Trump postpones decision over trade war with Europe

Ahead of a midnight deadline, President Trump has decided to extend tariff exemptions for European allies — but only for one month, the WSJ first reported and the White House confirmed.

The big picture: Trump isn’t just worried about China. The U.S. trade deficit with the EU has grown steadily — something Trump made sure to raise with German Chancellor Angela Merkel last Friday, and which had him considering opening a European front in his trade war.

The latest: Temporary exemptions from steel and aluminum tariffs granted to the EU, Mexico, Canada, Australia, Argentina and Brazil were due to expire at 12:01am. South Korea will get a permanent exemption, while the rest had their exemptions extended until June 1.

The backstory

The U.S. trade deficit with the EU ballooned from $17 billion in 1997 to $151.4 billion in 2017, and the driving force was German manufacturing. Last year, the U.S. bought $117.7 billion worth of imports from Germany — 27% of total imports from the EU.

• The details: The major commodities the U.S. buys from Germany are cars and sophisticated machinery for factories. Trump has been particularly concerned by German autos, threatening steep tariffs.
• The Germans have "made a very wealthy country on the backs of manufacturing," Thomas Duesterberg, a former Commerce Dept. assistant secretary for international economic policy now at the Hudson Institute, tells Axios. Germany is dependent on the U.S. market, and Merkel appears willing to work with Trump to address the trade deficit.

The bottom line: The European Union will be caught in the crossfire even if Trump aims his tariffs solely at China. And as the Trump administration threatens U.S. allies with tariffs, Beijing is courting European countries for support in case of a trade war.

The stakes

"We do need allies to take on China because it's so big now, and the subsidization and protectionism is so widespread," Duesterberg says. But Trump may alienate them.

• Ahead of his visit to Washington, French President Emmanuel Macron said on Fox News Sunday: "It's too complicated if you make war against everybody. You make trade war against China, trade war against Europe, war in Syria, war against Iran. Come on. It doesn't work. You need allies. We are the ally."
• The German government released a statement Sunday saying Merkel, Macron and U.K. Prime Minister Theresa May agree that the European Union is "prepared to defend its interests in the multilateral trade order."