EU Said to Be Close to Winning Exemption from U.S. Steel Tariffs

Hours before punishing U.S. tariffs on steel and aluminum imports were due to take effect, the European Union appeared close to winning an exclusion that would avert a trade war with the United States.

But the final decision on whether to exempt the European Union from the tariffs, which were scheduled to take effect Friday, will be made by President Donald Trump, the bloc’s top trade official, Cecilia Malmstrom, said Thursday. And there remained the possibility that the U.S. president would ignore his advisers and impose protectionist measures on the United States’ biggest trading partner anyway.

“We have argued, and I think successfully, that the European Union is not an enemy of the U.S. when it comes to steel and aluminum,” Malmstrom, the European commissioner for trade, said in Brussels, after returning from talks in Washington. “Hopefully, that will lead to us being excluded from the measures.”

An agreement would be a huge relief for European leaders, who have expressed alarm at the prospect that the tariffs would touch off a trade war and undercut the bloc’s economic recovery. The United States and the European Union are each other’s biggest trading partners, and many European businesses depend on sales to the United States.

European business leaders have pleaded with Washington not to go ahead with the tariffs, which they said would be mutually destructive and ignore the complexity of modern supply networks. For example, the German carmaker BMW operates its largest factory in the world in Spartanburg, South Carolina, buying about two-thirds of the steel it needs in the United States and importing the rest.

BMW is also the largest exporter of cars made in the United States, with China being one of the main buyers, said Harald Krüger, the company’s chief executive. “None of this would be possible without free trade,” Krüger said at a news conference in Munich on Wednesday.

Malmstrom spent two days in Washington, where she had what she described as a “good meeting” with Wilbur Ross, U.S. secretary of commerce. Malmstrom also met with Robert Lighthizer, the U.S. trade representative.

The United States and the European Union agreed to form a working group to discuss “issues of mutual interest,” Malmstrom said.

Presumably, the European Union would be exempt from the steel and aluminum tariffs at least while talks take place. But Malmstrom was careful not to describe the bloc’s exclusion as a done deal, saying that Trump would make the final announcement.

Steel and aluminum producers such as Argentina, Brazil and South Korea, as well as the European Union, have been lobbying intensely to be exempted from the tariffs, which Trump has said are needed on national security grounds. Many of the countries affected have military alliances with the United States.

Steel and aluminum accounts for a relatively small percentage of trade between Europe and the United States. But there is widespread fear among European businesses that the tariffs would provoke a worsening trade conflict.

There are already signs that the tensions have had an impact. A closely watched survey of business sentiment by the Ifo Institute in Munich, which was published Thursday, showed that German managers had become less optimistic. The survey is “a strong signal that recent trade war threats are the main worry of German businesses,” Carsten Brzeski, an economist at ING, said of the report.

EU officials have already drawn up plans to retaliate against the United States by imposing reciprocal tariffs on a range of goods, including pleasure boats, frozen corn and digital flight recorders.

Often, the targeted goods come from places that voted heavily for Trump.

Playing cards, which are on the list, are an example. The United States Playing Card Co., which supplies casinos around the world, is based in Erlanger, Kentucky, in a county that voted for Trump by a nearly 2-1 margin.

The tariffs could also have unintended consequences. At least in the short term, they could drive down steel prices in Europe. Producers in countries such as Brazil and South Korea would divert steel from the United States to other markets, increasing the supply.

In theory, at least, lower prices would provide a cost advantage to companies in Europe compared to their U.S. competitors.

“If the steel prices are lower,” said Gabriel Felbermayr, an economist at the Ifo Institute, “that is always good for the consumers.”