The European Union (EU) has drawn up a list of US goods that could be hit with tariffs in retaliatio...
The European Union (EU) has drawn up a list of US goods that could be hit with tariffs in retaliation to the Bush administration's decision to impose tariffs of up to 30% on imported steel.
The EU's 15 member states have been sent the list of counter-tariffs, which are worth some $2.1bn, for approval.
Among the goods that would be affected are Harley Davidson motorbikes, manufactured in Wisconsin, and orange juice from Florida.
Head of the US desk at Aegon Asset Management, Elaine Crichton, believes this situation has developed because the US government has again failed to accurately predict the EU's response to its actions.
Crichton says: 'It is a game of chess at the moment. The problem is that the US is not very good at guessing what the EU's reaction is going to be to changes in the trading environment. We saw another example of this fairly recently when the EU blocked the Honeywell/GE merger, which the authorities in the US thought would be waved through.'
Although concerned about the potential for this dispute to escalate, Crichton believes ultimately that the EU will not apply its own tariffs and some sort of workable middle ground will be found before tariffs becomes necessary.
Some US newspapers have suggested that the EU is attempting to influence US voters in the forthcoming Congressional elections by targeting goods produced in crucial swing states ahead of president Bush's attempt to wrest control of Congress back from the Democrats.
'If that is the EU's aim, then it is a pipe dream,' says Crichton. 'If anything it will really upset the US government as it will look as if the EU is trying to influence a US election.
'In reality, very little tends to change at Congressional elections and the President's party is rarely left in control of Congress,' she says.
Head of North American equities at Aberdeen, Rupert Della-Porta, agrees it would be unwise for the Europeans to try to influence a US election in this way.
He says: 'I do not actually think the EU will go down the tariff route. I think it is important that there is some give and take here as this is by no means a clear-cut issue.
'The steel market has never really been a free market as many countries have historically produced steel, and a lot of governments have quietly supported them. The difference here is that in the past the US perhaps has not protected its steel industry in the same way as the Europeans have.'
The EU has looked to play to its own audience on this matter and has had to be seen to be acting tough, says Della-Porta. Behind the scenes though, he believes there are a lot of people working to sort this out.
Della-Porta says: 'It is not in anybody's interests to let this develop. A trade war would be bad for everyone concerned. At the end of the day, this is an industry that has huge global over-capacity and needs to see widespread consolidation and reform.'
EU unlikely to impose proposed tariffs.
Rethink in Washington policy.
No likely recourse to a trade war.
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