EsRepresentatives of the EU and U.S. have started discussions in the week of May 6 regarding a potential free trade deal between the two, Inside Trade reports, with a meeting between EU Trade Commissioner Cecilia Malmstrom and U.S. Trade Representative Robert Lighthizer.
The process was started by President Donald Trump and EC President Jean-Claude Juncker in 2018, as outlined in Panjiva’s research of Oct. 18, but has been delayed while both sides formulate negotiating stances.
Broadly speaking there is a risk that the talks make little progress, and indeed that relations dissolve into acrimony and a potential trade war. There are four topics to watch: agriculture; metals; autos; and aerospace.
Agriculture – Yet another soybean deal, or not
The EU’s negotiating guidelines specifically rule out the inclusion of agricultural products. The U.S. by contrast has specifically required they be included. Indeed they have been central to negotiations with China regarding tariffs and have been at the heart of established trade deals including KORUS and USMCA.
The European Union may already believe it has given ground on agriculture with increased purchases of soybeans – up 74.9% year over year in the 12 months to Feb. 28 – and cereals which surged 76.8%. As a result, total U.S. exports of agricultural products to the EU climbed 23.6% year over year, Panjiva data shows, whereas total U.S. exports were unchanged due to declining shipments to China.
Yet, EU exports only represent $10.0 billion of trade in the past 12 months, or 10.7% of total U.S. exports. Likely driving U.S. calls for improved access and flattened standards. Given the importance of the agricultural community to the EU it seems unlikely much ground will be given.
Source: Panjiva
Metals – Won’t bend, could prove corrosive
The European Union has already demanded that the U.S. remove section 232 steel and aluminum tariffs that were put in place last June as a prerequisite for completing negotiations. Given the U.S. is still negotiating to remove those applied to Canada and Mexico where the USMCA trade deal was signed in late 2018 there does not appear to be a willingness from the Trump administration to readily move on the topic.
The U.S. tariffs have had a limiting, but not transformative, effect on EU exports of steel and aluminum. U.S. seaborne imports of section 232 steel and aluminum products from the EU have fallen by 7.5% year over year in the three months to Apr. 30.
There’s been a marked difference in performance between shippers though with ArcelorMittal seeing the fastest declines at 39.0% year over year while number one – by shipments – ThyssenKrupp saw a slide of 5.0%. SSAB meanwhile has been undeterred by tariffs an increased its exports by 45.1%.
Source: Panjiva
Cars – Yet to start, could cause a crash
Where the first two issues are about things that have happened, the second two are about those that have yet to occur. Both stem from a commitment by both sides to not apply new tariffs while talks are ongoing.
President Donald Trump is scheduled to make a decision as to whether to apply section 232, or national security, tariffs on automotive vehicles and components by May 18. While the President can delay the decision by requesting more information his animosity toward the German automotive industry is well established while he has only recently threatened to apply retaliatory duties in the motorcycle subsector.
The tariffs could be aimed at all vehicles and parts, just parts, just a subset of high-tech parts – previously referred to as ACES – or any as-yet undeclared alternative. When combined with uncertainties stemming from the U.S.-China trade war and the USMCA renegotiation the European automakers face considerable challenges in how to adapt their supply chains. That’s particularly pertinent given most of the major manufacturers already have assembly lines in the U.S.
Exports of auto-components set to be covered in the section 232 review have begun to decline with a 2.2% slip in shipments coming to the U.S. by sea in April compared to a year earlier. That followed a 6.6% increase in the first quarter and may reflect the slowdown in auto-sales in the U.S.
Daimler has already been cutting back its shipments, with a 30.3% slide in the three months to Apr. 30, while Volkswagen’s have increased by 25.6%. There’ll also be an impact on U.S.-based firms too, with Fiat-Chrysler having increased its shipments by 8.2% in the past three months, though there was a small decline in April.
Source: Panjiva
Aerospace – The first, or final, straw
The aerospace sector has been an area of many trade policy challenges between the U.S. and EU over the past decade, with accusations of subsidies being made by both sides for national champions Boeing and Airbus in the civil airliner space.
The latest acceleration has come from the USTR launching a consultation on retaliatory tariffs on $12 billion of products after the WTO supported its dispute with the EU. The European Union meanwhile rapidly responded with its own list of potential retaliatory duties on $20 billion of products in response to alleged subsidies for Boeing.
While both sides will target each other’s aerospace products for tariffs, there will more than likely be overspill into other sectors. Panjiva analysis shows that the U.S. has targeted EU exports of food and beverages worth $9.96 billion in the past 12 months to Jan. 31 alongside $1.38 billion of apparel and accessories and $698 million of capital goods. The EU meanwhile has targeted $2.19 billion of food and beverages, $4.0 billion of coal, $3.37 billion of chemicals and $1.65 billion of machinery.
Source: Panjiva
