Trade wars: EU does a U-turn

Just when the panic-buyers had laid in crates of Ray-Ban sunglasses, Victoria's Secret knickers and other iconic US goods, the EU waved the white flag. The Commission last week sidled away from its massive trade retaliation against the US and its decision earlier this year to place big protectionist tariffs on imported steel. It was a very quiet truce in a trade war that never was.

With official confirmation of the U-turn coming tomorrow, EU ministers – after months of tough talking – agreed on Thursday to withdraw the threat to slap vast penalty tariffs on a selection of American products. To avoid complete humiliation, though, the EU did warn darkly of possible future measures if the US continued to play dirty on steel, and the matter remains an issue with the World Trade Organisation. But either way, George Bush is unlikely to be losing much sleep over the whole affair.

For close watchers of world trade, there was something a little inevitable about the decision. The EU's retaliation proposals were that irritating Brussels blend of clever in places, but unworkable in others.

The brilliance of the EU counter-attack was that it was rather cleverly aimed at products principally made in US states holding key races in mid-term congressional elections. Florida and the Carolinas would all have been hit for their respective citrus and textile strengths.

But the weakness of the plan was the EU's interminable decision-making over what to put on the list of targeted goods. Without any guidance, speculation centred on various hints from the Commission, and led observers to construct lists including Harley-Davidson motorbikes, Levi's jeans, Tropicana fruit juice, corn-flakes and Wonderbras. When the list was eventually published – 14 pages long, in code and very generic – it took only another 10 days before the whole thing was dropped. The six months of dithering had removed the sense of outrage.

By the time last week rolled in there really was not much taste for a trade war with the US. While Mr Bush's steel tariffs were a bitter and unexpected blow for the UK and continental steel industry, it was always hard to forecast huge public support for retaliation, especially now that efforts to gain exemptions for EU steel companies mean 70 per cent of Corus's products have been let off the hook.

In her comments after the EU decision, Trade and Industry Secretary Patricia Hewitt summed up that exact view: "We should refrain from short-term retaliation against the US. With many countries in recession and world trade slowing, now is not the time to risk damaging British business with a transatlantic trade war."

The thing is, her point could have been made at any stage in the last six months. Mr Bush can make big decisions because he's the President, but the EU doesn't work like that. By giving itself time to think, the EU has red-taped its way out of a trade war.

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