BRUSSELS • The European Union (EU) will begin charging import duties of 25 per cent on a range of US products tomorrow, in response to US tariffs imposed on EU steel and aluminium early this month, the European Commission said yesterday.
The move confirms a tit-for-tat dispute that could escalate into a full trade war, particularly if US President Donald Trump carries out his threat to penalise European cars.
The European Commission formally adopted a law putting in place the duties on €2.8 billion (S$4.4 billion) worth of US goods, including steel and aluminium products, farm produce such as sweetcorn and peanuts, bourbon, jeans and motorcycles.
"We did not want to be in this position," EU Trade Commissioner Cecilia Malmstrom said in a statement, adding that the "unilateral and unjustified" US decision had left the EU with no choice.
Calling the EU response proportionate and in line with World Trade Organisation rules, she said that they would be removed if Washington removed its metal tariffs. EU steel and aluminium exports now facing US tariffs are worth a total of €6.4 billion.
Mr Trump hit the EU, Canada and Mexico with tariffs of 25 per cent on steel and 10 per cent on aluminium at the start of this month, ending exemptions that had been in place since March.
The equivalent value of €2.8 billion worth of US goods that will be hit by import duties charged by the EU.
The equivalent value of €6.4 billion in EU steel and aluminium exports that are now facing US tariffs.
Canada has announced that it will impose retaliatory tariffs on C$16.6 billion (S$17 billion) worth of US exports from July 1.
Mexico placed tariffs on American products ranging from steel to pork to bourbon two weeks ago.
Some of the products chosen are designed to target the states of Republicans, who are seeking to retain control of both chambers of the US Congress in November elections.
The EU also has in reserve potential tariffs of 10 per cent to 50 per cent that it could impose on a further €3.6 billion of US imports in three years.
In the case of China, even though the world's second-largest economy does not import enough from the United States to match Mr Trump's tariffs dollar for dollar, Beijing can still squeeze American companies in other ways.
The total amount of US goods exported to China amounted to only US$130 billion (S$177 billion) last year, meaning that Mr Trump's potential tariffs on US$250 billion or more of Chinese imports cannot be matched, at least directly. But if both exports and sales of US companies inside China are measured, the US has a surplus of US$20 billion with China, according to Deutsche Bank AG.
That hands the Chinese side room to impose penalties such as Customs delays, tax audits and increased regulatory scrutiny.
Pressuring companies through bureaucratic means "is a practice that the Chinese have used for a long time, and our companies are on guard", Mr William Zarit, chairman of the American Chamber of Commerce in China, said on Bloomberg Television. "This is definitely a concern."
South Korean and Japanese companies have all felt this effect, with their businesses in China hurt as part of a dispute between states.
Even before Mr Trump's latest threat, some US companies in China were feeling the pressure.
"We are already beginning to see some increased regulatory scrutiny against US companies operating in the market, whether it is increased Customs enforcement, local emissions inspections at our companies' factories or stricter enforcement of the advertising law," said Mr Jake Parker, vice-president of China operations for the US-China Business Council in Beijing.
One advantage of this tactic for China is that this time, the numbers are on its side, as US investment in China is far larger than the reverse.
American companies had US$627 billion in assets and US$482 billion in sales in China in 2015, compared with just US$167 billion in US assets and US$26 billion in US sales for Chinese companies, according to a report published on Tuesday by China International Capital Corp analysts Liu Liu and Liang Hong.
One thing that may cause Beijing to hold back from a full-scale attack on American companies is concern about the impact it would have on the domestic economy.