Trade policy relations between the U.S. and the EU are being pulled in two directions simultaneously. On the one hand, while the European Union has reached an agreed negotiating position for talks with the U.S. regarding a wider tariff deal, France has already expressed doubts about any deal’s eventual ratification according to Reuters as the U.S. is not part of the Paris Climate Accord.

On the one hand the EU is already preparing retaliatory duties against potential U.S. tariffs designed to compensate for subsidies provided to Airbus, the Wall Street Journal reports, with $12 billion of products targeted.

The two may not end up clashing though given the current EU Trade Commissioner, Cecilia Malmstrom, has indicated those talks may be done by Nov. 1 according to the Financial Times. As outlined in Panjiva’s research of Apr. 9 the U.S. aerospace retaliation won’t be put in place until the WTO review process is complete, which likely won’t be until 2020.

The EU has already shown itself to be willing to apply tariffs aggressively, as was the case with America’s section 232 duties on steel and aluminum in 2018. Those were targeted more towards icon-type products including whiskey worth $737 million in the 12 months to Mar. 31 2018, Panjiva data shows, and motorcycles worth $546 million as well as $1.03 billion worth of steel and aluminum.

Chart segments U.S. exports to the EU by product in the 12 months to Mar. 31, 2018 by product (HS-6) where tariffs were applied in retaliation for section 232 steel and aluminum duties.   Source: Panjiva

The EU’s retaliation would likely include aerospace – where the EU has a long-running counter-case against the U.S. in relation to subsidies for Boeing. The U.S. exported $46.5 billion of aerospace products – including jets and components but not engines – in 2018.

That was 3.3x the level of imports from the EU after an expansion of 17.2% year over year. Imports meanwhile only expanded by 2.7%. Yet, the U.S. aerospace industry can ill-afford a tariff fight given Boeing’s issues with the 737-Max jet.

Chart compares U.S. imports and exports of aerospace products (HS-88) by direction on a monthly and 12-month average basis.   Source: Panjiva

One challenge for the EU may lie in finding meaningful routes for retaliation that either would be undesirable to target or might be kept in reserve for other trade cases, particularly in relation to the section 232 autos review.

Aerospace was the largest U.S. export sector to the EU with 13.8% of sales in 2018. Targeting the next largest sector of pharmaceuticals / healthcare, worth $44.7 billion, would likely be undesirable given the potential impact on consumers. The automotive sector, with U.S. exports of vehicles and parts worth $13.3 billion, may be reserved for the separate section 232 automotive case.

Commodities, which were targeted by China in its own tariff spat with the U.S., may prove a more fruitful route. In particular the EU could use tariffs to clamp down on energy products including $12.2 billion of crude oil, refined oil products worth $8.3 billion, coal exports with a value of $3.9 billion and hydrocarbon gases (including LNG) worth $2.7 billion.

The EU could also target agricultural commodities which include soybeans worth $3.1 billion which have only been built up recently as well as nuts generally worth $2.7 billion. Other opportunities include telecoms and computing equipment worth $5.6 billion and $4.8 billion respectively, though these could also have a visible impact on popular consumer products.

Chart segments U.S. exports of energy-related products to the EU by fuel type on a monthly and 12-month average basis.   Source: Panjiva