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EU Could be Next Trade War Target

Thursday, December 19, 2019
Sandler, Travis & Rosenberg Trade Report

Recent agreements resolving trade concerns with China, Canada, and Mexico could leave the U.S. free to expand its trade war to the European Union in 2020, U.S. Trade Representative Robert Lighthizer suggested this week. However, new EU leaders are moving to strengthen the bloc’s ability to respond to any U.S. offensive.

For more information, please contact trade consultant Nicole Bivens Collinson at (202) 730-4956.

Lighthizer said during a TV interview that the U.S. has “a very unbalanced” trade relationship with the EU, citing a bilateral trade deficit that could hit $180 billion for 2019. President Trump has said lowering the U.S. trade deficit is a key objective, and the deficit with the EU is typically the U.S.’ second-highest each month, about half that of China and twice that of Mexico. Trump recently concluded agreements that could bring down the U.S. trade deficits with those two partners, and Lighthizer asserted that “you can’t get the global trade deficit down without getting the trade deficit down with Europe.”

To do that, Lighthizer indicated that the U.S. will use the threat of higher import tariffs as it has with China. “There are a lot of barriers to trade” in the EU as well as “a lot of other problems we have to address,” he said, including figuring out “a way to sell more” to European countries. As part of that effort the U.S. will “continue to focus” on its utilization of tariffs on EU goods.

In October 2019 the U.S. hiked tariffs on more than 150 products from the EU an additional 25 percent in a long-running World Trade Organization dispute over aircraft production subsidies, and a further increase in those tariffs to 100 percent is under consideration as part of an effort to secure what Lighthizer called “some kind of negotiated solution.” The U.S. has also threatened a 25 percent increase in tariffs on EU automobiles and auto parts after determining that imports of such goods threaten U.S. national security. Lighthizer did not indicate whether other potential tariff increases could come as part of either of those initiatives or via a separate route, such as the broad new Section 301 investigation against the EU that some observers say the White House is considering.

In the meantime, the EU is preparing to strengthen its ability to counter any such U.S. moves. The European Commission recently created a new chief trade enforcement officer position, and new EU Trade Commissioner Phil Hogan has proposed to give the bloc more freedom to impose countermeasures “whenever our trade partners do not play by the rules,” an accusation frequently leveled against the Trump administration’s tariff increases.

Specifically, this proposal would eliminate the requirement that a dispute go all the way through WTO proceedings before the EU can respond with steps such as increasing tariffs or imposing quantitative restrictions or public procurement restrictions. The WTO Appellate Body recently lost its ability to hear cases due to a lack of sufficient judges, a situation largely attributed to Washington’s refusal to consider appointing new ones for the past several years, and Hogan said the EU “cannot afford being defenseless” in this situation.

The proposal could take effect by mid-2020 if it is approved by the European Parliament and European Council.

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