Transatlantic Trade Relations: Ties that bind

Note this is an excerpt of WTCA Meridian, the official publication of the WTCA. Read here: https://bit.ly/2IxVRzc

Transatlantic relations have cooled significantly in the past decade, with this decline accelerating following the recent US election.

This evolution began with the decision of the previous administration to “pivot” US foreign policy focus away from the Middle East and Europe and towards East Asia somewhat changed the tone and intensity of the transatlantic relationship. The level of cooperation between the continents—which had deepened post 9/11—began to wane, with the White House and State Department concentrating attention on East Asia.

At the same time, however, the US did launch the Transatlantic Trade and Investment Partnership (TTIP) negotiations. These harbored the ambition of developing the most ambitious free trade agreement ever, with real potential to boost economic growth in both the United States and the European Union, as well as setting global standards for trade with other regions.

However, in late 2016 the TTIP negotiations were halted, in line with President Trump’s pre-election commitment. The decision was also consistent with the President’s long-standing wariness towards multilateral free trade agreements, and their ability to advance US economic interests.

The ambition of TTIP was to build on what is already the most successful and integrated trading relationship in the world. Together, the European Union and the United States account for over half of the world’s GDP. Both sides account for vastly more mutual investment than any other country or region in the world. For example, the EU invests eight times more in the US than in India and China combined. The degree of economic integration has seen tariff barriers slowly reduced over the decades, with average tariffs on the import of goods between the EU and US set at less than 3 percent today.

However, recent developments and the actions of the Trump White House have caused quite a degree of concern in Europe, as fears mount that current U.S. positions on multilateral trade, along with the larger shift in relations with traditional partners, spell a potential rupture to a highly interdependent relationship. Rather than pursuing the long overdue task of tackling non-tariff barriers via the TTIP negotiations, Washington and Brussels have instead spent the past months in talks to avert a trade crisis based on the imposition of tariff barriers. Such levels of antagonism between the two traditional allies could not have been imagined two short years ago. In many ways it has set the scene for a new kind of transatlantic engagement.

The trade war saw a hiatus of sorts in July, when EU Commission President Jean Claude Juncker made a trip to Washington with the sole objective of doing “a deal” to de-escalate the transatlantic cross-fire. The meeting was a success in that the two sides agreed to bring the negotiators back together to hammer out a compromise, and the EU manged to avert the proposed 25-percent US tariff on the import of European cars. Notwithstanding the progress made towards the end of July, the risk of further tariffs continues to loom large.

As is always the case, the simplistic presentation of the trade deficit and of tariffs on goods fails to show the full picture. It is true that the US tariff on cars is lower than the tariff imposed by the EU. However, the EU tariff on SUVs and trucks is lower than that imposed by the US. There is also a range of exemptions to the tariffs in place for vehicles manufactured in the US, which use parts manufactured in the EU. In fact, only about 15 percent of those cars imported actually pay the 10-percent EU tariff.

The degree of integration between the EU and US economies means that complex supply chains exist which will be massively disrupted by this race to the bottom on tariffs. The harsh reality is that inflicting pain on the producers and economies of either the US or the EU, naturally inflicts damage on those of the other.

The smart solution will be to call a halt to the aggressive rhetoric and realise that we gain more together than when we are divided. Getting back to the negotiating table and finding ways to deepen transatlantic economic integration further is the only way to guarantee the future security and prosperity of both American and European citizens.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the opinions or positions of the World Trade Centers Association or its Members.

This article made possible with the support of the European American Chamber of Commerce in New York.