Europe's talks with US to soften trade impasse are a 'longshot'

European Commissioner for Trade Cecilia Malmstrom will travel to New York this week to continue negotiations with the US and Japan. PHOTO: AFP

GENEVA (BLOOMBERG) - The European Union's trade chief heads to New York this week to continue negotiations with the US and Japan, as the three parties seek a way to end what they see as China's unfair commercial policies and dial down global tensions.

Their plan is to create an agreement to try and force China to end "non market-oriented policies" that lead to overcapacity, create unfair competitive conditions and hinder technological development. The stakes couldn't be higher.

The EU is engaged in a delicate balancing act, working with the US to address common complaints while also trying to convince President Donald Trump to roll back unilateral tariffs he imposed on the 28-country bloc this year and persuade him against instating other, more punitive measures.

Ms Cecilia Malmstrom, the EU's trade negotiator, will also seek to stem the American assault on the multilateral system by shoring up the World Trade Organization.

"It's a longshot, and these talks are at a very early stage," said Chad Bown, a senior fellow at the Washington-based Peterson Institute for International Economics. "But this may be the best way both to resolve Trump's escalating trade war with China and to address some of the WTO's key shortcomings."

Ms Malmstrom will meet US Trade Representative Robert Lighthizer and Japanese Trade Minister Hiroshige Seko on Sept 25 while the UN General Assembly is in session. The three will seek to lay the groundwork to develop stronger rules for industrial subsidies, state-owned enterprises, forced technology transfers, WTO transparency and e-commerce.

The meeting comes after Mr Trump has already hit China with tariffs on US$50 billion (S$68 billion) of its imports, announced duties on another US$200 billion of goods coming from the nation that go into effect on Monday (Sept 24), and threatened levies on another US$267 billion if China retaliates - which Beijing has already pledged to do. China cancelled trade talks that had been planned between the two nations.

Overall manufacturing in the euro area grew at the slowest pace in two years in September as the economy feels the pain from the global trade war. The auto industry - which has been targeted by Mr Trump and is particularly sensitive to larger EU nations - is taking the brunt of the slowdown in demand, according to IHS Markit's latest monthly survey.

"If this initiative succeeds, it could provide an 'off-ramp' from the current" tariff escalation, said Mr Scott Miller, a senior adviser at the Washington-based Center for Strategic and International Studies. "That's good, since US-China bilateral talks seem not to be making progress."

The stakes are high for the EU and Japan as well, who fear the Trump administration could trigger national security tariffs on automobiles and auto parts if they refuse to play ball. In May, the US Commerce department launched an investigation to determine if foreign imports of cars, SUVs, vans, light trucks, and auto parts are having a detrimental impact on US national security.

Though US Commerce Secretary Wilbur Ross said his agency would hold off on any new auto tariffs while the EU and the US negotiate a new trade pact, major car exporters fear Mr Trump could still forge ahead with duties if he believes progress is lacking.

Ferrari NV CEO Louis Camilleri told analysts on an earnings call this week he hopes "rationality would prevail," because a "tariff war between Europe and US would be quite dramatic."

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