Modest progress made in US-EU dispute, but spectre of trade war remains
By Mark Swift
The EU agreed to drop its 8 percent tax on US lobster last week as part of modest trade pact. While the move represents only a subtle thawing of transatlantic relations, it is a timely win for Donald Trump, whose reign of tariffs has become increasingly injurious to key areas of his electorate.
As part of the pact, the US agreed to halve tariffs on a number of EU products, including glassware and disposable cigarette lighters. In total, around €250 million worth of EU-US trade is covered by the agreement, small in comparison to the €1.1 trillion exchanged between the two economies in 2019.
This is the first time in over 20 years that the trading partners have reduced mutual tariffs.
“We intend for this package of tariff reductions to mark just the beginning of a process that will lead to additional agreements that create more free, fair, and reciprocal transatlantic trade,” the US trade representative, Robert Lighthizer, and the EU trade commissioner, Phil Hogan, said in a joint statement.
Why is the deal significant?
The emergence of the US-China trade war saw, among other spiteful exchanges, China place a 25 percent tax on imports of US lobsters. If this was not harmful enough to the US lobster industry, an agreement was reached last year between the EU and Canada which waived the bloc’s tax on Canadian lobsters.
Maine, America’s lobster heartland, has been struggling with the loss to the industry. It is a state crucial to Donald Trump’s re-election chances, so appeasing voters is vital to the US president.
US lobster sales have been significantly depressed due to broad reductions in the exchange of goods, as a result of ongoing trade disputes and the Covid-19 pandemic. With the Chinese market closing itself off due to tariff price hikes in 2018, US exporters found themselves facing fiercer competition from their North American neighbours in another major lobster market, the EU.
The second area of significance relates to the broader US-EU trade relationship. The steel and aluminium tariffs Donald Trump imposed on the EU greatly escalated tensions and halted discussions towards the Transatlantic Trade and Investment Partnership.
Currently, the two powers are deeply divided on a number of issues, including the bloc’s plans to tax big US technology companies, such as Google, Apple, and Facebook, and over the WTO-arbitrated matter of EU state support for Airbus.
The changing context of global trade
The recent trade pact on lobsters is seen by EU officials as a step towards diffusing some of these larger disputes, in particular the disagreement over subsidies for the airline.
“Resolution to Boeing-Airbus is the big prize here — we have been pushing intensively,” said one EU official.
Should the negotiations over any of these issues breakdown, the prospect of a transatlantic trade war is looming, experts suggest.
“Any of these disputes could spark a damaging trade war between the US and the EU,” according to a report from EIU and Basaware.
If Trump were to impose new tariffs on EU auto imports the impact on the EU economy would be severe, the report concluded. Along with the immediate consequences of lower exports to the US and other countries, business confidence would greatly suffer in EU member states.
“The EU would be forced to retaliate, raising the risk of a global trade war as third countries are forced to choose sides,” the experts interviewed for the report agreed.
With the fitness of the World Trade Organisation drawing scrutiny, some economists suggest that the pandemic and changes to the global context present an existential risk to current notions of rules-based trade. As such, commitment to peaceful resolutions in future trade disputes is all the more important.
Everything could change significantly if Donald Trump does not make it after November. A Joe Biden presidency, while purely theoretical at this stage, would likely follow a more EU-friendly line, experts suggest.
“The tactics will be very different. I would assume a Biden administration will not instigate tariffs and a trade war against their allies,” says Heather Conley, senior vice president for Europe, Eurasia and the Arctic at the Centre for Strategic and International Studies.