International Trade Forecast

The USMCA has been in the international trade spotlight lately, but the European Union is ready to take it next. The U.S. and the European Commission, the EU executive arm responsible for trade negotiations, have had ongoing discussions since 2018. The discussions have stemmed from the Trump Administration’s U.S. Section 232 tariffs on steel and aluminum and the EU retaliatory tariffs.

Article by Delanie Crist

Reaching trade agreements with China, Mexico and Canada have been at the forefront of trade negotiations since the Trump Administration set its sights on better trade policies. However, the Administration has been working on multiple international deals, and the European Union is taking the spotlight next.

The U.S. and the European Commission, the EU executive arm responsible for trade negotiations for the 28-nation bloc, have had ongoing discussions since 2018. The discussions have stemmed from the Trump Administration’s U.S. Section 232 tariffs on steel and aluminum and the EU retaliatory tariffs.

President Trump and European Commission President Jean-Claude Juncker met last July and reached an agreement, which includes four principles to negotiate freer, fairer and more reciprocal trade. This includes working toward zero tariffs, zero non-tariff barriers and zero subsidies; increasing United States energy exports to Europe; reducing bureaucratic obstacles and reforming the WTO; and addressing unfair trade practices.

The new trade talks will not revitalize the postponed Transatlantic Trade and Investment Partnership negotiations, and both presidents acknowledged their meeting was an initial conversation. Both pledged to uphold a spirit of agreement unless negotiations were terminated, and they set up an executive working group to carry out the agenda.

Weathering Delays

The European Commission has not obtained two required negotiating mandates from European Parliament to start formal trade talks with the U.S. France continues to hold out against mandates, and without them on board, the commission will not be able to start negotiations. The indecision indicates their parliament is already split on U.S. trade talks.

There are two issue topics already proving to be critical—autos and agriculture. Secretary-General of the European Commission Martin Selmayr insists agriculture will not be included in trade negotiations on the basis of biotechnology concerns. Meanwhile, the U.S. is preparing to impose tariffs on auto imports, and the EU is preparing a list of retaliatory tariffs worth $22.4 billion should they incur auto tariffs.

“It would be very harmful for our economy, it would be harmful for the global economy, and it would be harmful for the U.S. economy, because many cars are produced here in the U.S. with car parts from Europe,” European Trade Commissioner Cecilia Malmström said in a Bloomberg television interview on March 7, 2019.

In late March, U.S. Trade Representative Robert Lighthizer received a bipartisan letter insisting agriculture be included in the negotiations, and President Trump threatened tariffs on EU goods if barriers to farm commodities are not addressed. Lighthizer also appeared before the Senate and addressed trade inquiries during which he said the U.S. and EU are at a “complete stalemate” when it comes to including agriculture in trade negotiations.

Forecasting the Future

Current economic and political implications exist within both economies involved, and both will have to make internal decisions to move forward with discussions. The timing of trade discussions will be pivotal for both the U.S. and EU. President Trump has made a promise to help agriculture producers, and the current U.S. farm economy continues to face uncertainty as net farm income is diminishing while ongoing trade negations have disrupted other major export markets for commodities. Manufacturing in the EU is declining at the quickest pace in six years in addition to sluggish demand and increased emissions rules in the German auto industry. Brexit also continues to be in a deadlock, bringing financial and economic uncertainty within the EU.

According to the Office of the United States Trade Representative, U.S. and EU goods and services trade totaled nearly $1.1 trillion three years ago, and the EU accounted for almost 19 percent of overall U.S. exports in 2016. The EU is the fourth largest buyer of U.S. sorghum and ethanol and the seventh largest market overall for U.S. products. If an agreement is established and the EU eliminated tariff and non-tariff barriers on U.S. agriculture products, there could be billions of dollars in new exports to Europe, but challenges remain.

“It’s shocking to me to see the direction Europe is heading when it comes to the use of science and technology in agriculture,” USTR official Gregg Doud told the National Grain and Feed Association’s annual convention in March. “We can no longer let the EU get away with circulating a false narrative that EU agriculture is superior to the rest of the world.”

The U.S. and EU economies are two of the largest in the world. A bilateral trade deal could have global implications. For example, if the U.S. and EU strike an agreement, other trading partners, such as China, may be compelled to change their trade dealings, and it could spark interest in other bilateral deals. A bilateral deal between the two could even go beyond the scope of international trade and prompt combined efforts toward climate change, immigration, food aid and more.


This story originally appeared in the Spring 2019 Issue of Sorghum Grower magazine in the Capitol Hill department.