Updated August 28, 2019
U.S.-EU Trade and Economic Issues
Introduction
Trade Frictions
A major point of tension is the Trump Administration’s
The United States and European Union (EU) are each
other’s largest trade and investment partners
focus on unilateral trade measures such as tariffs. In 2018,
. Their ties are
the United States began applying tariffs of 25% and 10% on
deep, but some barriers to trade and investment remain.
certain imports of steel and aluminum, under the national
Over the years, the two sides have sought to further
security-based “Section 232” trade law. The Administration
liberalize trade and investment ties, enhance regulatory
granted some countries exceptions to the tariffs, but not to
cooperation, and work together on international economic
the EU. Despite the U.S. national security justification, the
issues of joint interest, including through international
EU views the U.S. tariffs to be inconsistent with WTO rules
institutions such as the World Trade Organization (WTO).
on safeguard measures (which protect domestic industries
The trading relationship is largely harmonious, but frictions
from rising imports). The EU, accounting for one-fifth of
emerge periodically due to the high level of commercial
U.S. steel imports and less than one-tenth of U.S. aluminum
activity and disagreements on specific policy issues. U.S.-
imports in 2018, applied retaliatory tariffs of 10% to 25%
EU trade and economic relations face heightened tension
on about $3 billion of U.S. products (e.g., steel, whiskies,
now due to shifts in certain U.S. trade policy approaches
beauty products, yachts, and motorcycles), and may apply a
under the Trump Administration.
second round of tariff increases in 2021. Both sides are now
Selected Issues
pursuing cases in the WTO on the respective measures.
Trade Balance and Trade Practices
Another source of friction is potential Section 232 tariffs on
In 2018, the United States had an overall $115 billion trade
autos and auto parts. On May 17, 2019, the President
deficit in merchandise and services with the EU, as the
announced that a Commerce Department investigation
merchandise deficit ($170 billion) outweighed the services
found that auto imports threaten to impair U.S. national
surplus ($55 billion) (see Figure 1). Germany, at $69
security, granting the President the authority to impose
billion, accounted for the fourth-largest U.S. bilateral
import restrictions, including tariffs. The President directed
merchandise trade deficit, after China, Mexico, and Japan.
the U.S. Trade Representative (USTR) to negotiate with the
Figure 1. U.S. Trade with the EU
EU, Japan, and other relevant trading partners to address
the threat and report on its progress within 180 days.
Economic and Policy Impacts
Concerns are heightened over potential tit-for-tat escalation of
tariffs on traded goods, adverse overall economic effects, and
implications for EU-U.S. cooperation on global economic issues
(e.g., steel and aluminum overcapacity). Harley-Davidson was the
first U.S. firm to announce plans to shift some production
overseas to avoid retaliatory tariffs by the EU, its largest overseas
market for motorcycles. Economic impacts could be larger if tariff
increases are imposed on autos, a top U.S. import from the EU.
Frictions also may rise in the 14-year-long U.S.-EU
“Boeing-Airbus” cases in the WTO. The United States and

EU announced preliminary lists of their traded goods on
Source: CRS, based on data from U.S. Bureau of Economic Analysis.
which they propose to impose countermeasure tariffs of
about $11 billion and $12 billion, respectively—the
The causes and consequences of trade deficits are debated.
estimated harm that each claims the other’s subsidies on its
President Trump, who prioritizes reducing U.S. bilateral
respective domestic civil aircraft industry have caused the
trade deficits, blames EU trade policies, and particularly
other. A final WTO assessment is expected in summer 2019
those of Germany, for the U.S. merchandise trade deficit
on appropriate countermeasure value amounts.
with the EU. The President also is critical of the U.S.-EU
imbalance on auto trade, flagging disparate tariff levels (for
The United States continues to monitor other EU overall
cars, EU tariff is 10% and U.S. tariff is 2.5%; for trucks,
and country-specific policy developments, such as on data
EU tariff is 22% and U.S. tariff is 25%). EU leaders argue
protection, digital trade, and penalties for corporate tax
that the trade relationship is fair and mutually beneficial,
avoidance, some of which the United States sees as trade
observing, for example, that some EU auto companies have
barriers. On July 10, 2019, the USTR initiated a “Section
manufacturing facilities in the United States that support
301” investigation of France’s recently introduced digital
U.S jobs and exports. Most economists say that the U.S.
services tax, based on concerns that the tax will
merchandise trade deficit is due to macroeconomic
discriminate against U.S.-based technology companies.
variables rather than trade practices.
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U.S.-EU Trade and Economic Issues
Other developments may mitigate U.S.-EU frictions (see
The United States and EU each has its own constellation of
below).
FTAs—14 FTAs with 20 countries in force for the United
WTO and Multilateralism
States and over 40 trade agreements for the EU (see Figure
2). In the absence of a U.S.-EU FTA, U.S. businesses are
In the post-World War II era, the United States and EU
disadvantaged in the EU market relative to such trading
have led in developing and liberalizing the rules-based
partners as Canada, Japan, and Vietnam, with whom the EU
international trading system, thereby contributing to its
recently concluded FTAs. An FTA also could be significant
stability. EU officials are deeply troubled by the Trump
Administration’s
strategically in jointly shaping global “rules for the road”
skepticism of the WTO, its periodic
on new issues and, for instance, with respect to China.
threats to not abide by WTO decisions over trade disputes
that it finds contrary to U.S. interests and to withdraw the
Figure 2. U.S. and EU FTA Constellations
United States from the WTO, and its continuation of the
Obama Administration practice of blocking new
appointments to the WTO appellate body based on concerns
about the WTO Dispute Settlement (DS) process.
Yet, the United States and EU, along with many other WTO
members, are actively discussing potential WTO reform,
including changes to DS. In addition, among other things,
the United States continues to work through the
Organization for Economic Cooperation and Development
(OECD) on a multilateral agreement to address taxation
issues posed by the digital economy. Nevertheless, many in
the EU are concerned about a broader U.S. shift away from
international cooperation, citing, for instance, the U.S.

withdrawal from the 2015 nuclear deal with Iran. The
Source: CRS, based on U.S. and EU official trade data.
Trump Administration’s skepticism of the EU’s multilateral
Brexit
nature, which precludes bilateral U.S. trade agreements
The UK’s pending exit from the EU presents some
with individual EU member states, adds to frictions.
uncertainty for U.S.-EU economic relations. An EU without
U.S.-EU Trade Negotiations
the UK would remain the United States’ largest trading
The United States and EU trade on WTO most-favored-
partner, but the outcome of EU-UK negotiations on their
nation (MFN) terms, because there is no U.S.-EU free trade
future trade and economic relationship could affect U.S.
agreement (FTA) granting more preferential terms. U.S.
commerce. Many U.S. firms have a significant presence in
and EU tariffs are generally low (simple average MFN
the UK, and use the UK as a platform to access the EU
applied tariff was 3.5% for the United States and 5.2% for
market. Brexit also could have implications for U.S.
the EU), but high on some sensitive products. Some
commercial interests in terms of tariffs, customs
regulatory and other nontariff barriers also may raise
procedures, or regulatory requirements. The United States
trading costs.
and UK are interested in negotiating a bilateral FTA. While
an EU member, the UK cannot negotiate trade agreements
On October 16, 2018, the Trump Administration notified
with other countries, as the EU retains exclusive
Congress under Trade Promotion Authority (TPA) of new
competence over its trade policy.
broad-based U.S. trade agreement negotiations with the EU.
The Administration seeks a “fairer, more balanced” U.S.-
Issues for Congress
EU relationship. The TPA notification followed the July
Potential issues in U.S.-EU trade relations include:
2018 Joint Statement (agreed between President Trump and

European Commission President Jean-Claude Juncker) that
Historically, how have U.S.-EU trade relations bolstered the
U.S. economy and prosperity, or had negative implications?
aimed to de-escalate trade tensions. The negotiations have

not started formally, largely due to lack of U.S.-EU
How do recent U.S.-EU trade developments affect the U.S. and
global economy and the international trading system? What are
consensus on their scope. While U.S. negotiating objectives
the options to resolve current U.S.-EU trade frictions? Should
include agriculture, the EU mandate to negotiate on tariffs
the President’s authority under U.S. trade laws be modified?
excludes the sector. U.S.-EU differences also remain in

such areas as government procurement, digital trade,
What are the implications of the Administration linking Section
232 national security action to broader trade negotiations with
regulatory cooperation, and geographical indications (GIs).
the EU? How do U.S.-EU frictions affect potential cooperation
President Trump has threatened the EU repeatedly with
on economic issues of joint concern, such as regarding China?
tariffs, including over its exclusion of agriculture. The EU

asserts that it will stop negotiating if it is subject to new
What are the benefits and costs of further liberalizing U.S.-EU
trade—including through the proposed trade negotiations,
Section 232 tariffs.
ongoing regulatory cooperation, potential sector-specific tariff
Whether a U.S.-EU trade agreement, if concluded, would
liberalization, and potential multilateral trade liberalization?
meet congressional expectations or TPA negotiating
See CRS In Focus IF10931, U.S.-EU Trade and Economic
objectives and other requirements is unclear. Meanwhile,
Issues, by Shayerah Ilias Akhtar; and CRS Report R45745,
U.S.-EU sector-specific regulatory cooperation is ongoing,
Transatlantic Relations: U.S. Interests and Key Issues,
such as on pharmaceuticals. In August 2019, the two sides
coordinated by Kristin Archick.
concluded a new deal on greater market access for U.S.
beef exports to the EU.
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U.S.-EU Trade and Economic Issues

IF10931
Shayerah Ilias Akhtar, Specialist in International Trade
and Finance


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https://crsreports.congress.gov | IF10931 · VERSION 6 · UPDATED

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