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ifo Institute Warns of EU Tariffs for Third Countries

Summary:
The USA’s punitive tariffs on steel and aluminium violate World Trade Organisation (WTO) rules, according to the ifo Institute. “For its part, however, the EU should not react with tariffs on steel and aluminium products from third states like China and Russia to protect its own industry from the effects of trade diversion,” notes Gabriel Felbermayr, Director of the ifo Center for International Economics. “Instead, the EU and the German government need to ensure that all other WTO members jointly call for compliance with WTO rules to limit trade policy conflict,” he adds. For Felbermayr: “Donald Trump is right when he cites the EU’s high import tariffs on cars (10 percent) and other products. On average, US import duties are

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The USA’s punitive tariffs on steel and aluminium violate World Trade Organisation (WTO) rules, according to the ifo Institute. “For its part, however, the EU should not react with tariffs on steel and aluminium products from third states like China and Russia to protect its own industry from the effects of trade diversion,” notes Gabriel Felbermayr, Director of the ifo Center for International Economics.

“Instead, the EU and the German government need to ensure that all other WTO members jointly call for compliance with WTO rules to limit trade policy conflict,” he adds.

For Felbermayr: “Donald Trump is right when he cites the EU’s high import tariffs on cars (10 percent) and other products. On average, US import duties are actually lower than those levied by the EU. This corresponds to the rules negotiated in the Uruguay Round of 1986-1994, but the world has changed significantly since then. By dispensing with protective tariffs, the German government and the EU should propose the negotiation of an agreement that provides for the swift reduction of tariffs in transatlantic trade on the part of both Europe and the USA.”

According to Felbermayr: “The EU also needs to react firmly with the retaliatory tariffs permitted by the WTO. Although this may trigger a trade war with losers all-round and represents an extremely regrettable and dangerous development, retaliation is the only option. The credible threat of retaliatory tariffs is necessary to ensure that other countries continue to honour their WTO commitments. Europe would lose credibility if it were to react passively, as this could encourage other countries to break inconvenient rules too.”

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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