World Economy

US-EU tariffs could trigger a snowball effect with further retaliation, UN labor agency chief says

Key Points
  • Guy Ryder, director general of the International Labour Organization (ILO), said when world leaders threaten retaliatory measures, business owners and workers lose confidence in the benefits of trade.
  • A three-person arbitration tribunal appointed by the WTO is expected to rule on the value of trade countermeasures that the United States can soon impose on European goods.
  • The U.S. has promised to "respond immediately" once the arbitrators' ruling is made public.
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Can't think of a time when people felt more uncertain, ILO chief says

Trade tariffs between the U.S. and Europe would precipitate a "snowball effect" and the world may soon enter "very precarious waters" if we don't acknowledge the benefits that stem from international cooperation, the head of the UN agency for workers and employers told CNBC.

Guy Ryder, director general of the International Labour Organization (ILO), said on the sidelines of a trade-focused conference in Brussels that when world leaders threaten retaliatory measures, business owners and workers lose confidence in the benefits of trade, and trust is eroded.

"I can't think of a time when people felt more uncertain about their futures," said Ryder, adding that this unpredictability has "dripped into our political life, as well as our economic and social interaction."

On the same day European trade ministers arrive in Brussels for an informal lunch meeting with the outgoing EU trade commissioner Cecilia Malmstrom, a three-person arbitration tribunal appointed by the WTO is expected to rule on the value of trade countermeasures that the United States can soon impose on European goods, to offset decades and billions of dollars in state aid for European aircraft manufacturing giant, Airbus.

The U.S. has promised to "respond immediately" once the arbitrators' ruling is made public, and in April the U.S. Trade Representative's office published a provisional "long list" of EU products that could face 100% tariffs as part of its response.

14 March 2018, Germany, Frankfurt am Main: An Airbus A380 (L) and a retro design Boeing 747-8 cross each others path at the ramp of Frankfurt Airport.
picture alliance | picture alliance | Getty Images

The $25 billion list includes civilian helicopters, passenger jets and aircraft parts made in France, Germany, Spain and the U.K., but also agri-food products from across Europe, together with consumer items like carpets, knives and luxury handbags.

Phil Hogan, the Irish commissioner at the EU who is nearing approval as the bloc's new trade commissioner, insisted Monday night that Europe will need to "stand up for itself" if the WTO ruling heralds fresh U.S. levies.

And with a similar WTO decision against a major Airbus competitor, American giant Boeing, likely to be issued in a few months' time, he said the EU should identify products from the U.S. that could be targeted for retaliatory tariffs.

Trade experts, economists and business groups alike have long argued that the introduction of further trade barriers will be damaging to both sides.

"We already see a slowdown with trade, a slowdown of investments because of a lot of uncertainty," said Luisa Santos, director for international relations at Europe's largest business advocacy group, BusinessEurope. "More tariffs will increase that amount of uncertainty."

European officials, including Malmstrom, have often highlighted those potentially negative consequences themselves.

But as Brussels prepares for a new executive team at the European Commission under Ursula von der Leyen, and with President Donald Trump now embroiled in an impeachment inquiry launched by Democrats in the U.S. House of Representatives, commissioner-designate Hogan told CNBC he expected to have to answer questions about a reset in EU-U.S. trading relations.

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WTO set to back tariffs against European Union over alleged Airbus aid

And in his confirmation hearing he acknowledged to members of the European Parliament that while the World Trade Organisation remained essential, the U.S. was right to insist that it needed to be reformed or updated.

The WTO must, Hogan told legislators, "offer a route to resolve trade disputes based on rules, rather than the law of the jungle."

The organization's Appellate Body, which is designed to adjudicate international trade disputes between countries, has seen its ranks reduced from the statutorily required seven members to just three, because the U.S. has repeatedly vetoed fresh appointments or reappointments of existing members in recent years.

But the ILO's Ryder says it is not just at the WTO where governments must avoid the mistakes of the past and implement change, but at many international organizations.

"It actually means reforming where reform is needed," he told CNBC, "and making sure that the impact of global cooperation does redound to the benefits of populations at large."

He cited German Chancellor Angela Merkel's support for multilateral principles as a valuable exemplar, especially as global leaders seek to avoid future trade disputes.

"Putting my country first does not imply having to work against or to the detriment of others," said Ryder. "There has to be more than a zero sum game in these international relations."