By Leela de Kretser
DAVOS, Switzerland (Reuters) -The European Union signalled its readiness to engage and negotiate with U.S. President Donald Trump on Tuesday, warning of the need to avoid a trade conflict that would hurt both sides and the global economy.
While Trump refrained from using his first day in office to launch tariffs on European goods he says are partly to blame for a persistent U.S. trade deficit, European officials are taking a “wait and see” approach to relations with his administration.
Speaking at the World Economic Forum’s annual meeting a day after Trump’s inauguration, European Commission President Ursula von der Leyen said a new era of harsh global competition had been developing over the past quarter of a century.
Von der Leyen did not mention Trump by name, but referred to the increasing use of sanctions, export controls and tariffs to safeguard national interests and which have ended the previous era marked by freer trade between economies.
“We will need to work together to avoid a global race to the bottom,” she said.
“Because it is in no one’s interest to break the bonds in the global economy. Rather we need to modernize the rules to sustain our ability to produce mutual gain for our citizens.”
Trump said on Monday he wanted to reverse the U.S. trade deficit with the EU, either with tariffs or more energy exports.
In one of his first moves, he has directed federal agencies to investigate persistent U.S. trade deficits and unfair trade practices and alleged currency manipulation by other countries.
Germany – whose trade surplus with the United States is close to record levels – is a potential target for action.
However German Chancellor Olaf Scholz voiced cautious optimism after his first contacts with Trump’s administration.
“The United States is our closest ally outside Europe. And I will do everything in my power to ensure that it stays that way,” Scholz told an audience in Davos.
“My first good conversations with President Trump and also the contacts between our advisers point in this direction.”
The euro single currency even managed a slight rise against the dollar on Monday, a likely relief to European Central Bank policymakers who are expected to go ahead with another interest rate cut to bolster the sluggish regional economy next week.
“Most of the (Trump) comments were related to ‘America’s first’ policy, but the initial comments appear better than feared by the market,” Mohit Kumar at Jefferies said, adding he expected ECB rate cuts this month and in March.
AMERICAN PARTNERSHIP
Von der Leyen, who won a second term at the head of the Commission last July, said Europe needed to step up efforts to become more competitive and boost integration in its capital markets. She met company CEOs who were in Davos on Tuesday.
Von der Leyen said the first trip she planned with her new Commission would be to India, where she said the EU would work with Prime Minister Narendra Modi “to upgrade the strategic partnership with the largest country and democracy in the world”.
She also called for constructive engagement with China.
Her comments chime with the EU’s senior finance officials, who said on Monday that Trump’s return was a wake-up call to fix their economies and become more competitive.
Von der Leyen voiced her support for the Paris Climate agreement as the best hope for all humanity after Trump once again withdrew the United States from the deal on Monday.
But she called the U.S. one of the closest partners of the 27-nation EU.
“No other economies in the world are as integrated as we are,” she said, noting the trade volume between the EU and the U.S. was 1.5 trillion euros ($1.55 trillion), representing 30% of global trade.
“So our first priority will be to engage early, discuss common interests, and be ready to negotiate,” she added. “We will be pragmatic, but we will always stand by our principles. To protect our interests and uphold our values – that is the European way.” ($1 = 0.9662 euros)
(Reporting by Bart Meijer, Charlotte Van Campenhout; Writing by Keith Weir and Mark John; Editing by Alison Williams, Alexander Smith and Alex Richardson)
