US-EU trade negotiations: pointless tariffs against real economic growth

Visit by Jean-Claude Juncker, President of the EC, and Cecilia Malmström, Member of the EC, to the United States of America
Date: 25/07/2018. Location: Washington – White House. © European Union, 2018. Photo: Etienne Ansotte

The European Council approved last Monday the European Commission’s proposals authorizing the latter to start negotiating with the US in order to eliminate industrial goods tariffs and reach an agreement on conformity assessment. Most of the member states were in favour of the commencement of the bilateral trade negotiations except for France.

However, the fact that the US administration still claims that will impose tariffs to the German automotive industry and to EU goods, in response to EU subsidies to Airbus, causes serious concerns regarding a possible future deal. Also, the US decision to withdraw from the Paris climate pact is yet another obstacle which will most likely create turbulences during the talks between the two parties.

EU-US potential agreements

The EU expects to start multiple rounds of negotiations with the United States in order to create a framework of job opportunities and growth as a result of tariff elimination for industrial goods. The President of the European Commission, Jean-Claude Juncker mentioned two days ago in Luxembourg: “The European Union is delivering on what President Trump and I have agreed on 25 July 2018. We want a win-win situation on trade, beneficial for both the EU and the U.S. Notably we want to slash tariffs on industrial products as this could lead to an additional increase in EU and U.S. exports worth around €26 billion. The European Union and the United States have one of the most important economic relationships in the world. We want to further strengthen trade between us based on the positive spirit of last July.”

The second agreement on conformity assessment focuses on the removal of non-tariff barriers which will allow firms prove that their products comply with the technical requirements both in the EU and US. Needless to say that potential tariffs or trade restrictions from the US side will have as an immediate effect to suspend the negotiations between the two sides.

France’s opposition

During the European Council’s decision, France voted against the bilateral trade talks with the US whereas Belgium abstained. Notwithstanding, the decision was approved as only a qualified majority of EU members was needed. The decision of Donald Trump to withdraw from the Paris accord is once more becoming the excuse for disagreements between the two countries.

However, French Finance Minister Bruno Le Maire focusing on the economic impact of a possible EU-US trade war told CNBC that: “We have to avoid a trade war. We’re facing a slowdown both at the global level and the European level and the reason why there is such an economic slowdown is that there are trade tensions all over the world… There are trade tensions between the U.S. and China. We should not add trade tensions between the U.S. and the EU, it will be a political mistake and an economic mistake too.”

Economic boost through tariffs’ elimination

Both IMF world economic outlook report and EC’s analysis show that the EU and US economies will increase their gains in case they choose to remove tariffs. First of all, the EC’s report indicates that EU exports to the U.S. will increase by 8% (€27 billion gain) and US exports to the EU by 9% (€26 billion gain) until 2033 should both agree to eliminate tariffs.

Furthermore, the IMF published its economic outlook in April which revealed that competition improves and leads to stronger productivity when tariffs drop. On the other hand, tariff wars create negative spillovers not only to the involved economies but also to the global economy with imminent effects to output, employment and productivity.

Trump’s controversial policies

The US President and his Make America Great Again (MAGA) administration have caused economic agressive turbulences to the global economy. The tariffs imposed to China, the EU and other major trading partners have flirted with the scenario of full size trade wars. Hence, it seems quite unclear whether Donald Trump will put such policies behind and sit on the negotiating table with the Old Continent in order to come to a win-win agreement instead of a a lose-lose one.

On last Monday’s event in Minnesota, a few hours after EU’s decision to seek a deal with the US, the US President said that: “They barely take our agricultural products, and yet they can sell Mercedes Benz and they can sell anything they want in our country including their farm products, and it’s not fair…I talk to them and say fellows, [that] has to change, has to change — and you know, I said frankly, look if it doesn’t change, we’re gonna tariff all of your cars and everything else that comes in. You can’t treat our farmers that way, you can’t treat our people that way.”

The latter shows that Trump is still using the car tariffs as leverage to exercise pressure to the EU ahead of the negotiations. The effects of a trade dispute will be catastrophic taking into consideration that the EU and US investments are the real driver of the transatlantic relationship.

All in all, the US stance has shown till now that the upcoming EU-US trade dialogue is going to be very complicated and both parties will struggle to come to a common agreement. The latter is reinforced also by the fact that the EU will be considering the environmental impacts of the agreement to be in line with the Paris Agreement on climate change; a pact which the US doesn’t supports and has decided to withdraw from.

The economic outlook looks ominous with such policies in place at the moment when it is projected by the IMF that global growth will slow from 3,6% in 2018 to 3,3% in 2019. The possibility of a mutual EU-US agreement is low but if both parties focus on their economic prosperity then things might turn around. To be noted that the EU and the US economies account together for about half the entire world GDP and for nearly a third of world trade flows.

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Comments

  1. “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.”
    ― Kenneth Boulding, Economist

    But the REAL hypocrisy is the fact that the European Commission decided last year to negotiate no new trade deals with countries that don’t stick to the Paris Agreement.

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