On August 2nd, the US and the EU announced a trade deal. The two parties have been locked in discussions since Jean–Claude Juncker and Donald Trump agreed to work towards a free trade agreement in 2018. But on Friday, the EU agreed to buy 45,000 tonnes more hormone–free beef from outside of the EU over the next seven years. Around 80% of this beef will come from the US. This was announced to cheers and celebrations all round, especially on the Trump campaign trail.
Agriculture has long been a bone of contention in US-EU trade negotiations, so what does this agreement tell us about what might happen next?
More than anything it tells us that negotiations are driven by politics rather than trade. The Trump administration needed a success after a week when its conflict with Beijing appeared to deepen. The deal with the EU on beef was one way of showing China that the US could do deals. However, it also tells us very little about trade negotiations or how they are likely to pan out the summer break, because trade in beef is important politically but in trade terms, means very little.
For example, non-EU trade in beef has been declining since 2012 at an annualised rate of over 6% for the US and for the rest of the world at around 3% annually. The US accounted for just over one–sixth of all imports of beef going into the EU market in 2018 with a value of approximately US$586.3mn. It is the US’s 59th largest sector in terms of exports to the EU and so it pales into insignificance compared with, say, the US$123.7bn that it exported in 2018 of machinery and components or the US$101.3bn in aerospace equipment. The gradual annualised increase of approximately 0.7% a year in imports of beef from outside the EU will be insufficient to correct the much bigger decline projected over the time period.
In other words, this is not an important sector for either party. The US, insofar as it ‘won’ in the current rhetorical war with the EU, can herald its victory to US farmers. The EU, in that it has ensured the beef is hormone–free, and given the time the deal will take in order to take effect, has not had to alter the overall level of imports at all in nominal value terms over the next few years.
The automotive sword of damocles continues to hang over the negotiations. The US imports around US$114bn in automotives from the EU, but exports just US$33.4bn to the EU. As he announced the deal on beef, President Trump joked that he would now impose tariffs on Mercedes coming into the country. To be sure that his words would not be misinterpreted, he said he was ‘only joking’, but, as the old adage says, there is many a true word spoken in jest, and it would be disingenuous to think that those longer–term issues have been taken off the table or that subsequent negotiations are going to be easy.
The EU has expressed its desire to work with the US on WTO reform, but the US is less interested in that – after all, it seeks agreements outside of WTO frameworks and will look at dispute settlement arrangements directly within the framework of the deals it strikes with other countries or blocs. For evidence of this, look no further than the fact that the WTO will not have sufficient judges to resolve disputes by the end of the year unless the US alters its position. This in itself will be an obstacle to any agreements being reached with the EU, which will not want to work outside of existing frameworks.
The French decision to impose taxes on US tech companies will also be a thorn in the side of US negotiators, and highlights the tensions that are inevitable in the coming months. Negotiations are going to focus on other types of agriculture, manufacturing, aerospace (where there are already tensions in the WTO with EU support in the past for Airbus), and of course, rebalancing the trade deficit in favour of the US and prioritising US national security. We can expect the European nations’ contribution to NATO to be part of the rhetoric around all of this.
The problem for Europe is this: While it has substantial influence currently in terms of its share of world trade, over a longer period of time, its position is relatively weak – it does not currently have a controlling presence in digital technologies or financial services and the US is a major ally and trade partner. As has already been shown with Iranian sanctions, it does not have sufficient power to give businesses the confidence to continue trading with Iran without breaching US secondary sanctions. The euro is not a strong enough trade currency, and its special purpose vehicle, Instex, is in its infancy. In the end, this is about US domestic and foreign policy and we would do well to remember that.
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