U.S.-EU Trade Tensions: Causes, Consequences, and Possible Cures

The United States and the European Union (EU) share a large and mutually beneficial trade and investment relationship. Given a huge volume of commercial interactions, trade tensions and disputes are not unexpected. In the past, periodic episodes of rising trade tensions and even threats of a trade war have been followed by successful efforts at dispute settlement. This ebb and flow of trade tensions has occurred again this year with highly publicized disputes involving steel and tax breaks for U.S. exporters. Both disputes have been characterized by mutual feelings that the other side has taken actions that are unreasonable and inconsistent with the rules of the World Trade Organization (WTO). Moreover, both Washington and Brussels have played hardball in crafting retaliation lists aimed at influencing each other's domestic political process. While fears of an all-out trade war usually are exaggerated, the trade disputes may impede U.S.-EU cooperation in other areas. A number of ways have been suggested to diffuse current trade tensions including greater reliance on compensation as opposed to retaliation and greater emphasis on diplomatic as opposed to legalistic solutions to disputes. While potentially helpful, the fact that some of these high-profile disputes have been unresolved for decades suggests the difficulty of finding permanent solutions. Congress has a strong interest in these disputes and plays a significant legislative role, particularly on the export subsidy issue. This report will be updated as events warrant.