FILE PHOTO: A slab of steel rolls down the line at the Novolipetsk Steel PAO steel mill in Farrell, Pennsylvania, U.S., March 9, 2018. REUTERS/Aaron Josefczyk/File Photo
April 27, 2018
By Philip Blenkinsop
BRUSSELS (Reuters) – While more than 100 countries take a day off for May Day, U.S. President Donald Trump will spend next Tuesday deciding whether to extend a largely U.S.-China trade standoff into a more global dispute.
In a week featuring a Federal Reserve monetary policy meeting, U.S. monthly jobs data and first estimates on euro zone inflation and economic growth, Trump’s decision on metal tariffs may prove to the be biggest market mover.
The United States set import tariffs of 25 percent on steel and 10 percent on aluminum a month ago, but granted temporary exemptions to the European Union, NAFTA partners Canada and Mexico, as well as Argentina, Brazil, Australia and South Korea.
Those exemptions expire on May 1.
Korea secured a permanent exemption for steel within days of agreeing to a revision of its trade pact with the United States. Canada and Mexico may rely on advances in talks on North American Free Trade Agreement (NAFTA) for an extension.
Continued exemptions for the other countries, and notably the European Union, remain in doubt.
French President Emmanuel Macron and German Chancellor Angela Merkel were meeting Trump in Washington as part of EU lobbying effort in the past week, but German officials played down the chances of a breakthrough before Merkel’s Friday visit.
“From today’s point of view, we must reckon that the tariffs will come on May 1,” one official said.
The European Commission, which oversees trade policy for the 28-member bloc, has insisted the United States grant it a permanent exemption without conditions.
White House economic adviser Larry Kudlow said on Thursday that Trump wanted concessions on automobiles, for which import duties are higher into Europe than into the United States.
Behind the scenes, sources say the Commission has offered “scoping discussions” on the possibility of opening free trade talks, an offer rejected by Washington.
An alternative suggested would be for Europe to raise a import quota for U.S. beef granted in 2009, that Washington has sought to review. However, the Commission said on Friday this was a long-standing matter with no link to other trade issues.
TIT-FOR-TAT: FROM STEEL TO CARS?
If the EU is subject to tariffs on the 6.4 billion euros ($7.7 billion) of steel and aluminum it exports to the United States, it has pledged to respond with its own duties on 2.8 billion euros of U.S. exports of products from make-up to motor-bikes.
Raoul Leering, international trade analyst at ING, said the U.S. strategy to push for concessions had worked with Korea and partly with China, but the EU’s refusal to make an offer did make some economic sense.
U.S. demand for EU products accounted for 2.6 percent of EU GDP, while EU demand for U.S. products was 2.2 percent of U.S. GDP.
“Unlike China, South Korea, Canada or Mexico, the EU is in a balanced situation with the U.S… So if there is a trade war with comparable tariffs on both sides, the U.S. will lose almost as much as the EU will. That could explain why the EU is taking a firmer stance,” Leering said.
The risk economists highlight is of further escalation from Trump, who has talked about slapping tariffs on EU cars.
Citi economists point out that basic metal manufacturing is only 0.5 percent of the EU’s total gross value added, but duties on cars would be altogether different, with car production accounting for 2-3 percent of German GDP and a fifth of the euro zone’s goods trade surplus with the U.S.
ECONOMIC SLOWDOWN
Aside from Trump’s headline-grabbing decision, there is plenty of data in the coming days. The U.S. Federal Reserve’s monetary policy setting committee also meet on May 1-2, albeit with no further rate hikes expected.
U.S. monthly jobs data will be published on Friday, with non-farm payrolls seen rebounding to a gain of 198,000 in April after the figure dropped to a six-month low in March.
“Inclement weather is a drag on payrolls, but nonetheless we should have certain rebound above the threshold of some 100,000 you need to absorb new entrants to the labor market,” said Bernd Weidensteiner, U.S. economy specialist at Commerzbank.
A high figure, also on wage growth, would add to the sense that the economy is strong.
Across the Atlantic, a first estimate of euro zone economic output will show if recently disappointing data, including sentiment indicators and industrial output, have caused a significant slowdown at the start of 2018.
The average forecast in a Reuters poll of economists is for 0.4 percent quarter-on-quarter growth, from 0.6 percent in the fourth quarter of 2017.
The U.S. and British economies both slowed in the first three months of the year, although the British by more than expected, with snow only partly to blame and the U.S. by less.
A first estimate of euro zone inflation is also due, on Thursday, one of two figures on prices before a meeting of the European Central Bank in June that is expected to determine the future policy path. ($1 = 0.8280 euros)
(Reporting by Philip Blenkinsop; Editing by Hugh Lawson)
