Stockholm (Ekonamik) – As prospects appear to slowly improve for a trade deal between the United States and China (depending on the week, or day), the EU and the U.S. are also set for trade talks in the months ahead, where prospects do not at present look particularly bright.
Following the truce struck last July between EC President Jean-Claude Juncker and U.S. President Donald Trump to not impose any new tariffs, a stalemate in talks and what look like irreconcilable differences are heating up the temperature.
“We’re at a stalemate,” U.S. Trade Representative Robert Lighthizer told the Senate Finance Committee Tuesday (March 12). “The United States can’t have a trade agreement with Europe that doesn’t deal with agriculture, and their view is that they can’t have one that does.”
Mr Trump will decide by mid-May whether to impose tariffs on auto imports from the EU, which could potentially be as high as 25%. Mr Trump’s argument that tariffs are a matter of “national security” will be used as leverage; meanwhile, the Europeans are scrambling to prevent the tariffs and another full-scale trade war.
The EU’s tariff on automobiles is 10%, whereas the U.S. tariff currently stands at 2.5%. A renegotiation lowering car tariffs is part of the EU’s proposal for a planned deal, but Washington wants the EU to include U.S. agricultural exports to Europe in the talks, which Brussels has rejected. The Europeans want to avoid revitalising the popular revolt in Europe against the proposed Transatlantic Trade and Investment Partnership (TTIP).
“The European Union is very, very tough. Very, very tough. They don’t allow our products in. They don’t allow our farming goods in,” Mr Trump said in a meeting with U.S. governors last month. “[M]aybe, in certain ways, [the EU] is tougher than China.”
Mr Lighthizer included a number of comprehensive agriculture goals in January when the U.S. released negotiating objectives for a potential trade agreement. The Europeans also want to eliminate tariffs on industrial goods entirely as per the preliminary “zero tariffs, zero non-tariff barriers, and zero subsidies” agreement last year, but the Americans want to retain their leverage on cars.
“[I]f you don’t meet, we’re going to tariff the hell out of you,” Mr Trump said in his remarks. “And they’re going to meet.”
In a gesture of goodwill, the European Commission has boosted imports of American soybeans by recognising them for the production of subsidised biofuels, and is also looking to increase imports of American liquefied natural gas. But Mr Lighthizer met with European Trade Commissioner Cecilia Malmström on March 6, and the talks brought no further fruit.
“We’re working on other areas with the realisation that there’s not going to be any [free trade agreement] without agriculture,” Mr Lighthizer said in his Senate testimony, adding that a deal without agricultural provisions would be DOA given the pressure from Congress to open up the EU market to U.S. farmers. “It wouldn’t even make a difference if we conceded or not.”
In addition, the European Parliament has stipulated that membership of the Paris Agreement on Climate Change is a prerequisite for trade talks.
Meanwhile, Manfred Weber, the European People’s Party (EPP) candidate to replace Jean-Claude Juncker as European Commission president, urged Brussels to hit back hard if Mr Trump goes through with his threat.
“As Europeans, we will not be blackmailed,” he declared in a speech last week to a Christian Social Union (CSU) meeting in Bavaria, Mr Weber’s home state, which is also the home to BMW and Audi. “The U.S. economy is similar in size to the EU. Economically, we are on equal footing. And that is why America must know that if it starts a trade war with Europe and levies car duties… then we will have to respond.”
Negotiations will likely proceed in a step-by-step approach, such as finding solutions for regulatory cooperation. With American tariffs on European steel and aluminium still in place, a win for the EU would be any arrangement excluding them from tariffs on cars. A win for the U.S. would be an arrangement that opens European markets to U.S. agricultural products with some industrial tariffs still in place.
Reconciling these objectives before the current European Commission finishes its term later this year and the 2020 U.S. presidential campaign heats up will be a challenge.
Image: Jean-Claude Juncker and Donald Trump 2018-07-25 (Wikimedia Commons)
