Trading across the Pond

Although the U.S.-China phase one agreement was signed on January 15, the past two weeks have really been weeks of Europe, not Asia, with the president and European leaders in Davos and EU trade commissioner Phil Hogan in the United States (and at CSIS). You could see this coming, since the president has made it clear to Ambassador Lighthizer that he wants him to prioritize trade agreements with the European Union and the United Kingdom this year. There is absolutely nothing wrong with that. Both are major trading partners, and the United States has been trying to negotiate trade issues with Europe for years, most recently via the Obama administration’s Transatlantic Trade and Investment Partnership (TTIP), which was intended to be a comprehensive free trade agreement.

TTIP foundered largely on European suspicions that it would amount to a giant regulatory downgrade for them as U.S. health, safety, and environment standards are regarded there as inferior to Europe’s. (U.S. trade activists were too busy opposing the Trans-Pacific Partnership at the time to pay much attention to Europe.) After the 2016 election, the new administration put it on the shelf both because of the EU’s lack of enthusiasm and, of course, because it was an Obama initiative, which meant it could not possibly be any good.

President Trump, however, is not ignoring Europe. Our deficit with the European Union will likely exceed $170 billion last year, which will be a record high and too large for him to pass over. The stage was set for a negotiation when he reached an agreement with then-Commission president Jean-Claude Juncker in July 2018. That was heralded as a breakthrough for about three days until everyone realized it did not include agriculture. That was exactly what Juncker wanted, and he artfully played the president to get it. The U.S. administration, immediately told by members of Congress that an agreement without agriculture would not be approved, has been trying to pivot ever since and get it in. The European Union, in contrast, has been reluctant to stop gloating about their success in keeping it out. The result has been an 18-month impasse.

Commissioner Hogan’s comments while here on January 16, followed by his more detailed comments back home the following week, appear to offer a way forward to at least begin talks. Essentially, he noted both that the EU negotiating mandate does include fish, which is sort of an agricultural product, and that he thought it would be useful to discuss regulatory cooperation as a way of reducing non-tariff barriers in agriculture. That is much less than our farm state representatives want, since they are focused on access to the EU market for commodity crops and meat in the short term, but Hogan correctly raises an issue that for years has been an important barrier to U.S. farm products getting into Europe (and, as Hogan said at CSIS, EU farm products getting into the United States). His comments also give me a golden opportunity to once again remind readers that it really is all about the chickens, as you no doubt are tired of hearing.

I would not dare to suggest anything is going to change anytime soon on chickens, but the fact remains that Hogan’s comments are a significant olive branch and a recognition that there is not going to be any progress on trade without opening the agriculture door. This only opens it a crack, but it is still progress that I hope will produce a favorable U.S. response.

In addition, the president’s comments about timing, as well as those of new Commission president Ursula von der Leyen on the same subject, have initiated a debate over how quickly talks can move—ironic since they haven’t officially started yet but still a good sign. Both leaders indicated a desire to move quickly but did not provide any details about how to do that. We learned in the TTIP talks that a comprehensive agreement will take a long time, if one can be reached at all. That suggests the leaders have something much more modest in mind, perhaps focused on a narrow range of tariff reductions, an approach President Trump appears to like, along with work already done on conformity assessments, and perhaps something on agriculture along the lines of Hogan’s suggestions.

On the one hand, that may not lead to that big a deal. If you look at our transatlantic trade, nine out of the top ten categories are the same in both directions. In other words, we sell a lot of the same stuff to each other (think aircraft, autos, optical and medical equipment, chemicals, and pharmaceuticals), and tariffs are fairly low in most of those categories, cars and trucks being an exception. Reducing those tariffs further would save both sides, and consumers, money and would promote trade, but it would not be a bonanza or produce a major change in our bilateral deficit.

On the other hand, it would be a significant step of reconciliation in an often-fraught trading relationship. It would be worth doing for that reason alone, and, of course, if the United States could take care of the Boeing-Airbus case; the digital services tax; and the steel, aluminum, and threatened auto tariffs at the same time, it would be a significant achievement actually worth bragging about in an election year, as opposed to some of the president’s other deals.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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