On Monday Valdis Dombrovskis, the EU’s trade commissioner announced that the European Commission will retaliate against the US in response to the tariffs imposed by President Trump’s administration. The new tariff would hit $4 billion worth of goods imported from the US, ranging from food, alcohol products and aircraft.
The move was authorized last month by the World Trade Organization (WTO) in response to the US’s $7.5 billion sanctions on European products last year, that was incidentally also sanctioned by the WTO. The trade-row has started as far back as 2004 when the US has accused France of granting cheap loans to aircraft manufacturer Airbus that could amount to illegal state subsidies. The US had planned to impose $11 billion worth of tariffs on European goods, but only $7.5 billion has been authorized by the WTO.
The timing and the nature of the EU tariffs is highly political in nature. Cane molasses, which is produced in the US state of Georgia, where President Trump was expected to do well in the elections, were likely selected for the tariffs list to put political pressure on the Trump administration.
The timing of the announcement only days after the US elections is also of significance. While a second-term Trump administration would likely respond with further retaliatory measures, if Joe Biden is officially confirmed as US President, he would likely continue in the Democrats’ open-trade policy and the trade-war could soon end in mutual tariff withdrawal.
The Trump administration had set out to rebalance the widening American federal trade deficit focusing mostly on China, with whom the US goods trade deficit in 2019 amounted to $345.2 billion in China’s favor. However, by the 2020 fiscal year, this grew to 15.2% of GDP, that is, $3.1 trillion. The balance had been grossly exacerbated by the global COVID-19 pandemic which called for an increased government spending, and at the same time, resulted in lower tax income.
The US’s goods trade deficit with European Union countries had stood at $184 billion in 2019. Accusations of industrial monopoly on the one hand, and unfair state-subsidies on the other, have damaged the Trans-Atlantic trade deal, leading to tit-for-tat retaliation. Boeing Aviation in particular will be hit hard by the new EU tariffs if the EU/US trade-war cannot be averted. The company has already announced the loss of 7,000 jobs due to the subdued demand for new aircraft caused by the COVID-19 pandemic.
Expectations regarding a Biden presidency among EU members and other European nations vary enormously. Not surprisingly, political forces on the European left are hopeful of a softening stance from a new administration. German Economy Minister Peter Altmaier has said that the EU has “great expectations and the hope that the American presidential elections will lead to a return to multilateral engagement in international trade and that it will be possible to overcome past conflicts.”
The British, who are about to leave the European Union, however, see their chances in this new salvo of US/EU trade-war, hoping that this would expedite their chances of a favorable Trans-Atlantic trade-deal, thus also strengthening their hands in their trade-negotiations with the EU.
Biden had expressed his hostility towards Brexit a number of times in the past and, according to insiders, he will not prioritize a UK-US trade deal in his first 100 days in the office. US Democrats see the Boris Johnson government’s stance on Brexit as endangering the Good Friday Agreement regarding Northern Ireland, therefore their efforts will be primarily focused on multilateralism with the EU, before the UK will get a chance for a separate trade settlement.
The new administration’s reaction to the $4 billion challenge from the EU is closely watched by China, who will judge their own chances of a reversal of punitive tariffs set by President Trump. Whatever gained through a European truce by Biden’s circles might therefore be interpreted as an opportunity by the Chinese government to return to a hugely lucrative trade-surplus with the US.