DIPLOMATS are racking up the air miles, but the prospect of trade war has not receded. Negotiations between American and Chinese representatives in Beijing ended on May 4th without agreement. Indeed,
the two sides’ starting positions are so different that a mutually agreeable deal is hard to imagine. Talks will resume next week when Liu He, China’s vice-premier, travels to Washington. Negotiators will need to work quickly. From May 23rd America can impose its first set of tariffs against China, on around $50bn of goods. The Chinese would soon retaliate.
America is edging towards trade conflict not just with an avowed rival but with its closest friends. In March, when President Donald Trump announced plans for tariffs on steel and aluminium, America’s allies were granted temporary exemptions to allow time to negotiate deals. Those exemptions are due to run out on June 1st.
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Many countries are already off the hook, having agreed to restrict shipments to America. South Korea will cap its exports of steel to 70% of the annual average during 2015-2017. Argentina, Australia and Brazil have reached agreements in principle. Exemptions for Canada and Mexico are linked to progress on renegotiating the North American Free-Trade Agreement; those talks restarted on May 7th. The big exception is the European Union. The European Commission, which negotiates on its behalf, says it is willing to discuss a deal but will not do so while being threatened.
EU countries that have a lot to lose are less keen on that principled stand. Peter Altmaier, Germany’s minister for economic affairs, has said he would rather strike a deal than risk tensions escalating. In 2017 Germany exported €112bn ($133bn) of goods to America, substantially more than France and Italy combined. And if American tariffs are imposed, the commission would probably impose retaliatory levies on American goods, including bourbon and jeans. That might provoke a second round of American tariffs, which would probably take aim at cars, a big German export.
Europe has two ways to avoid an immediate trade war, reckons André Sapir of Bruegel, a think-tank. One is to offer broader trade talks. Deciding what to put on the table and reaching a deal in just three weeks is near-impossible, but that offer might be enough to gain a permanent exemption from metal tariffs. The EU would need to agree on a position first. Mr Altmaier favours a deal covering industrial goods; France wants to discuss public-procurement rules. The Italian minister for economic development told Bloomberg that quotas could be part of a deal that also covers cars, pharmaceuticals and textiles.
The alternative is for Europe to follow other allies’ lead and accept quotas. The commission is rumoured to be thinking of offering a “100% quota”—in other words, to keep steel exports to America at or below their current level. That would be a departure from its principled insistence on multilateralism, but would avoid a climbdown of the sort that Mr Trump might take as incentive to try the same trick with other goods. Whether he would sign up to such a deal, though, is unclear.