EU Officials Push for Trade Deal with Trump Administration to Avoid 50% Tariff on Imported Goods

Strategic Insights -

The European Union's executive commission is pressing for a trade deal with the Trump administration to avoid a 50% tariff on imported goods, despite the ever-changing and unpredictable tariff threats from the President. Trump has repeatedly used tariffs as a negotiating tool, and his administration is now pushing for concessions from the EU in areas such as trade deficits, liquefied natural gas imports, and value-added taxes. The EU is resisting these demands, arguing that trade is already balanced, and that concessions on these issues would not address the real concerns driving Trump's actions.

Key Takeaways:

  • The EU's trade deficit with the US last year was 157 billion euros ($178 billion), but the EU disputes the significance of this figure, arguing that when including services, the deficit is much lower.
  • The EU could reduce its reliance on Russian pipeline gas and LNG by the end of 2027, but this would not yield immediate results and would require EU member states to adopt the change.
  • One way the EU could meet Trump's demand for increased US imports is by buying more liquefied natural gas from the US, but the EU has already begun to shift away from Russian gas imports as part of its broader energy strategy.
  • The EU could also consider buying more from US defense contractors as part of its effort to deter further aggression from Russia, but this would be complicated by the political obstacle of publicly-owned defense contractors in EU member states.
  • Reducing the 10% tax on foreign cars could also be a potential concession, but Edward Alden, senior fellow at the Council on Foreign Relations, notes that this would be a symbolic victory for Trump.
  • The EU is unlikely to offer concessions on food and agricultural products, such as hormone-raised beef and chlorine-treated chickens, which are major sticking points in the trade talks.
  • Value-added taxation is also a contentious issue, with Trump arguing that it is a barrier to US exports, but economists argue that it is trade-neutral and unlikely to be changed.
  • The White House has taken a hardline stance, refusing to negotiate below a 10% baseline on tariffs, and EU officials believe that the threat of a 50% tariff is a negotiating ploy that is unlikely to be carried out.
  • The EU has offered a "zero for zero" deal on industrial goods, but Trump has dismissed this.

Statistics:

  • The EU's trade deficit with the US last year was 157 billion euros ($178 billion).
  • The EU disputes the significance of this figure, arguing that when including services, the deficit is much lower at 48 billion euros, or 3% of total trade.
  • 19% of EU imports come from Russia, but the EU is shifting away from Russian gas imports as part of its broader energy strategy.
  • The EU's value-added tax rate is 10%, but this is trade-neutral and unlikely to be changed.
  • 170 countries use value-added taxation, but the US is an outlier in not using VAT.

Sources:

  • "EU officials: Pushing for trade deal with Trump administration" by David McHugh and Paul Wiseman, The Associated Press, undated
  • Bruce Stokes, visiting senior fellow at the German Marshall Fund of the United States, "Still, they have to come up with something to hopefully pacify him"
  • Simone Tagliapietra, energy analyst at the Bruegel think tank in Brussels, "this is no silver bullet and nothing that can yield immediate results"
  • Carsten Brzeski, global chief of macro at ING bank, "since it would impose costs that would make it unprofitable to import goods or mean charging consumers prices so high the goods would be uncompetitive"
  • Edward Alden, senior fellow at the Council on Foreign Relations, "The United States is not going to export that many cars to Europe anyway ... The Germans would be most resistant, but I don't think they're terribly worried about competition from America"
  • Mary Lovely, senior fellow at the Peterson Institute for International Economics, "the EU has repeatedly said it will not change its sanitary rules, its rules on (genetically modified) crops, its rules on chlorinated chickens, things that have been longtime irritants for the U.S."
  • Oliver Rakau and Nicola Nobile of Oxford Economics, commentary on Monday, if imposed, the 50% tariffs would reduce the collective economy of the 20 countries that use the euro currency by up to 1% next year and slash business investment by more than 6%.