An even bigger concern among some economists is a possible escalation of Europe’s lingering trade dispute with the United States this year, despite E.U. officials’ attempts at conciliatory moves.
“Why would they” de-escalate? asked Hosuk Lee-Makiyama, director of the European Center for International Political Economy, referring to U.S. negotiators. “They have the leverage now.”
What is the U.S.-E.U. trade dispute about?
Trump complains frequently about what he has described as an unbalanced and unfair trade relationship between the United States and the E.U. In 2018, the U.S. goods trade deficit with the E.U. amounted to $169 billion, according to the Office of the U.S. Trade Representative.
U.S. pressure on Europe has manifested itself in multiple ways since Trump took office.
The United States recently proposed new tariffs on French products, in retaliation against a French tax on digital services, including those provided by U.S. tech companies.
But Trump has directed his personal ire at one E.U. country in particular: Germany. Even before he became president, he lashed out at German high-end car manufacturers, such as BMW and Mercedes-Benz. Trump and other critics of the E.U.'s trade policy argue that the bloc is creating an unfair advantage by charging 10 percent on U.S. car imports, compared with the United States’ 2.5 percent tariff on E.U. car imports.
European officials have argued that the overall U.S. trade deficit is a lot smaller once investments and services are taken into account, which makes their trade relationship more equal.
The E.U. has also criticized Trump’s official justification for imposing tariffs on steel and aluminum and threatening similar measures against carmakers. In 2018, Trump urged the Commerce Department to examine whether automotive imports constitute a threat to U.S. national security — appearing willing to exploit a clause in World Trade Organization treaties that allows for exceptions if national security is at risk.
The United States and Europe “have always engaged in tit for tat,” said Lee-Makiyama, “but we never went as far as going after each other’s core national interests, like cars.”
Why is Europe concerned about an escalation?
After becoming president, Trump increased trade tensions on multiple fronts, most notably with China, Canada, Mexico and Japan, triggering a warning from the International Monetary Fund that the escalation was putting the global trading system at risk. But recently, in some parts of the world, the president has adopted a more conciliatory tone. After the China pact was announced Wednesday, the Senate approved a new North American trade agreement with Mexico and Canada on Thursday.
Analysts warn that relations between the United States and Europe are different.
The European Commission’s responsibility for trade talks means that the Trump administration would not negotiate with directly elected world leaders, who might fear losing office in case of an escalation and subsequent economic downturn. Instead, technocrats would lead the negotiations.
As a result, the political pressure to get a deal, said Felbermayr, would be smaller than in Mexico, Japan or other countries.
In addition, Washington would probably want Brussels to make concessions on E.U. subsidies for farmers and European aircraft-maker Airbus, which appears to be a no-go on the European end.
“Since the new commission in Europe has very little policy space to offer the Americans any concessions, whether it’s agriculture or civil aircraft or taxes … I think we are looking at a pretty bumpy road ahead,” Lee-Makiyama said.
But if tensions were to escalate, the E.U. would have more leverage over the United States than China does, analysts said, given the significant share of U.S. exports and investments tied up in Europe.
“This makes the conflict much more symmetric,” Felbermayr said.
E.U. representatives appear to be concerned that the looming 2020 election might make Trump a more erratic negotiator. During a visit to Washington this week, E.U. Trade Commissioner Phil Hogan criticized Trump for “short-term thinking.”
“Between now and the November elections is what Mr. Trump is thinking about,” he said in an interview. “If we fail to [go about this the right way], the damage will be significant, not alone for us both, but for the world.”