Washington Insider -- Wednesday

New Tariffs for EU Luxury Items

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

US-China Deputy-Level Trade Talks Set For Thursday/Friday

Deputy-level trade talks between the U.S. and China will start on Thursday in Washington, according to a Reuters report quoting the Office of the U.S. Trade Representative (USTR).

On Monday, U.S. Chamber of Commerce chief Thomas Donohue revealed U.S. Trade Representative Robert Lighthizer indicated there are staff-level meetings between Chinese and U.S. negotiators on Friday, with senior negotiators to meet in the ensuing week or week and a half.

The Chinese news agency Xinhua said China’s Finance Vice Minister Liao Min will lead the Chinese delegation for the thirteenth round of talks, departing for the U.S. on Wednesday. He will be accompanied by Vice Minister of Commerce Wang Shouwen.

Early October continues to be signaled as the expected time for high-level talks between the U.S. and China and that could depend heavily on how the deputy-level talks this week unfold.


White House Notifies Congress on US-Japan Trade Deal

The White House formally notified Congress it plans a trade agreement with Japan on tariffs and an executive agreement on digital trade.

In a September 16 notice to Congress, Trump again mentioned the initial accord and said the U.S. would be entering an “executive agreement” with Japan on digital trade, without providing details. The communication cites section 103(a) of the legislation, which gives the president the authority to do so as long as the tariff is no higher than five percent.

Japanese Foreign Minister Toshimitsu Motegi says Tokyo wants to stymie the threat of new auto tariffs before agreeing to a final trade deal with the U.S. and is seeking confirmation on the position. Motegi, Japan’s point person with U.S. on trade negotiations, told reporters in Tokyo that there is consideration of language covering car tariffs.

Expectations are still for the accord to be inked yet this month.

Washington Insider: New Tariffs for EU Luxury Items

The question of what might be next in the ongoing global trade wars is increasingly the focus of urban media these days. For example, Bloomberg is reporting this week that at almost the same moment as the U.S. and China attempt to resume trade talks some of Europe’s top luxury brands are being targeted in President Trump’s latest tariff salvo.

The new development reflects a decision by a World Trade Organization dispute-settlement panel that ruled Friday that the U.S. can legally impose tariffs on an array of European exports in retaliation for the bloc’s illegal aid to Airbus, SE. The WTO is expected to publicly circulate a report by month’s end that will allow new U.S. duties on a range of goods worth $5 billion to $7 billion per year.

Shares of French luxury conglomerate LVMH fell as much as 4.4% on Monday in Paris while Airbus shares fell as much as 5.4%. Continuing political turmoil in Hong Kong and a slowing Chinese economy have also weighed on European fashion and drinks companies.

Washington’s formal response is expected within days after the WTO’s green light for retaliation. The U.S. has identified possible targets – with tariffs potentially as high as 100% – on a list of goods with a total export value of $25 billion a year. Though the most valuable items on the U.S. list are exports of European aircraft and parts, the tariffs could also hit products made by Europe’s most recognized high-end brands.

The U.S. market for luxury goods is among the top destinations for European companies where the U.S. accounted for perhaps a quarter of their total global sales last year. American shoppers bought 11.2 billion euros worth of goods from LVMH in 2018, Bloomberg said.

New tariffs will increase costs that will undoubtedly be passed on to U.S. consumers, said Luca Marotta, the CFO of Paris-Based Remy Cointreau SA, which produces Remy Martin cognac, Cointreau, Passoa and Mount Gay rum. “If the tariff increase happens, I repeat myself, we will increase prices at the same moment,” Marotta said.

The administration’s planned EU tariffs are unusual in one sense because, unlike the trade war it started against China, the U.S. will be applying duties explicitly authorized by the WTO, an organization it has threatened to withdraw from if it doesn’t reform. The dispute between Toulouse, France-based Airbus and Chicago-based Boeing Co. encapsulates a criticism from Trump and others that the WTO is a slow-moving bureaucracy. The Airbus case, for example, has taken about 15 years to resolve.

European beverage producers are already reeling from the uncertainty stemming from repeated U.S. threats to slap new tariffs on wine, liquor and other alcohol, Bloomberg said. It notes that the U.S. is currently evaluating whether to penalize French wine and other goods in response to France’s tax on digital companies like Amazon.com Inc., Facebook Inc., and Alphabet Inc.’s Google.

Bloomberg notes that the impact of new U.S. tariffs could have an unwelcome effect on Scotch whisky producers, which are already girding for the fallout of a potentially messy no-deal Brexit. The EU exported $2.1 billion worth of Irish and Scotch whiskeys to the U.S. in 2018, Bloomberg said.

Many U.S. exporters oppose the administration’s proposed tariffs which they say could boomerang and jeopardize thousands of American jobs. Bloomberg notes that U.S. whiskey producers have already become collateral damage from the administration’s steel and aluminum tariffs – which led to EU retaliation and a 25% tariff on U.S. bourbon and whiskey.

“Depending on the level of tariffs imposed on EU spirits and wine, we estimate it could negatively impact U.S. businesses, leading up to a loss of jobs from 11,200 to even 78,600 jobs across the United States,” said Chris Swonger, the president and CEO of the Distilled Spirits Council.

There are two ways the EU can avoid new tariffs from the long-running aircraft dispute with the U.S.: by ending its illegal subsidies for Airbus, or reaching a settlement agreement.

Though U.S. Trade Representative Robert Lighthizer and the current European Trade Commissioner Cecilia Malmstrom have both welcomed the idea of negotiating a settlement, talks to resolve the issue haven’t begun.

Also, such negotiations could become more difficult after Malmstrom cedes her post on Nov. 1 to Phil Hogan, a hard-nosed Irish trade negotiator who’s pledged to take a more pugnacious approach to EU-U.S. trade relations and recently threatened that “we are going to do everything we possibly can to get Trump to see the error of his ways.”

So, we will see. While U.S. economic anxiety continues to fuel market uncertainty, and the administration is working to open both European and Asian markets, it is depending increasingly on expanding interventions to offset negative economic effects—a strategy that is seen as increasingly risky in some quarters, and which should be watched closely as it intensifies, Washington Insider believes.

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