BRUSSELS—U. S. President Donald Trump’s decision to extend tariff waivers on steel and aluminum imports for certain countries keeps a negotiating window open but doesn’t eliminate the risk of a trade war between America and its biggest economic partner, the European Union.
The White House is asking U.S. trade partners to agree to quotas in exchange for tariff waivers, effectively forcing them to concede to export curbs to safeguard broader trade links. The EU, however, has resisted voluntary restrictions as a violation of World Trade Organization rules.
Brussels and Washington have been on a collision course over Mr. Trump’s tariffs since March 23, when the measures and temporary exemptions—including for the EU—went into effect. In a sign of tough negotiations ahead, the EU’s executive arm, the European Commission, said Tuesday in an unenthusiastic statement that the bloc “takes note” of Mr. Trump’s last-minute postponement of his decision on the waivers by one month.
“The U.S. decision prolongs market uncertainty, which is already affecting business decisions,” the commission said. “The EU should be fully and permanently exempted from these measures.”
The EU-U.S. dispute threatens $1 trillion of annual trade in goods and services between the world’s two biggest markets. It also threatens to undermine efforts by Washington and Brussels to jointly counter China’s model of state capitalism, which Western officials say thrives on WTO loopholes.
Over the past month, Brussels and Washington couldn’t bridge their disagreements, which range from bilateral trade imbalances to Mr. Trump’s claim that European steel-and-aluminum exports pose a national-security threat to the U.S. Of the EU’s 28 members, 22 are also North Atlantic Treaty Organization allies of the U.S.
While the White House has used the threat to impose tariffs of 25% on steel and 10% on aluminum to secure concessions from other major U.S. trading partners, the EU has resisted negotiating “at gunpoint.”
In March, South Korea became the first country to secure permanent exemptions by making some concessions that observers say will have limited impact on its bilateral trade with the U.S.
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The White House said Monday it had agreements, in principle, to avoid imposing tariffs on Argentina and Brazil. Details haven’t been completed but the countries have agreed to quotas, a senior administration official said. Australia also confirmed Tuesday that it had been granted exemption from the tariffs.
Canada and Mexico were given an extension, also until June 1, while talks about rewriting the North American Free Trade Agreement proceed.
The EU’s way forward, however, isn’t as clear.
“We’re having some potentially fruitful discussions about an overall reduction in trade tensions between the EU and ourselves,” U.S. Commerce Secretary Wilbur Ross told CNBC on Tuesday, adding the administration doesn’t have “any intention of protracted negotiations.”
The EU has refused to engage in trade negotiations that would address Mr. Trump’s concerns, such as the bloc’s 10% tariff on American cars, in exchange for permanent exemptions. Brussels is also wary of making an exception to WTO rules in exchange for waivers. The EU says agreeing to quotas would undermine the global order.
“They were pushing for us limiting the exports ourselves,” an EU official said. “For us, this is not in line with WTO rules.”
Now there is another month for the conflict to percolate.
“By kicking the can down the road, President Trump avoids a direct confrontation with a key trade partner such as the EU but maintains the pressure for some form of concession,” said John Clancy, a former EU trade spokesman now with FTI Consulting , a business advisory firm. “The gun is cocked, so to speak, but Trump has yet to pull the trigger.”
Now that Washington is focusing on quotas for exemptions, Brussels’s challenge will be finding consensus among the bloc’s members on how to respond to a U.S. proposal that the EU deems illegitimate.
On Tuesday, European governments led by Britain, Germany and France broadly endorsed the stance of the commission, which represents EU members in trade talks.
Yet competing European economic interests signal potential divisions ahead, especially as Mr. Trump takes aim at auto exports from Germany, the EU’s economic powerhouse and political heavyweight.
“It is particularly important that the European Union has sought dialogue with the United States and that it continues to do so,” German government spokeswoman Martina Fietz said Tuesday.
Berlin has championed a mini-trade deal between the EU and Washington to address Mr. Trump’s concern over the U.S. trade deficit with the bloc, which is driven mostly by American demand for German exports.
“I don’t see much room there,” the EU official said in reference to such a pact, stressing that discussions over what Brussels calls “trade irritants” could only start once the EU secures tariff waivers.
EU officials said the bloc will still cooperate with the U.S. against what the two allies consider China’s unfair trade policies.
“What we share with the U.S. does not disappear with Mr. Trump’s pronouncements,” said André Sapir, a former EU economic adviser, now at the Brussels-based think tank Bruegel. “We do need to have cooperation.”
In a sign of that continued cooperation, the EU on April 4 filed a request to join Washington’s WTO complaint filed in March, accusing Beijing of stealing intellectual property.
Still, the threat of U.S. tariffs against the EU will cast a pall over such joint efforts, including a revamp of the WTO’s subsidy rules to curb Chinese support for state-owned enterprises.
“Basically it’s a big distraction,” a senior EU diplomat said ahead of Mr. Trump’s decision. “A lot of energy will go into this dispute, which could have been spent on countering China.”
—William Mauldin in Washington and Bojan Pancevski in Berlin contributed to this article.
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