May 31, 2018 / 3:19 PM / 18 days ago

BREAKINGVIEWS-EU has political trump card in trade conflict

WASHINGTON (Reuters Breakingviews) - On Thursday, a trade standoff turned into the start of a war. U.S. President Donald Trump’s administration is moving forward with steel and aluminum tariffs on Germany and other exporters. The European Union has threatened tit-for-tat levies against Harley-Davidson motorcycles and Kentucky bourbon, among other goods. That’s a smart tactic: it hits Republican leaders’ political prospects.

U.S. President Donald Trump greets Germany's Chancellor Angela Merkel during a joint news conference in the East Room of the White House in Washington, U.S., April 27, 2018. REUTERS/Kevin Lamarque

Trump’s latest trade salvo hits the closest allies of the United States. An exemption shielding the EU, along with Canada and Mexico, from a 25 percent tariff on steel imports and a 10 percent levy on aluminum goods expires on Thursday night, and talks to find another way out have broken down. Germany will be the most affected out of the EU as the eighth-largest source of U.S. steel imports by volume.

The EU has said it would impose its own 25 percent tariff on about 2.8 billion euros worth of U.S. imports. The targeted goods and companies, like Florida orange juice, are produced or headquartered in states important to the Republican party.

Harley is based in Wisconsin, the home state of House Speaker Paul Ryan. About 16 percent of sales go to Europe. Most U.S. bourbon, meanwhile, is made in Kentucky, where Senate Majority Leader Mitch McConnell lives. Total U.S. spirits exports to the EU were valued at $789 million in 2017, and U.S. whiskey accounted for about 85 percent of that, according to the Distilled Spirits Council.

Republicans are trying to retain control of Congress in November’s midterm elections. They could easily lose their majority in the House of Representatives, although they have a better chance of holding the Senate.

GOP lawmakers in states vulnerable to trade spats have already tried to talk Trump into tamping down trade tensions. Senator Chuck Grassley of Iowa has lobbied on behalf of farmers who could be affected by Chinese tariffs. Members of Congress from Texas have urged the White House to quickly renegotiate the North American Free Trade Agreement.

The EU lacks some of the leverage Beijing has, for instance its ability to pressure North Korea on denuclearization or tackle trade imbalances en masse. Targeting vulnerable Republican politicians is a clever trump card to play.

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