Updated August 28, 2019
U.S.-EU Trade and Economic Issues
Introduction
The United States and European Union (EU) are each
other’s largest trade and investment partners. Their ties are
deep, but some barriers to trade and investment remain.
Over the years, the two sides have sought to further
liberalize trade and investment ties, enhance regulatory
cooperation, and work together on international economic
issues of joint interest, including through international
institutions such as the World Trade Organization (WTO).
The trading relationship is largely harmonious, but frictions
emerge periodically due to the high level of commercial
activity and disagreements on specific policy issues. U.S.EU trade and economic relations face heightened tension
now due to shifts in certain U.S. trade policy approaches
under the Trump Administration.
Selected Issues
Trade Balance and Trade Practices
In 2018, the United States had an overall $115 billion trade
deficit in merchandise and services with the EU, as the
merchandise deficit ($170 billion) outweighed the services
surplus ($55 billion) (see Figure 1). Germany, at $69
billion, accounted for the fourth-largest U.S. bilateral
merchandise trade deficit, after China, Mexico, and Japan.
Figure 1. U.S. Trade with the EU
Trade Frictions
A major point of tension is the Trump Administration’s
focus on unilateral trade measures such as tariffs. In 2018,
the United States began applying tariffs of 25% and 10% on
certain imports of steel and aluminum, under the national
security-based “Section 232” trade law. The Administration
granted some countries exceptions to the tariffs, but not to
the EU. Despite the U.S. national security justification, the
EU views the U.S. tariffs to be inconsistent with WTO rules
on safeguard measures (which protect domestic industries
from rising imports). The EU, accounting for one-fifth of
U.S. steel imports and less than one-tenth of U.S. aluminum
imports in 2018, applied retaliatory tariffs of 10% to 25%
on about $3 billion of U.S. products (e.g., steel, whiskies,
beauty products, yachts, and motorcycles), and may apply a
second round of tariff increases in 2021. Both sides are now
pursuing cases in the WTO on the respective measures.
Another source of friction is potential Section 232 tariffs on
autos and auto parts. On May 17, 2019, the President
announced that a Commerce Department investigation
found that auto imports threaten to impair U.S. national
security, granting the President the authority to impose
import restrictions, including tariffs. The President directed
the U.S. Trade Representative (USTR) to negotiate with the
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.
Source: CRS, based on data from U.S. Bureau of Economic Analysis.
The causes and consequences of trade deficits are debated.
President Trump, who prioritizes reducing U.S. bilateral
trade deficits, blames EU trade policies, and particularly
those of Germany, for the U.S. merchandise trade deficit
with the EU. The President also 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%). EU leaders argue
that the trade relationship is fair and mutually beneficial,
observing, for example, that some EU auto companies have
manufacturing facilities in the United States that support
U.S jobs and exports. Most economists say that the U.S.
merchandise trade deficit is due to macroeconomic
variables rather than trade practices.
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
which they propose to impose countermeasure tariffs of
about $11 billion and $12 billion, respectively—the
estimated harm that each claims the other’s subsidies on its
respective domestic civil aircraft industry have caused the
other. A final WTO assessment is expected in summer 2019
on appropriate countermeasure value amounts.
The United States continues to monitor other EU overall
and country-specific policy developments, such as on data
protection, digital trade, and penalties for corporate tax
avoidance, some of which the United States sees as trade
barriers. On July 10, 2019, the USTR initiated a “Section
301” investigation of France’s recently introduced digital
services tax, based on concerns that the tax will
discriminate against U.S.-based technology companies.
https://crsreports.congress.gov
U.S.-EU Trade and Economic Issues
Other developments may mitigate U.S.-EU frictions (see
below).
WTO and Multilateralism
In the post-World War II era, the United States and EU
have led in developing and liberalizing the rules-based
international trading system, thereby contributing to its
stability. EU officials are deeply troubled by the Trump
Administration’s skepticism of the WTO, its periodic
threats to not abide by WTO decisions over trade disputes
that it finds contrary to U.S. interests and to withdraw the
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
Trump Administration’s skepticism of the EU’s multilateral
nature, which precludes bilateral U.S. trade agreements
with individual EU member states, adds to frictions.
U.S.-EU Trade Negotiations
The United States and EU trade on WTO most-favorednation (MFN) terms, because there is no U.S.-EU free trade
agreement (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), but high on some sensitive products. Some
regulatory and other nontariff barriers also may raise
trading costs.
On October 16, 2018, the Trump Administration notified
Congress under Trade Promotion Authority (TPA) of new
broad-based U.S. trade agreement negotiations with the EU.
The Administration seeks a “fairer, more balanced” U.S.EU relationship. The TPA notification followed the July
2018 Joint Statement (agreed between President Trump and
European Commission President Jean-Claude Juncker) that
aimed to de-escalate trade tensions. The negotiations have
not started formally, largely due to lack of U.S.-EU
consensus on their scope. While U.S. negotiating objectives
include agriculture, the EU mandate to negotiate on tariffs
excludes the sector. U.S.-EU differences also remain in
such areas as government procurement, digital trade,
regulatory cooperation, and geographical indications (GIs).
President Trump has threatened the EU repeatedly with
tariffs, including over its exclusion of agriculture. The EU
asserts that it will stop negotiating if it is subject to new
Section 232 tariffs.
Whether a U.S.-EU trade agreement, if concluded, would
meet congressional expectations or TPA negotiating
objectives and other requirements is unclear. Meanwhile,
U.S.-EU sector-specific regulatory cooperation is ongoing,
such as on pharmaceuticals. In August 2019, the two sides
concluded a new deal on greater market access for U.S.
beef exports to the EU.
The United States and EU each has its own constellation of
FTAs—14 FTAs with 20 countries in force for the United
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
disadvantaged in the EU market relative to such trading
partners as Canada, Japan, and Vietnam, with whom the EU
recently concluded FTAs. An FTA also could be significant
strategically in jointly shaping global “rules for the road”
on new issues and, for instance, with respect to China.
Figure 2. U.S. and EU FTA Constellations
Source: CRS, based on U.S. and EU official trade data.
Brexit
The UK’s pending exit from the EU presents some
uncertainty for U.S.-EU economic relations. An EU without
the UK would remain the United States’ largest trading
partner, but the outcome of EU-UK negotiations on their
future trade and economic relationship could affect U.S.
commerce. Many U.S. firms have a significant presence in
the UK, and use the UK as a platform to access the EU
market. Brexit also could have implications for U.S.
commercial interests in terms of tariffs, customs
procedures, or regulatory requirements. The United States
and UK are interested in negotiating a bilateral FTA. While
an EU member, the UK cannot negotiate trade agreements
with other countries, as the EU retains exclusive
competence over its trade policy.
Issues for Congress
Potential issues in U.S.-EU trade relations include:
Historically, how have U.S.-EU trade relations bolstered the
U.S. economy and prosperity, or had negative implications?
How do recent U.S.-EU trade developments affect the U.S. and
global economy and the international trading system? What are
the options to resolve current U.S.-EU trade frictions? Should
the President’s authority under U.S. trade laws be modified?
What are the implications of the Administration linking Section
232 national security action to broader trade negotiations with
the EU? How do U.S.-EU frictions affect potential cooperation
on economic issues of joint concern, such as regarding China?
What are the benefits and costs of further liberalizing U.S.-EU
trade—including through the proposed trade negotiations,
ongoing regulatory cooperation, potential sector-specific tariff
liberalization, and potential multilateral trade liberalization?
See CRS In Focus IF10931, U.S.-EU Trade and Economic
Issues, by Shayerah Ilias Akhtar; and CRS Report R45745,
Transatlantic Relations: U.S. Interests and Key Issues,
coordinated by Kristin Archick.
https://crsreports.congress.gov
U.S.-EU Trade and Economic Issues
IF10931
Shayerah Ilias Akhtar, Specialist in International Trade
and Finance
Disclaimer
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https://crsreports.congress.gov | IF10931 · VERSION 6 · UPDATED