Escalation of US-EU Trade Row or Renewed TTIP?

Policy analysts are puzzled by US President Trump’s recurrent lack of consistency on foreign policy towards Russia and North Korea, trade agreements, or even climate change. US-EU relations are no exception with President Trump at times using “intimidation” tactics, calling the EU a “foe,” and at other times declaring the US and EU “love each other.”

President Trump has regularly criticized the US trade deficit with Europe, and the fact that, in his opinion, there were “too many German cars circulating in New York City” – his hometown. In reality, the trade deficit between the US and the EU has steadily increased over the last twenty years from close to $17,000 in 1997, to about $151,000 in 2017, an 89% surge.  As a result of this two decades’ long growing trade deficit, the Trump administration imposed tariffs on European steel and aluminium imports in June and threatened the EU with further tariffs on car imports unless major trade concessions are on the table. In response, the EU adopted retaliatory tariffs on US goods including Harley-Davidson motorbikes, jeans, bourbon, orange juice, and peanut butter, and filed a legal challenge against US tariffs before the WTO, arguing their legality.

These developments heralded a major political shift in the US attitude towards the EU. While the two blocs had been close allies and trade partners since the end of WWII, the ‘America First’ mantra was about to test and durably undermine the transatlantic relationship like never before. In a bold move, EU Commission President Juncker travelled to Washington D.C. to try to assuage President Trump’s grievances and avoid an escalation of the US-EU trade row.

To some expert’s amazement, not only did President Trump announce that tariffs on car imports were now off the table, but he also asserted that his administration and the European Commission would “work together towards zero tariffs, zero non-tariff barriers, and zero subsidies” on industrial goods. To President Trump’s greatest satisfaction, President Juncker also declared that the EU will buy more US soybeans and liquefied natural gas (LNG), although this is already a market reality.

With that said, existing US tariffs will remain in place until an overall agreement is found. This preliminary agreement was undoubtedly a “win-win” for both sides: President Trump could argue he was successful in extracting substantial concessions from the EU while President Juncker could come back to Brussels taking the credit for avoiding the US-trade row to turn into a more far-reaching trade war.

Nevertheless, the trade truce lasted less than a week before American and European leaders started to quarrel on the scope of future US-EU trade talks. U.S. trade representative Robert Lighthizer argued that agriculture should be part of the trade discussions, while French President Macron claimed his opposition to including agriculture in any trade deal, no matter which one. Moreover, Macron went on saying that he was ‘not in favour’ of a vast new EU-US trade deal, damping at the same time private sector’s hopes of getting a renewed Transatlantic Trade and Investment Partnership (TTIP) agreement any time soon.

It is hard to predict whether the Trump administration’s commitments to zero tariffs on industrial goods will come to fruition. A good indication of President Trump’s wishes is nevertheless the recent USTR’s notification to Congress of US plans to launch trade negotiations with the EU and Japan as of mid-January and with the UK following Brexit. The US and the EU have incidentally established a working group to facilitate commercial exchanges and assess existing tariff measures. Yet several US senior officials recently blamed the EU for lack of progress in trade talks, reviving the threat of car tariffs.

The EU should address legitimate concerns over US trade deficit vis-à-vis Europe and work towards reducing remaining, already-low trade barriers between the two world’s largest economies. However, trade talks should not start before the European Commission receive a proper mandate from EU countries regarding their specific scope. Americans are known for being fierce negotiators, as recently shown with the revamped NAFTA. European negotiators should equally vigorously defend EU interests, notably by requiring the US government to allow European companies to compete in calls for tender for federal and local government contracts. Transparency vis-à-vis the public will also be key to gaining public support, containing likely protests and getting any final deal through national parliaments.

We don’t know yet what all of this politicking will lead to but what we already know for sure is that these future US-EU trade talks won’t be a quiet river and that unforeseen developments and turnarounds are to be expected along the road. Companies selling goods on both sides of the Atlantic should stay on the lookout for latest developments, as these trade talks will impact a broad array of industries, notably pharmaceutical, chemical or medical devices companies.