Updated August 1, 2018
U.S.-EU Trade and Economic Issues
Introduction
potential threat to impair national security posed by these
imports under Section 232 of the Trade Expansion Act of
The United States and European Union (EU) are each
1962. Some countries negotiated exceptions to the tariffs,
other’s largest trade and investment partners. (For more
but not the EU. The U.S. decision was preceded by
information, see CRS In Focus IF10930, U.S.-EU Trade
consistent U.S. concerns, shared by the EU, about the
and Investment Ties: Magnitude and Scope, by Shayerah
negative impact of China’s excess steel capacity on market
Ilias Akhtar.) Their ties are deep, but some barriers to trade
prices. Despite the U.S. national security justification, the
and investment remain. The trading relationship is largely
EU views the U.S. tariffs to be inconsistent with World
harmonious, but frictions emerge periodically due to the
Trade Organization (WTO) rules on safeguard actions
high level of commercial activity and specific policy issues.
(measures to protect domestic industries from rising
U.S.-EU trade and economic relations face heightened
imports). The EU, which accounted for about one-fifth of
tension currently, amid the Trump Administration’s trade
U.S. steel imports and less than one-tenth of U.S. aluminum
policy, which is focusing on unilateral tariff measures under
imports in 2017, responded to the U.S. tariff increases by:
U.S. trade law and taking a critical view of the U.S. role in

international economic cooperation. Given U.S.-EU
Applying retaliatory tariffs on U.S. products, after
historical joint leadership on global trade and economic
notifying the WTO of its proposed list of targeted
issues, these developments could have implications for the
products (including iconic goods such as bourbon,
rules-based international trading system, a foundation of the
motorcycles, and jeans). The total amount of tariffs the
global economic order that has contributed to global
EU plans to impose is equal to the value of EU exports
that the EU estimates the U.S. tariffs will affect (€6.4
economic growth and stability in the post-World War II era.
billion, or $7.5 billion, in 2017).
Selected Issues
 Requesting WTO consultations concerning the U.S.
Trade Balance and Unfair Trade Practices
measures, alleging that they violated the WTO
Agreement on Safeguards and other commitments.
President Trump prioritizes reducing U.S. bilateral trade
deficits as a major trade policy objective. The President
 Launching a safeguards investigation into how the U.S.
blames EU trade policies for the U.S. deficit with the EU—
measures affect EU steel trade flows.
$101 overall billion deficit in 2017, as the goods deficit
The United States is challenging the EU’s retaliatory tariffs
($153 billion) outweighed the surplus ($51 billion) (see
in WTO dispute settlement. The situation raises concerns
Figure 1). He is also particularly critical of Germany’s
over potential tit-for-tat escalating tariffs on each other’s
“massive [goods] trade surplus,” which, at $64 billion,
traded goods and adverse economic effects. Harley-
ranked as the fourth largest U.S. bilateral goods trade
Davidson became the first U.S. firm to announce that it will
deficit. EU leaders counter that the trade relationship is fair
shift some production overseas to avoid retaliatory tariffs
and mutually beneficial. The role of “unfair” trade practices
by the EU, its largest overseas market for motorcycles.
as a driver of trade deficits is contested view.
Another source of friction is the ongoing Section 232
Figure 1. U.S. Trade with the EU
investigation of automobiles and parts. The President is
critical of the U.S.-EU imbalance on auto trade, flagging
disparate tariff levels (for cars, EU tariff is 10% and U.S.
tariff is 2.5%; for trucks, EU tariff is 22% and U.S. tariff is
25%). Some EU auto companies also have manufacturing
facilities in the United States. Motor vehicles are a leading
U.S. import from the EU, and potential tariffs could have
economic consequences. Some Members of Congress and
industry groups question whether auto imports are a
national security issue. President Trump reportedly offered
to suspend the auto tariff threat if the EU removed its tariff
on U.S. auto imports. The EU has floated the idea of
negotiating tariff liberalization of the auto sector among a
critical mass of countries to avoid a trade dispute.

Source: CRS, based on data from U.S. Bureau of Economic Analysis.
WTO and Multilateralism
In the post-war era, the United States and EU have been at
U.S. Steel, Aluminum, and Potential Auto Tariffs
the forefront of developing and liberalizing the rules-based
On June 1, 2018, the United States began applying tariffs of
international trading system anchored in the WTO, thereby
25% and 10% on imports of certain steel and aluminum
contributing to its stability. EU officials are deeply troubled
products, respectively, following an investigation into the
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U.S.-EU Trade and Economic Issues
by the Trump Administration’s skepticism of the WTO.
their future trade and economic relationship could affect
The Administration is blocking new appointments to the
U.S. commerce. Many U.S. firms have a significant
WTO appellate body based on “judicial activism” concerns,
presence in the UK, and use the UK as a platform to access
and periodically threatening to not abide by WTO decisions
the EU market. How the EU and UK structure their future
over trade disputes that it finds contrary to U.S. interests
trade and economic relationship could have implications for
and also to withdraw the United States from the WTO.
U.S. commercial interests in terms of tariffs, customs
Many in the EU are concerned about a broader U.S. shift
procedures, or regulatory requirements. The United States
away from international cooperation—concerns fueled, for
and UK are interested in negotiating a bilateral FTA.
instance, by President Trump’s withdrawal from the G-7
(While an EU member, the UK cannot negotiate new trade
communiqué in June 2018 largely due to disputes over
agreements with other countries, as the EU retains
trade, and the U.S. reimposition of sanctions on Iran after
exclusive competence over its trade policy.)
the President’s decision to cease U.S. participation in the
2015 Joint Comprehensive Plan of Action (JCPOA).
Figure 2. U.S. and EU FTA Constellations
U.S.-EU Trade Negotiations
The United States and EU trade on WTO most-favored-
nation (MFN) terms because there is no U.S.-EU FTA
granting more preferential terms. U.S. and EU tariffs are
generally low (simple average MFN applied tariff was 3.5%
for the United States and 5.2% for the EU in 2016), but
high on some sensitive products. Nontariff barriers to trade,
such as regulatory barriers related to food safety, labeling,
and certifications, also pose barriers to trade. Under the
Trump Administration, U.S.-EU negotiations are inactive
on the Transatlantic Trade and Investment Partnership (T-
TIP), a potential FTA to expand market access, enhance
regulatory cooperation, and set rules and disciplines to

support economic growth and trade liberalization. Many
Source: CRS, based on U.S. and EU official trade data.
issues in T-TIP are unresolved.
Other developments of interest include the General Data
On July 25, 2018, the United States and EU announced an
Protection Regulation (GDPR), the EU’s new regulations to
agreement to work to eliminate tariffs, nontariff barriers,
protect personal data aimed at updating and harmonizing
and subsidies on “non-auto industrial goods,” as well as to
rules EU-wide, which entered into force on May 25, 2018.
reduce barriers and boost trade in specific sectors and
The GDPR may simplify compliance for U.S. firms, but
products (services, chemicals, pharmaceuticals, medical
also raises concerns, such as the scale of potential fines for
products, and soybeans). They also agreed to cooperate
noncompliance and possible high costs of adherence, which
bilaterally on energy trade and standards, and
could particularly affect smaller firms.
internationally to address unfair global trade practices and
reform the WTO. U.S.-EU trade watchers question whether
In addition, the EU has sought to address corporate tax
the deal actually is a “new phase” in the relationship as
avoidance and antitrust issues. In 2016, the EU ordered
Ireland to collect €13 billion (about $15.2 billion) in
touted by the two sides, a revival of T-TIP in the form of

limited FTA negotiations, or simply a deal to pause
retroactive taxes from Apple after finding that Ireland gave
potential tit-for-tat escalation of tariffs while they address
Apple “sweetheart tax arrangements” reducing its effective
the Section 232 trade disputes. Certain issues, such as
corporate tax rate. Some Members of Congress, while
agriculture, already appear to be contentious in the U.S.-EU
concerned about tax avoidance by U.S. firms, view this and
talks.
other EU actions as overreach and protectionism. Other
frictions include the recent EU antitrust fine of €4.34 billion
The United States and EU each has its own constellation of
(about $5.1 billion) on Google for its actions in the mobile
FTAs—14 FTAs with 20 countries in force for the United
phone market, which Google plans to appeal.
States and 39 trade agreements for the EU (see Figure 2).
While the United States withdrew from the Trans-Pacific
Issues for Congress
Partnership (TPP) and is renegotiating existing FTAs under
Congress may wish to more extensively weigh in on U.S.-
President Trump, the EU recently concluded FTAs with
EU trade developments, examining their impacts on the
Japan, Canada, and Vietnam, and upgraded its FTA with
U.S. and global economy and the international trading
Mexico—all TPP members. EU FTAs vary on some issues
system. Congress also may consider options to resolve
compared to the traditional U.S. approach, such as
current issues and further liberalize trade, such as revisiting
emphasizing geographical indications (GIs), introducing an
T-TIP, pursuing sector-specific tariff liberalization, and
investment court system to replace the contested investor-
U.S.-EU cooperation to revive the WTO as a driver of trade
state dispute settlement (ISDS), and not including explicit
liberalization, as well as considering legislative changes to
commitments to remove trade restrictions on data flows.
the Administration’s authority under U.S. trade laws.
Brexit and Other EU Developments
The UK’s pending exit from the EU (“Brexit”) presents
Shayerah Ilias Akhtar, Specialist in International Trade
some uncertainty for U.S.-EU economic relations. An EU
and Finance
without the UK would remain the United States’ largest
trading partner, but the outcome of EU-UK negotiations on
IF10931
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U.S.-EU Trade and Economic Issues


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https://crsreports.congress.gov | IF10931 · VERSION 5 · UPDATED

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