Talks scheduled between EU and U.S. trade representatives from August 20 will start the process of putting flesh on the bones of commitments made by President Juncker and President Trump. As outlined in Panjiva research of July 26 those included boosting EU imports from the U.S. and finding ways to reduce tariffs.

One of the first areas where agreement is needed is in regards to whether a full trade deal will be targeted or whether a simple, transactional approach will be followed. The former could follow the mould of TTIP though would likely be more focused on goods than being a broader deal. The latter would suit the Trump administration’s prior style and would avoid Trade Promotion Authority consultation requirements.

Whatever the outcome of the first stage a significant figure in terms of tariff reduction will be needed. Panjiva data for U.S. imports and exports shows the U.S. trade deficit with the EU reached $159 billion in the 12 months to June 30, accounting for 19.3% of the total and representing the second largest contribution to the deficit after China and far outstripping NAFTA.

Chart segments U.S. merchandise trade deficit ( exports less imports shown as a positive number) by counterparty on a monthly (dotted) and annual average (solid) basis.   Source: Panjiva

In that context the single biggest issue to address are U.S. imports of cars and parts from the European Union. Imports of cars, light trucks and parts in the past 12 months were worth $62.7 billion (predominantly vehicles worth $50.5 billion). That’s particularly important in the context of the ongoing section 232 review of the automotive industry that could apply duties in excess of 20%.

The European automakers may be preparing for imminent changes despite weak sales seen in July with seaborne imports of completed vehicles having increased by 8.6% on a year earlier after a 13.6% surge in the second quarter. Those vehicles were despatched before the rapprochement reached between President Juncker and President Trump and so may slow down in August.

Chart segments U.S. seaborne imports of cars and light trucks from Europe by shipper.  Source:  Panjiva

The more tangible effects will likely come from commitments in the commodities industry including liquefied natural gas – though market liberalization in the EU will be a challenge – and agriculture. Panjiva analysis shows there are several agricultural products where the EU represents only a small proportion of U.S. exports. Among grains those include corn (EU imports in the past 12 months were just $401 million, or 3.8% of U.S. exports) and wheat ($490 million, or 3.0%) while imports of meat are very low including just 0.2% of pork and poultry exports.

Chart segments U.S. exports of agricultural products (by HS-2) showing global exports and proportion of exports headed to the EU in the 12 months to June 30, denominated in dollars.   Source: Panjiva