trump’s focus is on reshaping the global trading system in his second term.
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