World Economy

US-EU trade fight could drag on after 'big victory' at the WTO, says ex-Trump official

Key Points
  • The World Trade Organization ruled in favor of the U.S. imposing tariffs on the European Union.
  • "At the end of the day, what they'd like to do is use these tariffs for leverage to get a negotiated outcome," said Clete Willems, former National Economic Council deputy director. 
  • But the U.S. and the EU have not achieved much in their past trade negotiations, so those tariffs could stay in place for many months, said Willems.
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US tariffs on the EU will have 'significant economic impact'

The World Trade Organization has just authorized the U.S. to go ahead with its tariffs worth billions of dollars on the European Union — that's "a big deal" that would hopefully bring both sides to the negotiating table, said a former high-ranking trade official under President Donald Trump.

But Washington and Brussels have not achieved much in their past trade negotiations, so the U.S. tariffs on $7.5 billion of European goods could stay in place for many months, said Clete Willems, who was deputy director of the National Economic Council, told CNBC's "Squawk Box Asia" on Thursday.

"It's a big deal: $7.5 billion is the largest retaliation number that the WTO has ever authorized. So, it's a big victory for the United States," said Willems, who's now a partner at law firm Akin Gump after leaving his White House position in April.

... you are going to see these tariffs in place for some period of months.
Clete Willems
former deputy director at the National Economic Council

"At the end of the day, what they'd like to do is use these tariffs for leverage to get a negotiated outcome," he said. "But I do think that the two sides haven't worked together particularly well when it comes to trade negotiations lately and it may take some time for them to work through these issues ... so you are going to see these tariffs in place for some period of months."

The WTO outcome on Wednesday came after years of wrangling over subsidies that aircraft maker Airbus received from several European governments. The U.S. first lodged the complaints in 2004.

In response to the WTO ruling, the EU suggested it would retaliate against U.S. tariffs.

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US government to impose tariffs on EU aircraft and agricultural products

The U.S. and the EU have been at odds over trade issues, especially since Trump took office in 2017. Both sides have been trying to negotiate a trade deal but have not appeared to make much progress.

A potential escalation in trade friction between the two sides comes at a time when the U.S. is facing off against China in a tariff fight that has dampened business sentiment and threatened economic growth globally.

Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a Thursday note that it's hard not to see the timing and context of the WTO ruling as "tragic." He said the decision could steer global trade "even more off-course."

"But the blow is not just to trade as corporate margins erode, household discretionary income is diminished, shipping suffers air pockets and financial repression is prolonged," he said.