The Trade Numerologist: EU, US Try for Trade Deal
This column is based on data from Global Trade Atlas.
Last week, European Commission President Jean-Claude Juncker flew to Washington to cool a brewing trans-Atlantic trade war.
To recap: Earlier this year, the Trump administration slapped tariffs on imports of steel and aluminum from Europe. Brussels countered with duties on motorcycles, bourbon and blue jeans, among other headline-grabbing items.
Summer, it seems, is a time to make peace, at least for a while.
After a meeting, Juncker and President Trump said they had agreed to start talks to get rid of duties and subsidies and eliminate the steel and aluminum tariffs the US imposed earlier this year.
According to the deal, the EU will buy more natural gas and soybeans from the US. There will also be "dialogue to reduce differences on regulatory standards between the two economies," Trump said.
Although analysts pointed out that the EU would buy more soybeans and gas anyway, because both goods are cheap in the US right now, commerce secretary Wilbur Ross called the meeting "a real vindication of the President's trade policy."
The EU and US also said they would attempt to go through the World Trade Organization to resolve issues they have with China, such as intellectual-property theft and overproduction. The US had previously preferred to pursue such moves bilaterally.
Even though there was no timetable set to conclude the negotiations, corporate leaders and markets reacted favorably to the summit.
The meeting was Juncker's initiative, and it made sense. The US was Europe's top export market last year. One of the former Luxembourg prime minister's jobs is to keep it open.
Biggest EU export markets, 2017
- U.S. $412.9 billion
- China $220.1 billion
- Switzerland $164.4 billion
- Russia $95.5 billion
- Turkey $94.3 billion
- Japan $66.5 billion
- South Korea $55 billion
- Norway $54.5 billion
- UAE $47 billion
- India $45.7 billion
And EU imports from the US have been increasing, something many officials in Brussels desire.
EU imports from US, first 5 months
- 2013: $106.7 billion
- 2014: $113 billion
- 2015: $116 billion
- 2016: $117.5 billion
- 2017: $119.5 billion
- 2018: $131.3 billion
It makes sense for the EU to turn to the US. In an increasingly mercantilist world, it would rather do more business with a market economy than with China. And EU officials believe they're still too dependent on Beijing's powerhouse export machine.
Top exporters to EU, first 5 months, 2018
- China $184 billion
- US $131.3 billion
- Russia $73.8 billion
- Switzerland $53.7 billion
- Turkey $38.8 billion
- Japan $36.1 billion
- Norway $35.1 billion
- South Korea $25.3 billion
- India $23.9 billion
- Vietnam $18.7 billion
The US has been keen to ramp up its exports of natural gas, which have been increasing thanks to expanded shale gas production in places like Pennsylvania, Ohio and Texas. It's been building and expanding ports on the East coast and in the Gulf of Mexico.
EU imports of US oil gas, first 5 months
- 2013: $7.6 billion
- 2014: $9 billion
- 2015: $5.7 billion
- 2016: $4.3 billion
- 2017: $6.1 billion
- 2018: $9.7 billion
Juncker also said the EU would increase imports of soybeans from the US. The Trump administration is keen to secure markets for US soybean producers, which have been hurt by declining orders from Asia, especially China. Prices have fallen, and soybean shipments to the EU have declined this year. Buyers have been hesitant to place orders with the threat of tariffs looming.
EU imports of US soybeans, first 5 months
- 2013: 1.8 million tons
- 2014: 2.1 million tons
- 2015: 2.3 million tons
- 2016: 2.7 million tons
- 2017: 2.3 million tons
- 2018: 1.7 million tons
Trade observers had expected the EU to offer concessions. Brussels never wanted a fight. "A trade war has no winners," EU trade commissioner Cecilia Malmström said earlier this year.
There are three reasons that the US appeared to have the upper hand in negotiations with Europe.
One is that the top EU imports from the U.S. are pieces of major global corporate supply chains operated by multinational companies, like Airbus, Orano and Novo Nordisk, that have offices in Europe and plants in the U.S. Applying to tariffs to these kinds of products would hurt the bottom lines and stock market values of EU companies.
Top EU imports of U.S. products, 2017
- Gas turbines, and machinery $34.1 billion
- Pharmaceuticals $30.7 billion
- Aircraft parts $28.5 billion
- Medical, optical equipment $24.8 billion
- TV, sound, electric equipment $20.9 billion
- Oil and gas $17.1 billion
- Railway, tramway $12.3 billion
- Organic chemicals $11.3 billion
- Plastic $9.1 billion
- Gold, precious stones, jewelry $9 billion
A second is that Europe's average applied duty is 5.2%, compared to 3.5% for the U.S., in 2016, the last year on record, according to the World Trade Organization. The tariff on dairy was 37.4% in the EU, compared to 16% in the U.S. On animal products, it was 2.3% for Europe, 16.2% for the U.S. That means the EU is already keeping out a lot of goods, and, in negotiations, won't have as many markets it could threaten to close.
And, finally: The EU runs a huge trade surplus with the U.S., $130.1 billion in 2017. That's a deal Brussels needs to keep on the table.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
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