US President Donald Trump has hinted at possible retaliatory moves against the European Union over its “very unfair” trade policies.
“I’ve had a lot of problems with the European Union, and it may morph into something very big from that standpoint, from a trade standpoint,” he said in an interview with British broadcaster ITV aired on Sunday.
“The European Union has been very, very unfair to the United States. And I think it will turn out to be very much to their detriment,” he warned.
Trump has frequently accused other countries of having unfair trade policies with the US, and made withdrawing from the 12-nation Trans-Pacific Partnership one of his first moves in office.
The EU on Monday said it would react swiftly if the US moves to restrict its exports.
But Trump's criticism of the EU has confused some observers, who pointed to strong trade relations between the two sides.
According to IMF data from 2016, the US and EU are each other’s top export market and second source of imports after China.
So why could the president be taking issue with the EU’s trade policies, and are his concerns legitimate?
Deficits and cars
Experts told Euronews they believed trade deficits could be the cause of Trump’s gripe with EU policy.
“We know President Trump seems to associate a trade deficit with being taken advantage of,” said Maria Garcia, a senior lecturer at the University of Bath’s Department of Politics, Languages & International Studies, specialising in EU trade policy.
In recent years, the EU has had a small trade in services surplus with the US and had a surplus of around €115.3 billion in trade in goods in 2016, she explained.
Simon Evenett, professor of international trade and economic development at the University of St Gallen in Switzerland, agreed that deficits could be the cause of Trump’s complaints.
“He sees Germany selling more cars in the US as imbalanced and reckons there must be some dastardly German policy behind it. The fact that some Americans prefer high quality German cars eludes him.”
Evenett said there was “no golden rule in economics or in business that says the trade in each product between each pair of nations must be balanced,” and argued that deficits were being “used as a pretext for putting in place the protectionism that Trump Administration and its allies want to impose anyway.”
In his interview, Trump said it was “very, very tough” to get US products into the EU, while goods passed the other way with “very little taxes.”
Garcia said value-added tax (VAT) was one key area where EU and US policy differed.
VAT for sales within the EU ranges from 17 to 27 percent, but is not added to EU exports outside of the bloc.
“The idea is that those products/services would have VAT added where they are sold/consumed,” she explained by email.
However, the US has no federal VAT and some states have sale taxes ranging from just one to six percent.
While Garcia acknowledged that this could be construed as disadvantaging the US, she said it wasn’t set up to target any individual country but the result of EU funding requirements and member state tax choices.
“The tax system in the EU is very complex, as it is in the US—it’s arguable this complexity can make doing business (especially across borders) more costly in terms of having to file paperwork and learn procedures and rules.”
Experts cited regulations in the EU as another possible source of Trump’s criticism.
“The European market has a big regulatory framework determining the price of goods,” Inderjeet Parmar, professor of international politics at City University London, explained.
Parmar said Trump’s comments were likely an effort to ramp up pressure on the EU and get the message across that the US is “less willing to pay as a hegemonic power to subsidise other countries.”
Evenett said the US had long had concerns about barriers to exporting genetically modified foods and other key agricultural goods to Europe, where safety regimes differed.
However, he argued that outside of agriculture, both EU and US trade regimes are “generally liberal.”
Experts told Euronews that it was hard to see how the EU’s policies could be seen as “very unfair” on the US.
Parmar said he believed Trump’s remarks were intended to appeal to his “populist support base” and corporations seeking to do business on a global scale.
However, he noted that trade from both countries was “fundamental” and neither side would benefit from endangering it.
Evenett agreed, arguing that the potential issues Trump could be referring to were so minor that “picking a fight on trade policy amounts to succumbing to the narcissism of small differences.”