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Consumers are the biggest losers of the US-European trade war

© Joe Raedle, AFP | Jeans are among the import products from the United States that will be overtaxed by Europe.

Text by Sébastian SEIBT

Latest update : 2018-06-23

Brussels has tried to reassure European consumers that new customs duties on products imported from the United States will have no impact on prices. However, this optimism might be misplaced.

The United States imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from the European Union, Canada and Mexico at the beginning on June in a move expected to increase prices for the American consumer.

The EU subsequently approved a tit-for-tat 25 percent tariff on 2.8 billion in EU imports on a range of US products that came into effect on June 22.

European Commission chief Jean-Claude Juncker said on Thursday that the US decision to impose tariffs "goes against all logic and history", adding: "Our response must be clear but measured. We will do what we have to do to rebalance and safeguard.”

But EU officials seemed optimistic that shoppers on the Continent would not be affected.

European consumers will be able to find "alternatives", said the vice president of the European Commission for trade, Jyrki Katainen.

"If we chose products like Harley Davidson, peanut butter and bourbon, it's because there are alternatives on the market. We don't want to do anything that would harm our consumers," he said.

US products subject to new tariffs would also be chosen for their “strong symbolic political impact", Katainen added.

Ukrainian corn instead of American corn

Europe is better equipped to protect its consumers because it has a wider range of alternatives, especially for agricultural products, while the United States has limited options.

Europeans can turn to Ukraine, the continent’s third-largest supplier of corn, instead of depending on imported American corn, noted Wienke von Schenck, a German agriculture market research specialist,in comments to the Frankfurter Allgemeine Zeitung. China, India and Indonesia are key exporters of ricewhile Brazil and China are major orange juice suppliers.

The United States has also become embroiled in a trade war with almost all the major aluminum and steel exporting countries by imposing tariffs on imports from Canada, Mexico and the European Union. The move limited their options for seeking alternative sources of supply, forcing them instead to increase domestic production.

The poorest will be affected first

A chief economist at the consulting firm Harwell Management, Pascal de Lima, told FRANCE 24 that the European Commission view might be a bit too optimistic. "It may be possible to mitigate the impact on prices paid by consumers, but not eliminate it completely," he said.

The main organisation for German exporters warned about “a rapid rise, albeit measured, of some prices of goods in supermarkets”.

"If non-US suppliers had been cheaper for a similar quality, European importers would have already turned to them a long time ago," de Lima said.

Some Europeans think that finding alternatives for certain goods imported from the US will pose a real challenge. They fear that quality will be lower at a similar price point, or alternatives of the same quality will prove to be more costly. The situation might also inspirebusinesseswho compete with American imports to raise their own prices while keepingthem slightly below the price of imports from the US – to take advantage of the situation.

Moreover, De Lima said, imported products pass through several intermediaries who pass on their customs duties before the goods arrive in supermarkets.

"The danger is that some do it less honestly than others and take the opportunity to increase their margin of profit somewhat on the back of customs duties," the economist said.

Moreover, it is the poorest consumers who will likely be the first to be affected by any rise in prices. Frankfurter Allgemeine Zeitung noted that major discount stores like large food outlets that operate with only small profit margins will also be hard hit by rising prices.

This article has been translated from the original in French

Date created : 2018-06-23

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