Expectations for a satisfactory solution from US-EU trade talks

Monday, 2019-03-04 12:46:07
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US President Donald Trump (right) and European Commission President Jean-Claude Juncker attend a joint press conference following their talks at the White House on July 25, 2018.
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NDO – European and US trade officials will hold talks in Washington, scheduled for March 6, seeking a limited trade deal. However, in the context of tough standpoints from both sides, this negotiation is expected to be an arduous journey.

The transatlantic trade ties between the US and the European Union (EU) became tense in 2018. With the argument of “ensuring national security”, the Washington administration has increased tariffs on aluminum and steel imports from some partners, including the EU. In response, the EU imposed taxes on billions of dollars worth of goods imported from the US, such as alcohol, jeans and Harley Davidson motorcycles.

After fierce verbal battles, the US and the EU reached an agreement on “trade battle ceasefire” on the occasion of the meeting between US President Donald Trump and European Commission (EC) President Jean-Claude Juncker in July 2018. Under this agreement, the two sides pledged not to impose any new import taxes during the process of negotiating a limited trade deal. However, the US-EU trade tensions have been hot again as last month President Trump expressed his disappointment at the current state of negotiations. Accordingly, officials of both sides are preparing to conduct a trade negotiation this week. According to the EC spokesperson, European Commissioner for Trade Cecilia Malmstrom will meet with US Trade Representative Robert Lighthizer in Washington on March 6. The EC hopes to get authorisation from EU member states this month to begin negotiating a trade agreement on industrial goods with the US.

However, the signals given by the US and EU before the Wednesday talks indicate that this process will be very difficult. In recent days, the two sides have expressed their tough views on bilateral trade issues. The US President threatened to impose a 25% tax on imported cars from European countries. Analysts said the warning of the White House boss was raised with a higher level, after the US Department of Commerce submitted an investigation report, which paved the way for the President to impose new taxes on cars imported from the EU within the next 90 days. Previously, the US politics also shared the viewpoint that threatening to tax cars was a way to obtain concessions from Japan and the EU.

Meanwhile, the EU warned that it is willing to “play tit-for-tat” with the US and will soon take retaliatory measures if Washington imposes import duties on automotive products from the bloc. The EC spokesperson said that if the White House made actions to harm the EU’s export activities based on the aforementioned report, the bloc would also respond “quickly and adequately”. European Commissioner for Trade Malmstrom warned that the EU has already prepared measures of retaliation to the US but is also willing to negotiate a limited trade deal on industrial products, such as cars, aimed towards a 0% tax rate for both parties.

At present, it is not easy to reach consensus on the viewpoints in trade negotiations with the US right inside the EU. As for the US automotive tax issue, Germany is the EU member state with strongest protests, because the tax increase seriously affects the automobile industry, which is an economic pillar of the country. Meanwhile, France, another important member of the EU, still opposes the launch of trade negotiations with the US at such a critical moment, as at present Paris is still dealing with the anti-government demonstration wave of the “yellow vests” movement.

Inside the US, the “triggering” of a trade war with the EU is not fully supported. Economic experts warn that imposing taxes of up to 25% on millions of imported cars and components will increase costs and threaten to “devastate” the US economy. Therefore, US automakers have urged the Washington administration not to impose high tariffs on imported cars.

For many years, the US-EU economic and trade relations have consistently held a close relationship. Total two-way trade reached EUR633 billion in 2017, of which 598 billion came from industrial commodities. The US is currently the main importer of EU industrial goods and the second largest exporter to the EU market. An internal EC analysis recently published by the European media shows that if industrial goods tariffs are brought to 0%, the EU exports to the US will increase by 10%, while in the opposite direction, the US exports to Europe will also surge by 13%.

In fact, the US-EU trade relations are “mutually beneficial” and both sides need each other. Once one party imposes high tariffs on the goods of the other, both will face a “lose-lose” scenario. Therefore, if the trade disagreements are not soon resolved satisfactorily, they will certainly cause negative impacts on both the US and EU economy. As a result, the goal of the upcoming talks will move towards a “win-win” solution, because a prolonged negotiation process will only lead to greater economic damages for both sides.